In my life one lesson I learned is that there are three kinds of people:
1) those you trust
2) those you don’t trust
3) and those you can trust to f*ck you over
The WSJ, which is generally a fine publication, often is tripped up by the fact that their journalists are often myopic and even when they get the story right, they often miss the overall context. From the June 6 issue, here are two articles back to back, both good articles, but quite ironically placed.
The lower article is titled “Kremlin Seeks TNK-BP Detente”. British Petroleum (BP) is part of “a 50-50 venture with a group of Russian billionaires that is Russia’s No. 3 oil producer.” Per the article:
“People close to BP charge the Russians with trying to take effective control over the venture through pressure tactics, possibly ahead of a sale to a state-controlled company such as OAO Gazprom.”
There are many ways in which a gangster-state such as Russia can force their will on a foreign company. They can use the “law” (which they control) to generate adverse rulings, they can use customs to deny entry to key executives, or they can flat out threaten the lives of the foreign executives. If they are more clever, they can change the terms of the deal in ways that make it less and less economic (i.e., pay in rubles or dollars depending on the currency board, fail to pay needed bills, bring endless tax audits, etc…).
Once BP’s assets are built, on the ground, and running (with Russian personnel), BP’s leverage is very limited. The Russians are savvy enough to ensure that BP won’t engage in outright sabotage, so it is just a matter of time and pressure before BP sees the writing on the wall and capitulates, selling their assets for a fraction of their value to the crony-of-the-day or maybe straight to a government owned company. This is basically expropriation, and energy investments are very subject to this type of activity, especially if the local government and population has a reasonable degree of operating skill (i.e., in Russia this is a bigger risk than, say, the Congo).
Who could have seen that the Russians would “f*ck” over BP? Why, anyone who has picked up a single book on history or economics in the last century, perchance?
Like BP, the WSJ apparently hasn’t read a history book in the last century. The article immediately above is titled “Some European Energy Companies Look to Russia for Growth”.
“Several European companies are making big bets on Russia’s power sector, and hoping that a wide-ranging deregulation program will help their wagers pay off. Hunting for growth outside of stagnating Western European markets, Italy’s Enel SpA, Finland’s Fortum Oyj and Germany’s E.On AG and RWE AG have all invested hundreds of millions of Euros in the privatization of Russia’s electricity sector over the past year. Russia hopes that the sales will boost investment in new generating capacity to power Russia’s rapidly growing economy.”
The article goes on to describe that Russia needs power and how the power will be sold into the market, and the ability of generators’ to make a profit. The article fails to mention anywhere that ONCE THESE ASSETS ARE BUILT IT IS VERY LIKELY THAT THE RUSSIANS WILL CHANGE THE RULES TO ENSURE THAT THE WESTERN COMPANIES FAIL TO MAKE THE PROFITS THAT THEY PLAN ON EARNING.
Once again, not all investments in Russia are bad. If you are selling consumer or luxury goods, your risk is your inventory on hand, and you can just stop sending more. If you have a service, you can just scale back and bring back your staff. But if you are building an asset that will reside on Russian territory, and be run by Russians with local manpower, you can look at category #3 for the front of this post to determine your ultimate fate. It is the same fate that BP met, since your leverage, once built and running, is minimal.
I do find it profoundly ironic that these two articles appear, back to back on the SAME PAGE, with no one at the WSJ connecting the dots.
Cross posted at LITGM
Journalism doesn’t pay well. Most people who know business and see the angles have better professional options than journalism. The better financial journalists become specialists or consultants or go into industry or write books. Who does that leave to write articles like the ones you discuss?
You would of thought BP had heared of Shell and their Shakilin island project. I guess not.
Besides reporters, how about editors? And if this is the, ahem, quality at the WSJ, just imagine The New York Times.
The pity of it is that the WSJ is the only large scale paper left that is professional ;if anyone comes close let me know. The others don’t even go through the motions of honest reporting. Interesting too how how people fail to ask the most obvious questions.
Don’t imagine the NYTimes-you will enjoy that as much as imagining Bella Abzug in a Bikini.
In my experience, journalist are not very well educated. The essential skill of the journalist is getting people to talk to you. That is harder than it sounds but it doesn’t qualify a person to have an experts understanding of any randomly selected subject one gets assigned to.
I think the problem in business reporting especially acute. Who grows up wanting to be in business journalism? People end up in business journalism because they couldn’t get the high status political beat.
As for BP itself, I think it merely another case hubris. People who rise to the top of major corporations are very smart and used to outwitting others. They assume that because they can control events in a lawful environment that they can control events in a lawless one.
As my grandfather once observed, just because your tough doesn’t mean the snake won’t bite you.
In my experience, journalist are not very well educated. The essential skill of the journalist is getting people to talk to you. That is harder than it sounds but it doesn’t qualify a person to have an experts understanding of any randomly selected subject one gets assigned to.
Yeah. Also, the journalism profession has a bias against specialization, so you get people covering important issues who miss things and are easily manipulated, because they don’t know the field. Without expertise and the possibility of original analysis, journalists are left with “access” and gossip-mongering. The worst of these people, such as CNBC’s Maria Bartiromo and Charles Gasparino (who, BTW, used to and perhaps still does write for the WSJ), make their careers by serving as conduits for other people’s agendas.
I think that there are occupations where the people are systematically second-rate. In the case of big-media journalism this is due, IMO, to the fact that people with real expertise and/or analytical skills have much-better-paying options than MSM jobs, and also to the tendency of journalism executives and j-school professors to treat expertise and business experience as prima facie evidence of conflict of interest for journalists. (Of course, bloggers aren’t hamstrung by these constraints.)
Totally agree, very few journalists know very much about anything, including basic reporting skills the older generation learned on the graveyard police shift at City News. Add to that, many/most are pretty lazy and all are very high on themselves and think they know far more than they do.
Whenever I’m at a social function with media types, esp. editors or managers, I ask what, exactly, do they teach at J-schools. I usually get a dumb look and have to repeat the question. If I persist, I eventually get an answer that is laughable, risible, or meaningless.
Journalism, like P-12 education, is being ruined by a variety of things, but academic pretensions and credentialism are high on the list in both cases. Primary and secondary education would be far better served by bringing back the old normal schools, and journalism by an apprenticeship model (if there are any “master journalists” left, who could mentor apprentices) like the old City News. These are fields you should have a love for and learn by doing.
Carl, familiarity with 19 cent history might be problematic for internet generation. But then you’d expect them to be used to reading blogs, at the very least.
I don’t particularly follow the energy/oil/business blogs (as the professional journalist might), but as someone who reads this one, I anticipated this outcome, together with Tim Newman, way back in April…
There’s money to be made for reliable information smartly packaged. The current business models are obviously broken so the only thing left to figure out is who will crack the code and provide a viable alternative. It’s very unlikely to be any of the incumbents.
The risk that Russia would steal the property after BP invested was obvious from the moment the deal was conceived. The BP executives understood this risk. The value that BP brought to the project was the ability to get the crude to market. When the demand for oil put paid to BP’s sales lever then all that BP was left with was negotiating from weakness.
My problem with BP’s decision and Shell’s participation is these projects is that they did not seize a hostage to prevent this outcome. When dealing with rogue states is imperative that you have valuable hostages to ensure that the barbarians on the other side live up to the bargain.
MSM ad revenues are down double digits from the previous year and this thread shows why. We see how the best newspaper in this country gives no context to events in a robber state and then the viewership provides plenty of context on both Russia and journalism.Anyone reading this could save a bundle staying away from either.Good blogs connect the dots; the MSM is good for those who don’t care what they soak up.
I suspect the reason the two articles are together is because someone did “get it”. :-)