Gateway Pacific Terminal: Developing the Conflict

The promised analysis of loss/benefit flows:

Image compilation: Kathlyn Kinney

A strong showing of beneficiaries (on the right) explains why this situation is so hotly debated.

Interesting to look at are those actors which fall in the middle. The BNSF railway company will certainly realize profits from increased shipping needs, but may wind up cleaning the coal dust from their tracks (or risk derailments). Canada, it is said, will hardly notice the effect of competition because the demand for coal is so astronomical.

Noteworthy in this diagram is that many of the beneficiaries (from Goldman Sachs to Christine Gregoire) are those who can take their profit – or their vote – & slip quietly from the scene. The entities left to bear the enduring burden are such as the Lummi Nation, the salmon population, and the atmosphere (along with, incidentally, everyone who breathes it).

If a Venn diagram were drawn of the long-term benefits and losses, it would likely show a migration from right to left, as actors even such as the US realize they have fallen behind in the wake of shortsighted gain.

Alyssa Mehl commented on the 49% ownership of SSA Marine by Goldman Sachs mentioned earlier. This is not inherently a bad thing. A well-endowed investment firm puts forward the funds to move a major project forward. They reap a portion of the rewards and are therefore able to invest more.

An illustrative diagram came up in last week’s discussion about how the economy should work versus how it does work:

Without money flowing downward there would be no wages, and without money flowing upward to the “big guys” there could be no massive investment in worthwhile projects. In a sense, the system works. Regardless, a constant policy battle embitters these two factions.

For perspective on why this might be, see “Some Are More Unequal Than Others” by Joseph Stiglitz, brought up in Norm Becker’s “The Cost of Inequality”.

This begs the question: are the people at the bottom of the pyramid any better equipped to make decisions regarding proper investment than the people at the top? There is varying evidence either way. Right now in Bellingham, two picket sign campaigns wage war. On one side, “NO COAL PORT”, “POWER PAST COAL”, “Another Family Against Coal” – and on the other, “GOOD JOBS NOW”. (It took me some time to realize that this last sign pertained to the Gateway Pacific Terminal. It’s tempting to put out a modified “DIRTY JOBS NOW”.) The immediacy of the demand in this last one is telling. It’s altogether possible that ordinary people are just as (if not more) concerned about the short-term and the bottom dollar as the investment firms.

Image compilation: Kathlyn Kinney

I personally believe investment is the key to our sustainable future. If I were to write the definition of sustainability, it would be: “The ability & incentive to direct current resources toward future benefits.” Large investment firms play an incredibly vital role in this. They simply must invest in the right direction.

Unfortunately, the current trend sees investment pouring into “proven” sectors, some that exacerbate environmental or social welfare issues, and many that represent dying industries. What do I mean when I say this? Coal certainly does not seem to be a “dying industry”. It is, in fact, doing remarkably well. What I mean is that it is based on a finite resource that will become increasingly difficult and dangerous to extract. It will grow obsolete as the world moves toward cleaner energy infrastructure. It is based not on continuous innovation, but continued reliance on a dwindling reserve. In short, it defies the first law of The Natural Step:

“In a sustainable society, nature is not subject to systematically increasing concentrations of substances extracted from the Earth’s crust.”

So, turning to the question: Is this good for the economy? What happens when we have what looks to be essentially infinite demand (in the case of China) for a finite resource? Let’s take a look at the supply and demand curve:

OK, now let’s zoom out to get a better picture:

Notice that the demand curve is high, but not inelastic. I have every reason to believe that consumption of coal by Chinese markets is in fact influenced by the price of coal. Cheap energy fuels inefficient infrastructure. The opposite – expensive energy – requires more compact and resource-sensitive development. China is right now in its rapid-development phase. The built infrastructure is not yet in place. Therefore the costs and delays of rebuilding an inefficient system do not apply. Imagine someone considering the purchase of an energy-efficient vehicle. This is a much different decision for someone buying their first car than for someone who already owns a perfectly good gas-guzzler.

This does mean, however, as the Chinese decide whether to build “coal-guzzling” cities, that the price of coal now will determine the demand for coal for many years to come.

So, what if the supply curve, as we can see, shifts outwards? This is the effective result of pumping more coal through the Bellingham port. Price drops. For each unit of coal produced out of the remaining supply, the mining industry earns less than if they held out over a longer period of time.

There are a few poignant reasons why this logic has not taken hold in the real world. For one, while the world market price for coal may increase due to Montana and Wyoming’s restraint, Wyoming and Montana would likely find themselves out-competed for profits. This partially explains the collapse of the OPEC oil cartel after 1981 (Goodwin, N. Microeconomics in Context. 2^nd ed. 2009. p. 106). Coal is a fairly undifferentiated good, leaving individual players like the US relatively powerless, and yet paradoxically responsible.

The anti-coal coalition is fighting, in effect, a market-driven move toward a higher-production equilibrium – Adam Smith’s invisible hand at work. I liken it to the sale of cigarettes or soda-pop on a global level – just because money can buy it does not mean the market should supply it. Here we see perhaps the most glaringly uncomfortable flaw of capitalism: investments made for profit do not inherently enhance the wellbeing of the world.