The AP is reporting on a Goldman Sachs study that shows that the U.S. commands fewer global energy companies than 16 years prior. This article, while making very legitimate points, amounts to a “sky-is-falling” document from Goldman to stoke the conservative base of customers that it is soliciting (and not very level-headed). I take issue with this article on many fronts.
Declining “share”:
At the end of the first Gulf War in 1991, 55 percent of the 20 largest companies in the energy industry by market capitalization were American, and 45 percent were European, according to the Goldman Sachs Group Inc. study.
But in 2007, 35 percent of the 20 largest energy companies are from BRIC countries, about 35 percent are European, and about 30 percent are American, the study said.
This is a bit of a farcical evaluation for three reasons:
1. BRIC nations and Europe are not unified bodies. Those two groups represent more than 25 nations. So you could also look at the report and say that the U.S. still maintains a “controlling stake” (if that was even an important metric) in the global energy industry.
2. The data is presented in such a way that indicates a fixed pie of opportunity. It didn’t say that the pie got bigger through adding the BRIC and other developing nations. It implies that we are losing share to them rather than the rising tide is lifting all boats.
3. The notion of a company belonging to a country is a bit of an antithesis to the globalization process that they are a part of. BP is as much an American company as any other, even though it is based in London. Energy is a global commodity and each company has interests in the development of all world markets. It ought not matter if they are in Europe, the U.S., or Brazil. What should matter, however, is that the governments of these nations understand and embrace that their nations’ futures are interlinked and take actions to support this relationship, not to damage it.
Missed opportunity:
It is already evident in the insurance business, where BRICs account for about 10 percent of the top 20 companies, and in the global beverage industry, where the new economic powers are just starting to show with about 5 percent. Ling predicted the BRICs would soon be moving into the food and pharmaceutical sectors.
If investors and corporations don’t take the growing power of the BRICs in the global economy into account, he warned, they will lose out on investment growth and competitive advantage for their companies.
This is also a bit of a myopic argument. But this article seems to indicate that if you aren’t investing in another market that you’re missing an opportunity. While that’s true in a narrow sense, the real impact of the development of other nations is that there are many more opportunities created. Investors can be creative in “playing” these developments to meet their investment goals. One need not be scared into thinking “if you’re not in Brazil, you’re behind”. Case-in-point, buying shares in ExxonMobil (if you can tolerate their lax renewables efforts) would be a great investment given the rise in global demand for oil products. This is an “American” company with growth driven by global demand for their products. In short: you’re smarter than what this article is touting. Think before you invest.
“Falling Behind”:
Another factor, Ling said, is the declining number of petroleum engineers in the U.S., especially compared with the Middle East, India, China and Russia, where “being a petroleum engineer is still a highly sought after job relative to going into technology or finance.”
This notion that the U.S. is falling behind somehow, particularly with engineer development, is more complex of an issue (that is a bit personal to me). The U.S. is graduating fewer engineers mostly because the prospect of being one is really bad. Many people don’t really address the issue that engineering as a profession in the U.S. is really a bad deal for young people. Which would you rather be when you’re 22:
a) A consultant for Accenture living in downtown Chicago making $75K /yr.
b) A chemical engineer in Garyville, Louisiana (population 740) at a specialty chemicals plant making $50/yr.
I chose the latter and it was really sucky. My Accenture friends were happier and richer. Even though I love engineering, there’s no reason to do it. The money jobs right now are in investment banking, private equity, or consulting. I have seen hundreds of job postings in the last six months for some great jobs and almost all of them are looking for this experience – not engineering (in fact, I’ve been told that I’m too big of a risk to hire because I haven’t been a consultant, only a plant engineer prior to business school). So it comes down to a matter of incentives, and there is very little incentive to be an engineer in the U.S. That’s the situation – I don’t know that it’s a problem (the real problem is our unfair immigration policies that is forcing out/preventing entrance to some really great people).
What isn’t being said is that there are some really great engineers in this countries doing some really innovative work (I’ve noted some of these developments on this blog). But those are in new, growing industries like biotech and nanofabrication. No really good engineer who wants to stay an engineer is going to go work in an Exxon plant. But these new industries are coming on strong and this article dismisses this part of the reality.
In short, this article/study makes a point. But it is also deceptive in its arguments. Be smarter than this. You’re not missing out on anything – the game’s just starting.
