Five & One: April 2, 2011

    Logo by Nina Lincoff / North by Northwestern

    This quarter, North by Northwestern is hosting weekly columns from Politics & Policy, a new undergraduate publication with a focus on — you guessed it — politics and policy at local, state, national and international levels. Five & One breaks down what news to read — and what news to ignore.

    5. TEPCO’s future uncertain

    According to analysts at Bank of America-Merrill Lynch, the Tokyo Electric Power Company (TEPCO) could face compensation claims of up to $133 billion, based on the reasonable assumption that the ongoing nuclear crisis will continue for two years. TEPCO owns and operates the Fukushima Daiichi nuclear power plant which was badly damaged during last month’s earthquake and tsunami; the resulting reactor meltdowns and leakage of radioactive material have displaced 70,000 residents and incapacitated the local agriculture-based economy.

    In light of TEPCO’s troubles, Japanese officials announced Friday that the government will take control of the company and inject public funds. Officials have denied plans for nationalization, but the importance of TEPCO, the largest electric company in Asia and supplier of a third of Japan’s electricity, suggests that the Japanese government will do whatever is necessary to backstop the company.

    The implications of a possible nationalization include the international complications inherent in the Japanese government controlling operations of a company with investments across the world, as well as the problem of exposing the government to the TEPCO’s liabilities following the nuclear crisis.

    4. GE pays no corporate taxes, leaves opening for tax reform

    As state debts continue to increase, governors and local leaders are looking to cut spending and raise funds anywhere they can including from corporations such as GE and Exxon. After an exposé by the New York Times uncovered that GE pays exactly no corporate taxes due to the structure of their profits and various write-offs, there have been widespread calls for a rehaul of the arguably complex and impenetrable tax code. With constant demands from both sides, the right has mainly leveled their complaints against the high corporate tax rate, while those on the left decry the nearly ten thousand tax breaks and incentives companies often take advantage of to pay little to no actual taxes.

    Last year, Sen. Ron Wyden (D-OR) and then-Sen. Judd Gregg (R-NH) introduced the Bipartisan Tax Fairness and Simplification Act in hopes of reconciling the desires of both sides. By eliminating many of the tax benefits that often aid narrow interest groups, the corporate tax rate would be reduced to 24 percent and allow the government to maintain a stable revenue stream. Combined with repeated calls from the Obama administration for a renewed look at the tax code, the bill has given many hope that the time may finally be ripe for reform.

    3. Mayor Emanuel weighs cutting number of aldermen in half

    Newly elected Chicago mayor Rahm Emanuel, has wasted no time putting forth ideas to fix the budget crisis that Chicago is currently facing. Perhaps the most noteworthy, because of its political sensitivity, is the proposal to halve the number of aldermen from the current 50 to 25. This move could free up city budget space by eliminating salaries and administrative costs, and will also bring Chicago more into line with other large cities, such as Houston and Los Angeles, which have city councils much smaller than 50. While still speculative, this plan has gained support from civic leaders and even some aldermen.

    Of course, this move affects more than just the budget; it could potentially be seen as a power-grab by a new mayor who wants a favorable council to pass his priorities. Emanuel, who convincingly won the election without a runoff and without much of the traditional support from the aldermen, is looking to break away from the legacy of the two Daley mayors who preceded him. Some aldermen will likely oppose the consolidation, as half of them would lose their jobs. However, the outcome may not be in their hands — any change to the structure of the city council must derive from the Illinois General Assembly or a binding referendum approved by the voters of Chicago. The outcome of this idea is far from settled.

    2. AT&T and T-Mobile merge

    AT&T’s announcement of a $39 billion deal to acquire T-Mobile USA last week has prompted dual anti-trust reviews from the FCC and the Justice Department, disapproval from some consumer advocates and opposition from third-place carrier Sprint. On Monday, Sprint officially announced its position with a press release that alleged that the acquisition, if approved by regulators, would result in “duopoly control over the wireless market” between already-dominant AT&T and Verizon Wireless.

    The fight to influence the regulators’ decision is sure to be heated and its outcome is anything but certain. On the one hand, the move will likely benefit consumers in the short term, largely because the coverage area for current AT&T and T-Mobile subscribers will expand considerably. Additionally, AT&T has stated that they are willing to divest significant assets in order to achieve regulatory approval; that is, AT&T is willing to give up some spectrum and move out of regional markets in order to alleviate concerns about anti-competitiveness.

    Consumers, however, could suffer in the long term, with higher prices and reduced selection of plans and phones. Furthermore, mergers and acquisitions in the wireless industry are particularly anti-competitive because the barrier to entry for new companies is especially high; in addition to significant capital requirements, there are also limited licenses and spectrum available.

    1. French see opportunities in intervention

    As control of the coalition in Libya moves to NATO, examining the countries heavily supporting the operation can be insightful. For example, France has been one of the most enthusiastic participants, the first nation to recognize the rebel government and first to attack the Qadhafi regime, hours after the UN resolution supporting intervention was passed.

    One reason for this enthusiasm is that France hopes to score a PR victory with the Muslim world. France was heavily embarrassed by its aloofness on Tunisia during protests there. France’s foreign minister at the time even suggested French support for training Tunisian police in anti-riot techniques. Actions in Libya may signal French desire to repair their image, both abroad and among the many young North Africans who live in France. Another reason is that the situation in Libya offers an opportunity for French President Nicholas Sarkozy, who is currently unpopular at home and facing a general election in 2012. Military success abroad could bolster his image at the polls and could reinvigorate public support for his administration.


    0. Portugal, Greece downgraded by S&P

    This past week, Standard & Poor’s downgraded Portugal’s debt to BBB-/A-3, the company’s lowest investment-grade rating. The agency justified its move by stating that the long-term growth prospects for the country, as well as the large amounts of debt the government already has on its books, were together enough cause for concern. The move comes as sovereign debt investors are already unsettled amidst a still deteriorating financial situation among select European countries, particularly Portugal.

    This credit downgrade is a non-event however, as the trends S&P highlighted have been well-known for months and are already reflected in the spread on Portuguese debt. As opposed to the evaluation of individual companies, when a country’s debt is downgraded, it is usually after triggering trends or events that have occurred some time before. Indeed, European finance ministers have met extensively over the past few months and agreed to create a permanent bailout fund before this downgrade. Furthermore, investors in Portuguese debt were already aware that Portuguese bonds were risky, and therefore tended to be investors with a bigger risk-appetite.


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