Better than Sliced Bread?

A rock pile ceases to be a rock pile the moment a single man contemplates it, bearing within him the image of a cathedral.

– Antoine de Saint-Exupery

In 1910, you sliced bread at home, crookedly, with a knife. Fortunately, inventor Otto Rohwedder saw a bread loaf as Saint-Exupery saw a rock pile. Rohwedder imagined a bread-slicing machine in 1910 and commenced to build one. Seven years in, he saw a fire destroy his startup factory, but his dream persisted. Finally, on July 7, 1928, the Chillicothe Baking Co. became the world’s first bakery to offer Rohwedder’s machine-sliced bread. As you know, the craze swept the country.

Rohwedder’s Mac-Roh Sales and Mfg. bread slicer – a disruptive technology to bakers who didn’t own one – transformed a common commodity into a sought-after necessity.

It happened with computer-cut signs in the ‘90s and more so, lately, with the ever-rising acceptance of digital printing.

Sirius XM satellite radio is presently experiencing disruptive-technology damage from iPhones. It has lost more then 400,000 customers (who would rather plug and play their iPhones) this year.

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Sirius XM, apparently, didn’t see iPhones coming.

In his book, The Innovator’s Dilemma, Harvard Business School associate professor Clayton M. Christenson writes that good management is the most powerful reason companies fail to stay atop their industry. He quotes Sears as a classic example. Until recently, and although impeccably managed, Sears failed to see and embrace the big-box-store trend.

Christenson wrote, “It’s precisely because such firms listen to their customers, [and] invest aggressively in new technologies that bring their customers more and better products of the sort they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that provided the best returns, they lost their position of leadership” (my italics).

Christenson said many, widely accepted principals are only situationally appropriate. He said you shouldn’t always listen to your customers. And, it’s okay for businesses to invest in developing lower-performance products that promise lower margins. He also assured readers that it’s acceptable to pursue small, rather than substantial, markets.

Business owners, in hard times, are often advised to explore innovative ideas and revenue sources, but they also need to search for unidentified liabilities, such as disruptive technologies and, today, disruptive economics.

One such disruptive economic factor may be the American Clean Energy and Security Act of 2009 (ACES), aka the Waxman-Markey comprehensive energy bill (HR 2454). Congressmen Henry A. Waxman (D-CA) and Edward J. Markey (D-MA) presented the bill. A congressional report said ACES is, “…a cap-and-trade global-warming reduction plan designed to reduce economy-wide greenhouse gas emissions 17% by 2020.”

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The bill’s other provisions include “new renewable requirements for utilities, studies and incentives regarding new carbon capture and sequestration technologies, energy-efficiency incentives for homes and buildings, and grants for green jobs, among other things.”

Cap and trade, one method governments can use to control pollution, is essentially an emissions-trading system. The “cap” is the governing body limit on emissions for certain types of businesses. Once the cap is set, the body issues permits, known as “credits” or “allowances,” which determine that firm’s emission levels, that is, the “cap limit.” The company has marketable rights to pollute to its annual cap limit.

Initially, the cap permits are free (to certain sectors), but, because of limited distribution, all immediately become valuable. The cap limit reduces over time, to 83% by 2020.

A firm that can’t conform and must, to operate, exceed its limit can either reduce pollution (via “green” methods or lessening production) or buy “credits” from companies who, for assorted reasons, pollute under their limit. That cap and funds transfer is the “trade.”

An affected company may also invest in carbon-trading “offsets”, such as pollution-reduction, methane-capture plants.

The present National Budget Proposal indicates that auctioning the cap rights would raise approximately two-thirds of a trillion dollars. The budget presently includes provisions to spend $115 billion of that yet-to-be gained money on green energy projects and refundable tax credits.

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The Congressional Budget Office (CBO) has reported that ACES will add a $175 per year increase, per household in 10 years (2020), when the cap limits drops to 83%.

A Heritage Foundation study said ACES would cost the economy $161 billion in 2020, which, it said, is $1,870 for a family of four.

Texas Governor Rick Perry and others have said the ACES bill could amount to the single, largest, tax increase in U.S. history.

A copyrighted, Wall Street Journal editorial, on June 26, said the bill would impose crushing costs on businesses and consumers. It said the CBO estimate is a one-year snapshot and doesn’t look at the bill’s tougher (and advancing) restrictions dates. It said tightening future cap rules, and fewer offset opportunities, will skyrocket permit prices, and consumers will pay these additional costs.

The editorial describes GDP damage as an additional ACES-caused threat. It said the bill’s intent appears to simply hike the price of gas and electricity, so Americans will use less, but this, the WSJ writers said, will cause repercussions – reduced consumer spending that triggers manufacturing cutbacks, meaning fewer jobs and higher unemployment. It also predicted some companies would move their operations to overseas countries that have fewer restrictions.

Others worry that ACES revenues will be spent today and not be available for future generations to spend on their energy problems.

An alternative concept, a year-to-year, energy-tax plan, allows future generations, now burdened with our economy-saving spending, to apply annually earned monies to their specific needs.