Friday, November 1, 2019

Business and Politics - "Hell, I don't know any Demmy-crats!"

There has always been corruption in politics, but today it seems it has risen to new levels.

Back when I was an eager young Patent Attorney, circa 1990-something, I wrote a Patent Application for a nice guy from Texas who was in the pager business.  You may not recall this, but before we had smart phones, or even flip-phones with texting, a cell phone was a largely analog device that transmitted and received voice calls only.

Pagers were used before then to alert people - usually important people like doctors and such - that they were needed somewhere.  Pagers came down in cost, to the point where I even had one in college, which was probably an unnecessary expense.  But at that age, you have to have all the electronic toys - much to the distress of your pocketbook,

Anyway, this guy had invented a two-way paging system, which worked like a primitive texting device.  And I wrote the Patent Application for it.  In today's patent troll world, that Patent - had it been granted - could have been used against anyone who offered texting features on their smart phones.  Patents last 17 to 20 years, so, if granted in 1993, it would have been enforceable well into the smartphone era.

I say "had it been granted" as the applicant abandoned the case after a first office action which indicated allowable subject matter (as I recall).  I called up the applicant to give him the good news.  He said, "Let it go - abandon the application!"  And when I asked why, he said that in order to make the invention work, he needed frequencies assigned to him by the FCC.  And since he was a big Bush supporter, he thought this would be likely to happen.  But in a stunning upset, Bill Clinton ousted an incumbent President and was headed for the White House.

"Hell, I don't know any Demmy-crats!" he said, in his charming West Texas drawl, not realizing he was talking to one on the phone.  "No way I'll get those frequencies now!"

I was kind of shocked that his business model was predicated, in part, on political connections, and that the merits of his FCC license application were based on which political party he donated to.  Perhaps I should not have been so naive.  We let the case go abandoned and I sort of filed that incident away in my brain under "interesting shit that happened."

Well, fast-forward three decades or thereabouts, and the US government is for sale more than ever before.   Whatever pretense of fair play and objectivity has been tossed out the door.  Even the Patent Board of Appeals has been accused of favoring big business over small ones. We always prided ourselves in being objective and neutral at the USPTO, but apparently that has changed, in the zeal to stamp out the aforementioned Patent Trolls.

But this story isn't about Patents, it's about auto makers and the fight over emissions rules.  President Trump promised to roll back regulations that allowed California to establish its own emissions rules - a policy that was enacted under Nixon (along with the creation of the EPA), to help eliminate smog in Los Angeles and outlying areas.  Some other States have adopted California's standards.  Now, at first blush, this seems like an awkward standard to apply - to have one standard for one State, and another standard for another State.   After all, we all breathe the same air, right?

For car makers, it means making each car in two flavors - California emissions compliant and what was called "49 State" emissions compliant.   And in the early days, it was a pain-in-the-ass to certify for California, and as a result, if you lived there, your car choices were limited, as the automakers would decide to certify only one or two engines in the product line, for that State, in order to save money.   It would save everyone a lot of hassle and money if all 50 States had the same emissions rules.  Better yet, if the whole planet did - but good luck getting two-stroke Tuk-Tuks in Asia to go green.

So, one would think the automakers would embrace a change in the rules to make them uniform across all 50 States. One would think.  After all, when I was at GMI in 1979, the company bristled against these rules, and in a pre-fuel injection era, trying to meet these standards with carburetors resulted in cars that got horrible gas mileage and ran like shit. Just to recap - as I have covered this before - the early attempts at emissions controls were crude to say the least.  Compression ratios were lowered, which decreased engine efficiency. So engines were made larger to compensate, further decreasing gas mileage. Worse yet, carburetors were set to run extra rich, and then an Air Injection Reaction pump was used to pump air into the exhaust manifold, where unburned hydrocarbons would burn, turning the manifold red hot and raising engine temperatures from the traditional 180 degrees to well over 200 - and wasting yet more gas in the process.  Cars back then got mileage in the low double digits, sometimes the single digits!  And they had no power and knocked like crazy.

Fuel injection, scientifically metering the air/fuel mixture to the optimal stoichiometric ratio, reduced emissions and increased efficiency and horsepower.  With modern catalytic converters and Exhaust Gas Recirculation (to reduce oxides of nitrogen) a new era of horsepower and efficiency was born.  These are the good old days, not 1968.  Back then, it was considered amazing if a 350 cubic inch (5.7 L) engine generated 350 horsepower.  Today, you can go down to the Chevy, Dodge, or Ford dealer and buy a car off the showroom floor, with over 300 HP - from a V-6!   If you want to pay extra, you can get over 600, even 700 horsepower - numbers that were unheard of in the "good old days."  My new (used) truck generates 365 Horsepower from a 3.5 liter V-6 with twin turbochargers - and gets gas mileage in the mid-20's. This sort of thing was only dreamed of - or deemed a wild fantasy - back in the days of bias-ply tires, AM radios, and four-wheel drum brakes.  The next time someone drones on about how great carburetors are and how wonderful the "good old days" of the 1960's were, just punch them in the face.

So in a weird turnabout, the car makers are sort of "meh" about rescinding emissions rules or even freezing gas mileage rules.  They've got this covered already, and in fact, have been tooling up for the new emissions and mileage standards for some time now.  Not only are US emissions standards an issue, but worldwide emissions standards.  Every automaker is scrambling to add electric vehicles to their lineup - and autonomous vehicles as well.  They don't want to be left behind - again - when the market changes and they don't.

In Fremont California lies the Tesla plant.  Before electric cars were made there, it was a joint venture between GM and Toyota called NUMMI or "New United Motors". They made Corollas and Geo Prisms (the same car) and later, the Toyota Martrix and Pontiac Vibe (ditto).   But before then, in the 1970's, when it was a GM plant, they made Cadillac Sevilles, because, you know, that's the sort of car Californians want to buy. A famous apocryphal story was passed around GM about that time, of some executive form Detroit berating a California zone office manager with the quip, "When are people in California going to come to their senses and stop buying these silly little Japanese cars?" The message was clear, the product wasn't wrong, the customer was.   But in this instance, the customer was right - and voted with their pocketbook.  GM went from 60% market share to the fraction it has today.

And no car maker wants to be left behind when the sea changes again. Whether this is smart planning or not, remains to be seen.  The autonomous car seems to be delayed again and again, as real-world testing of these devices illustrate some limitations and flaws that need to be fixed - and that takes time to remedy.  Even electric cars seem to be losing momentum - the supply of lithium, once felt to limit electric car implementation, is so far outpacing demand for electric cars, which is slackening in places like China.

All that being said, automakers have invested a lot in technology - and in buying carbon credits. Supposedly, GM is sitting on billions of dollars of such credits, purchased from the likes of Tesla, which they hope to use to offset the sales of big, profitable pickup trucks.  If the emissions or mileage rules are loosened, this "investment" will be worth nothing.  So it comes as a surprise to the Trump administration, that proposals to freeze mileage standards and eliminate California emissions standards are met with a yawn in Detroit - if not outright hostile opposition.

The Trump administration threw in the towel - for the time being - on freezing mileage standards, after a tepid response from industry.  A guy who was elected on a platform of eliminating regulations finds that industry isn't all that concerned about them. The average local redneck, on the other hand, is convinced that onerous regulations are stifling productivity and sending his job overseas - so he votes for Trump. The reality is, of course, that going on strike for six weeks and paying only 3% of your health care expenses (and trying to run the company by dictating to management which products should be made, in which plants) is more to blame.

But the local redneck doesn't want to blame himself, of course, he wants to externalize, and when it comes to externalization, the Federal Government is everyone's favorite whipping boy.  If only they would just cut regulations!  Pay off my student loans!  Make college free!  Pay me $1000 a month!  Why bother trying to improve your life, when you can just pine for impossible social change, instead?   As the Russian revolution illustrates, sometimes when these changes actually occur, they don't work out as people expected - millions of people, in fact, killed off in the name of progress.  But I digress.

The point is, the Trump administration is in a bind - they were elected on these promises to undo regulations, and here is the industry most affected by these regulations saying, "Gee, thanks but no thanks!"  How do you get these companies to toe the party line?  After all, you can't get re-elected after you've failed to abolish Obamacare, only built a few miles of an easily climbable new wall, and haven't seriously deregulated anything (other than the education department).  What to do?

Well, taking a page from The Art of the Deal, you blackmail them. Yes, his former adviser, old Roy Cohn would be proud of what Trump has done. Basically, the administration called up the automakers, and in a Ukranian-Phone-Call kind of way, basically said, "play ball or else!" and the "or else" was an anti-trust suit brought by the Justice department. And the tactic worked, at least in part, as some companies fell in line behind the Trump administration and are now backing the proposed rule changes.

But I believe such capitulation may be short-sighted.  Toyota is one of the companies that changed sides, and its reputation as a green, eco-friendly car maker might be at stake.  The Toyota Prius is the best-selling car in California.  If word gets out that Toyota is playing ball with Trump, people will set fire to their Priuses. Well, not really, as that would pollute even more, and of course, half of California is on fire right now, and deemed "unlivable" -  at least according to alarmist pieces in The Atlantic (the authors of which have apparently never visited any part of that State outside of LA and San Francisco).   Will Californians boycott Toyota over this - or merely slap "TRUMP!" stickers on the back of their Priuses?  Stay tuned.

Why is this trend disturbing?  And why is this worse than my Patent applicant who wanted to use his donor influence to be granted an FCC license?  Well, in part because it is flipping the narrative on corruption in government.  We expect people to petition the government for redress, whether it is to cure a social injustice, or for personal gain.  We are not too surprised when someone donates a lot of money to a candidate, and ends up playing golf with them, once elected, and oh-by-the-way asks about the status of their petition before some regulatory agency. Maybe it is unseemly, but it is human nature to seek advantage.

What Trump has done here is something entirely different. He is enacting rule changes that he believes are in the best interests of the industry being regulated, even if the industry in question is quite happy with existing, more restrictive regulations. And out of a fit of pique, he is forcing these companies - under threat of legal action or possible tariffs or other retaliatory action - to back his proposal.   He is using the levers of government as a cudgel to force companies to do his bidding.  How long before he starts doing this to individuals?  How long before donating to a political campaign isn't something you do to seek favor from an elected official but something you do to avoid retaliation?

The distinction is critical.   Before he resigned in disgrace, Richard Nixon was called into account for trying to use the IRS as a weapon to punish his adversaries - by having the IRS audit his "enemies" on his "enemies list".  Thankfully, the IRS remained independent and refused to comply. Now, granted, an IRS audit isn't the end of the world - if you didn't cheat the government by failing to report income, the worst that can happen is that maybe a deduction or two is not recognized, and you have to pay back taxes and interest.  But it is inconvenient - and could cost you some money if you have to hire an accountant to assist you. Such actions smack of totalitarianism, where the government harasses and hounds those who disagree with the party line.

And that, in short, is what disturbs me here.  Regulations should be value-neutral, but I am not too shocked that someone would donate to a candidate with the expectation of some favorable consideration in return. That is corruption. But an elected official punishing companies or individuals who fail to all in line?

That is tyranny.