Nuclear Politicians

Yesterday my wife and I were out for lunch, and she was enthusiastically telling me about the fine work her marketing students are doing. Her students are examining many companies that have an entrepreneurial culture. In every case, these companies have found consumer needs that were going unfilled; and they built their company by satisfying those needs.

The conversation turned to business people who instead of satisfying needs turn to government for subsidies. My wife responded, “I don’t call those individuals businessmen, I call them politicians. If a business does not have to meet the test of the marketplace, those who run the business are not businessmen.”

I thought of nuclear power. One of the biggest misconceptions in contemporary America is that nuclear power is a safe, cost-efficient form of energy that would flourish in the free market if it were not hampered by environmentalists and overzealous government regulators. Nothing could be further from the truth. In the absence of government regulations and subsidies, the nuclear power industry would not exist at all.  My 1984 Cato Institute study explains why.

The Price-Anderson Act places a cap on damages that a nuclear power plant operator will incur should the plant have an accident. In other words, for over fifty years the government has introduced the same type of systemic risk into the nuclear power industry that we have seen in financial industry. The industry gets the rewards; the rest of us absorb the risks.

The single best judge of the safety of nuclear power plants is the insurance industry. The insurance industry has an incentive to properly assess risks as they determine appropriate premiums. If they overestimate the risk involved in an activity, their premiums will be too high; a competing company will take their underwriting business away. If they underestimate the risk, they make their shareholders vulnerable to huge losses. Thus, when determining the risk of nuclear power, insurers have an incentive to listen to all voices and all scientists on all sides of the issue.

The bottom line is that the insurance industry says that nuclear power is unsafe. This is demonstrated through their unwillingness to sell operators of nuclear power plants anything more than a small fraction of the insurance they would need in the event of a major accident. Absent adequate insurance, the financial markets would simply not accept the risk of holding the stocks or bonds of a nuclear power utility.  In its wisdom, the marketplace has judged nuclear power to be unsafe.

My Cato Institute study explains why the proponents of nuclear power, who understood this, sought the protection of the Price-Anderson act all the way back in the 1950s:

Consider the following statements from the 1956 and 1957 hearings on the then-proposed Price-Anderson amendment.

A vice president of Westinghouse, Charles Weaver, stated: “Obviously we cannot risk the financial stability of our company for a relatively small project no matter how important it is to the country’s reactor development effort, if could result in a major liability in relation to our assets.”

In further testimony Weaver indicated that even Westinghouse’s suppliers were unwilling to go ahead with the contract unless Westinghouse agreed to indemnify them against risks. General Electric also indicated during the hearings it was prepared to halt its work in the nuclear industry should a limitation on liability not be passed. Suppliers of reactor shields also indicated their unwillingness “to undertake contracts in this field without being relieved of uninsurable liability in some way.”

There are of course other reasons why nuclear power would not exist without the umbrella of government. We are seeing in Japan that the storage problem of spent fuel rods has never been properly addressed. The same spent fuel rod problem exists in the United States too, with, according to the Los Angles Times, “about 65,000 tons of the material spread from the East Coast to the West Coast and from the northern woods to Mexican-border states.”

General Electric designed the Fukushima Daiichi nuclear plant.  According to the New York Times “G.E. began making the Mark 1 boiling-water reactors in the 1960s, marketing them as cheaper and easier to build — in part because they used a comparatively smaller and less expensive containment structure.” Early on the risks were clear: “In 1972, Stephen H. Hanauer, then a safety official with the Atomic Energy Commission, recommended that the Mark 1 system be discontinued because it presented unacceptable safety risks.”

So who are the nuclear politicians? They include all those who believe they are smarter than the collective wisdom of the marketplace. In his State of the Union address in 2010, President Obama called for “building a new generation of safe, clean nuclear power plants in this country.” Despite their professed claims of support for the free market, Republican politicians join him in their own pro-nuclear madness. Presidential hopeful Newt Gingrich advocates, “We should also create a streamlined regulatory and tax regime for the creation of more nuclear power plants.” 2012 Front runner Mitt Romney wrote, “I confess that I don’t understand why some environmental activists still consider nuclear power such a bogeyman.” House Speaker John Boehner maintains, “Nuclear energy in the 21st Century is the safest, cleanest source of energy you can find.”

But, it is also important to list the nuclear politicians that may not be so obvious. For decades, the leadership at General Electric has acted on the belief that it is important for General Electric to earn profits by selling nuclear reactors. General Electric’s legendary CEO Jack Welch, lionized by many, led the way for approximately two decades. Fortune magazine named Welch “manager of the century” in 1999.

In a free market—pursuing and earning profits is necessary for the good of both the firm and its consumers. In a free market, earned profits are a signal that a firm is utilizing resources in a way that satisfies the most urgent needs of its customers. Thus in a free market, firms and consumers happily share the same interests.

Of course, markets are often not free. When a firm or an industry seeks privileges and subsidies from government, they are operating outside of a free market—their interests and the interests of the consumers are divorced. Instead of having an entrepreneurial culture that stands the market test by serving its customers, the firm thrives by having a political culture where success is measured by the latest government subsidy.

One way to put an end to this destructive behavior is for the public to see that true business leaders are entrepreneurial heroes; they are not mere politicians. Why lionize someone like Jack Welch? Isn’t it better to shun or ignore those who choose to harm rather than to serve?

Perhaps you think those are harsh words. Jack Welch and other nuclear politicians may never have dreamt that in a first-world capitalist society, like Japan, a nuclear accident would be so catastrophic.  Perhaps so, but they consciously chose to override the wisdom of the marketplace by their support of government interventions like the Price-Anderson Act. They chose to earn profits by using the coercive power of government against consumers. Ask the people in Japan about the consequences of their conduct.

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4 Responses to Nuclear Politicians

  1. Dan Robinson says:

    I highly recommend Barry’s book the Inner-Work of Leadership. It gets to the core of and illuminates what true leadership is, how to develop it, and by extension empowers the readers to ask the tough questions of themselves and those who lead us.

    Both the nuclear power industry and politicians are toxic if allowed to perpetuate their existence based on 30 second sound bites. As connected concerned citizens in the next and future election cycles, let’s make sure we ask the following question to any and all running for public office: “What is your leadership philosophy and what inner work insights on leadership could you share with us?” Their answers will be highly informative as we compare what they say to what they’ve done. We can then begin the process of accountability that we and this nation deserve.

    I personally demonstrated against the building of the Seabrook Nuclear power plant in the 70’s. I thought it was in the wrong place (ocean front), the cost to produce the plant and the power would be exorbitant, and the waste would be a hazard for millennia. Seemed like a no brainer to me. One of the early nuclear power industry’s slogans was “power so cheap it wouldn’t be worth metering.” I was skeptical and it turns out for a reason. Initial cost estimates of Seabrook Plant were 2 reactors for 1.5 billion dollars; because of cost overruns and regulatory requirements, in the end we got (stuck with) 1 reactor at a cost of 7 billion dollars. New Hampshire has paid dearly for over 3 decades with one of the highest electric rates in the country. Now in 2011, with Japan experiencing heavy damage and radiologic fallout, old nuclear power issues and decisions and possible vulnerabilities are revisited. As mentioned, neither political party has been willing to lead on the issue of spent nuclear fuel long term storage. Over 6 decades of stalling! I’ve obviously been disappointed and project that onto today’s discussion. Having read Inner-Work of Leadership I don’t dwell on disappointment but am empowered to do the inner work to lead in the future.

    Barry’s informative book is a gift to us. It is an intellectual template to change ourselves, recognize genuine leadership, and therefore be able to intelligently navigate the future political landscape. We can make a difference by challenging the status quo. With issues like potential nuclear vulnerabilities, and government subsidies to the nuclear industry our very lives may depend on it.

  2. Mike L. says:

    Although I would like to see the U.S. Tax code lowered and simplified, it irritates me to watch General Electric pay 0% in income taxes due in large part to their “Green” subsidies and tax credits. When the GE CEO is also serving as the President’s job czar, something is definitely rotten in Denmark.

    I’m a little torn on this subject. If energy from fossil fuels creates too many negative externalities and energy from wind/solar/geothermal is sporadic at best, what are the alternatives? People need to drive their cars and heat their homes. It seems that if the government did not place liability caps on offshore drilling and nuclear power, than we might begin to see: $10/gallon gas; rolling blackouts; mass deforestation; and possibly the breakdown of our economy and society.

    • Thanks, Mike. In England back in the 1600s the country was becoming deforested with charcoal being the primary fuel. What an unlikely place for the industrial revolution! Who solved their energy problem? Not government, not subsidies! My point is that no one could have predicted a steam engine powered by coke.

      So we rely on the faith that the human beings unfettered and unsubsidized will create. That faith is waning in America and the consequences will continue to be tragic.

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