VW emissions scandal

posted in: Economics, Entrepreneurship, Tech | 3

The purpose of this article is not deliberately playing devil’s advocate, however, not jumping on hysterical bandwagons frequently looks like devil’s advocacy.

The entire planet knows that Volkswagen got caught cheating on emissions. On the face of it, this is a tremendous hit for the company.

(Then again, PR-wise, they recovered from Hitler, so transiently displeasing a few technologically clueless hippies shouldn’t be worse.)

Now, we can all agree that cheating is bad. Mmkay? However…

  • VW is one of the most technologically advanced carmakers on the planet.
  • Cheating on tests is super dangerous.
  • German companies are not known for reckless, hotshot cowboy ways. The archetypal character of a German top manager is a straight-laced, even boring accountant type (with the faintest of nazi leanings), serious and respectable to a fault.
  • Therefore, cheating was an option of last resort that they wouldn’t risk unless absolutely necessary.
  • It was absolutely necessary.

Why was it necessary? Because emissions regulation abandoned all pretense of consideration for laws of physics five iterations ago.

The scandal, to me, doesn’t look like a tale of corporate dishonesty, but of people trying to do their jobs in the face of absurd rules – a situation many, many people here in post-communist Europe can understand. (As well as the people in still-communist South America, and worryingly pre-communist USA and EU).

And one more thing. If VW, with their Star Trek technology, had to cheat to meet the limits, you can bet your perfectly shaped ass that everybody else is doing it too. So why was VW targeted specifically and preferentially? And why exactly do we have regulation nobody on the planet can meet without cheating?

A couple of reasons:

  1. Bureaucrats are prone to consider laws of physics arbitrarily negotiable constructs, subject to political will and regulatory authority. Sadly for their brazenly communist ways, a way was not yet found for legislating chemistry out of existence.
  2. Regulatory capture by pressure groups, both ideological and economic (with the former typically being arms of the latter).
  3. A private sector forced into perpetual breach of rules is open to arbitrary rent extraction and favoritism.
  4. Modern trade wars are disguised as consumer and environmental protection.

It is significant that the scandal erupted in the US. American regulators are notorious for being extensions of US economic interests, as European banks found out.

Before anyone starts burning American flags, European regulators are doing the same to US tech companies.

Starting with the fattest cows, after banks and tech companies, it is now carmakers’ turn, starting with VW (but there will be others). The next industry up for a shakedown will be pharmaceuticals – I make this prediction publicly, so that you can check my record in the future.

A grammatical error, in fact a brilliant freudian slip in a communique by the Chinese government that instead of “rule of law” said “rule by law”, says it all. “The law” is no longer an objective overarching structure that circumscribes the power of elected and unelected officials – it is merely another tool at their disposal. Yet this is the basic difference between dictatorship and, well, rule of law.

Every industry (that I know of) is regulated by idealogues who haven’t the faintest inkling about the realities of what they’re trying to control, controlled by vested interests that buy them to raise barriers to entry and protect oligopolistic pricing power, presided over by protectionist politicians.

When a tech startup tries to do something actually innovative in Europe, lawsuits ensue and bureaucracies ride out in force to protect the violent gangs of illiterate chlamydia-ridden Morrocan drug addicts operating the subsidiary of ISIS known as the Parisian taxi cartel.

The reason Europe has no Silicon Valley is because it would be illegal.

Scandals like this are the result of normal people trying to cope with ill-will, capricious regulation that can not work in this physical universe.

Consider this comment under a great article on The Economist by user Ohio:

“TE is right about opacity and the complexity of the law and the regulatory state. If there are so many different laws and regulations that no business or individual can know or avoid violating them all, regulators and attorneys general become arbitrary tax collectors, deciding which laws to enforce and which to overlook, who to shake down and who to favor. The rule of law is deeply undermined. Further damage to the rule of law occurs if the law enforcement agency or regulator is allowed to keep the fines collected, as is often the case.

Speaking from personal experience, OSHA (safety regulators) is engaged on a years-long process of visiting oil and chemical plants one at a time. A team arrives, they find hundreds of little violations to their thousands of rules, ignore hundreds more that are equally evident, and present you with a hefty bill. There is always an implied threat that if you do not accept the bill and pay it, they will go hunting for more peccadillos, which they are sure to find.

Is that simply a shakedown? It sure feels like one. I know it doesn’t improve safety significantly. The violations are not for unsafe acts or processes, they are for not preparing paperwork for inspection exactly as OSHA specifies. A visit by an OSHA team feels a lot more like a visit by a roving tax collector than from a team that has any concern for safety. Let me be clear — I’m all for criminal and civil penalties when a business allows something unsafe to happen. These regulatory penalties for not following bureaucratic rules are very different.”

So I ask again, is it more plausible that one of the world’s most technologically advanced companies would risk its reputation for no good reason? Or that the regulations were designed to be impossible, and to place industry at the mercy of bureaucrats, themselves up for grabs by the highest bidder and/or national interest?

The specific ratio of bad faith to incompetence of the regulators isn’t nearly as important as the principled fact that huge established German companies don’t ordinarily risk reputations without excellent reasons.

In the time it took to compile a bunch of chaotic notes into this mostly coherent text, Renault got caught too (for reasons that naturally have nothing to do with Citroën being any less guilty). Everybody is doing it. This will become obvious, and by degrees, it will stop being the carmakers’ scandal and become the regulators’ scandal, who have set limits that contradict laws of physics to appease hippies and gain leverage/extract bribes from industry.

Add to that the fact that regulatory agencies are famous hives of resentment and reflexive anti-corporatism, with officials openly hostile to the industries they’re supposed to be helping work better, and often deeply psychologically threatened by the idea of private enterprise on principle (i.e. anal retentives terrified of the autonomy and initiative of other people and feeling a visceral compulsion to “rein it in”), and it’s a pretty fucking toxic mix.

It is a rare and long overdue window into the dysfunctional relationship of governments, regulators and industry, where public sector incompetence and conflict of interest is far more dangerous and far more frequent than any “reckless greed” of the private sector.

This has likewise been my massive experience in pharmaceuticals and finance.

Besides American protectionism (or alongside it), an alternative explanation of the scandal is an inside coup by Porsche (which in the past repeatedly tried to take over VW), an endeavor that is greatly assisted by the inevitable management shakeup and 50 % drop in share price. Which is why I put 10 % of my entire savings into Porsche stock in September. Stock tips are tricky business, but that shit will almost certainly double within a year. Even if it doesn’t, a 5% dividend is tolerable.

Meanwhile, Porsche’s boss was appointed Volkswagen’s new CEO.

The only other explanation besides American protectionism and Porsche’s scheming, and sadly the most common one, is a hopelessly naive image of a world where governments and regulators are angelic protectors and enlightened stewards, always acting in good faith, on the best available science and in the public’s best interest.

That’s a world I haven’t lived in since realizing there is no tooth fairy.

Instead of going on witch-hunts when it becomes politically convenient to publicly dress someone down, we should keep in mind it could be you or your employer next time, and start asking whether our supposed employees and protectors in the public sector – public servants – are really working in good faith, and in our best interest.

Or as my friend says: “Everyone wants what’s best for you. Don’t let them take it.”

Yes, VW cheated. That was the effect. However, the proximate cause of the scandal is regulation that nobody can satisfy without cheating, and the ultimate cause is the political decision that:

  • Diesel is a clean fuel suitable for cars, which it never was. Diesel is an inferior fraction of crude oil, suitable to power trains, generators and ships. But not cars. People with any kind of technical knowledge knew and said that from the start, but were shouted down amidst the general flag waving, ex-offo world saving mood. The ecomentalists characteristically changed their minds a few years later, but not before skewing the entire regulatory and tax landscape and forcing millions of people into bad choices. Then they washed their hands over the whole matter and moved on, assuming (unfortunately correctly) that everybody else will be on the hook to clean up their mess.
  • Cancer-causing particulates and openly toxic NOx were a smaller problem than a negligible dent in the emissions of carbon dioxide, when even the most conservative climate projections say that immediately stopping all use of fossil fuels wouldn’t make a measurable difference for several centuries.


Meanwhile, China doesn’t give a fuck.

If our elites were bought off to sabotage domestic industry, it wouldn’t look much different. But I think they’re just stupid.

It is a scandal alright.

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