Discounting the discount rate…how can we value a sustainable future?

“We are made wise not by the recollection of our past, but by the responsibility for our future.”
George Bernard Shaw

A bird in the hand…

We know that a bird in the hand is worth two in the bush. The adage worksBird-in-the-hand well, and it makes sense for a hunter-gatherer, but does it also hold true for a globalised species seeking a sustainable future?

Under some circumstances might the bird in the hand actually be worth less than a larger number of birds which are potentially available but currently out of reach?

Does the value proposition change at four birds in the bush, at six, or at ten?

How do we value something we could have against what we have already?

Such questions abound as we focus upon on of the most fundamental challenges to the achievement of a sustainable and prosperous future; the lack of a functional economic mechanism to help us positively value the future.
Our financial measures predominantly focus upon the value of the immediate. There is of course a certain logic to valuing today more highly than we value next week or beyond – the present actually exists (for the sake of argument) whilst next week is only a logical probability. In any case, even if we could be sure that next week will exist, we have no idea what might happen between now and then, what new technologies would transform the opportunities we might have to catch birds/make bird substitutes/change our dependency upon birds etc.

Discounting our chances for a sustainable future

A consideration of future value is a key part of any investment decision, financial planning or accounting process. An amount of money in your hand can be considered as definitely real (in as much as money is ever real) whereas money in the future is always considered to be less valuable as it is far more notional and conditional upon circumstances. This is referred to in terms of the discount that future value would have when set against its value now (net present value).

The mechanism for calculating this reduction of value over time is the discount rate. A seemingly innocent and rational accounting technique, the discount rate is perhaps the most significant reason why we find it so hard to invest in a sustainable future.
Some approaches exist which allow us to value future outcomes, yet each is substantially constrained by the deadening effect of the discount rate.
Cost benefit analysis, for instance, is the main vehicle for assessing the likely financial outcomes of different courses of action. It was used by Lord Stern to calculate that the costs of a transition to a lower carbon economy were a fraction of those of dealing with the implications of unconstrained climate change.

Logical? Sort of…

Discounting future value makes a great deal of sense for many things but it also projects a restraint on forward planning that restricts adequate investment in sustainable change.
Like so many aspects of economics and accounting, it is intensely logical (and useful) within a very specific frame of reference. If that frame of reference shifts, then logic would dictate a re-consideration of its utility.
The frame of reference for the discount rate has definitively shifted.

From discounting to compounding – our route to a sustainable future

Economics, finance and accounting may not have developed mechanisms to compound value over time (as noted, because the future doesn’t exist yet). However, it’s conceivable to imagine a social and economic architecture that would innately involve an ability to compound the future.

There a couple of possible ways to increase future value and therefore encourage behaviour which pays off over the long term, these are:

1. For there to be a purpose to capitalism…
This solution is exquisitely easy to express, though perhaps rather harder to achieve. We need to introduce a long term purpose for economic activity. In addition to being financially and personally worthwhile for individuals to participate, economic activity should make a manifest contribution to the achievement of:

  • Healthy and thriving ecosystems.
  • A global human population of 9 billion capable citizens.

With these goals in place, it would be relatively easy to compound value, to judge behaviour by its contribution to these goals, asking the question ‘are these activities likely to achieve or to undermine our sustainable destination?’

Just as investors currently (in theory) assess the likelihood of a company achieving its stated aims and value them accordingly, so this could done in the context of a shared long-term goal.

2. Long money and short money – changing the rules of money

This refers to ideas which either change the conception of money itself (I have previously suggested that thermodynamic performance, abundance, contribution to natural capital and balanced social interdependence are good suggestions to add to the current basic elements of scarcity, supply and demand) or which alter the rules that are applied to money.

One such approach to the rules of money would be to create “Long money” and “Short money”. Short money would have a use by date and be spent on day-to-day things, Long money would be more suited to infrastructure investment and projects with a long term or common-good payoff.

The mechanism for creating such distinctions exists, it is called demurrage, it is a reverse interest rate and refers to a cost levied for holding or owning money for a given period. Applying demurrage universally would naturally discourage people and organisations from sitting on money, and encourage its circulation or investment as Long money which would be inherently more useful for the common good.

A practical example of this type of thinking is in the area of alternative currencies, which have been used in reality across the world in order to achieve a range of rather amazing things. A pioneer of alternative currencies is Bernard Lietaer, his books and websites give a number of incredibly inspiring and creative examples as to how alternative money can change the world and in many cases already has.

We meant to save our civilisation but didn’t have a budget code for the work…

The discount rate dominates and dictates an unsustainable future because, surprisingly or not, humanity doesn’t have a plan. As a species we are old enough, and dangerous enough, not to be blundering around without a destination and a plan by which to get there.
A common direction is not dictatorship, communism or even collectivism, it is simply an intention to survive, and perhaps even to thrive over the coming decades.

Our current mode of capitalism is no less collectivist than what I propose – it defines shared modes of behaviour, measurement, legality and value – however current capitalism lacks a definable and constructive plan for the prosperity of our species or planet over the long term. This is an issue which is manifestly worth addressing as it is clear that the demand is there: most of humanity is keen to ensure a viable and successful future for themselves and their loved ones.

LIkewise, our conceptions of the meaning and purpose of money are no more fixed in stone or incapable of change than any other systems (though they may have more inertia). Money is a tool, a means by which we signify value and facilitate exchange. Valuing the long term success of our species should certainly be worth something and perhaps it is time we considered the role that our means of exchange could have in achieving that success.

The forthcoming challenges of sustainability should spur our action, so that we might design ways to overcome the barrier of the discount rate and work towards building a greater future value than our limited financial mechanisms currently allow us to conceive.

“This is the first age that’s ever paid much attention to the future, which is a little ironic since we may not have one.”
Arthur C. Clarke

This post was also published by 2Degrees on 3/10/14 and by Sustainable Brands on 13/10/2014.

Entropic Valuation – energy economics as if thermodynamics mattered

The constitution of the universe

“Everything you are, and have, you owe to the radiations from your sun.”

Chocky (John Wyndam)

 

The Laws of Thermodynamics provably frame and shape our scopeeverything we have...

for existence, yet they are effectively ignored by economic policy and process.

The first and second laws of thermodynamics are sometimes called the “constitution of the universe”. They describe the fundamental physical principles of the behaviour of energy. The 1st Law refers to change in energy states, the 2nd Law to energy dispersal, which can be expressed as follows: “energy of all kinds in our material world disperses or spreads out if it is not hindered from doing so.

To use a metaphor, energy is like water, it only moves in one direction: towards dispersal (energy) or downhill (water). However, not all water moves downhill at the same speed, just as not all energy flows from concentrated to dispersed forms at the same rate.

The measure of the dispersal predicted by the 2nd law is entropy. As entropy applies without exception to all energetic processes, it can provide a common metric to measure the lifetime performance of different energy sources.

Why isn’t overall thermodynamic performance part of energy economics?

Despite recent advances in renewable production, fossil fuels still make up more than 80% of our planet’s energy use. There are some good, practical reasons why coal, oil and natural gas (CONG) dominate supply in the global economy. Most significantly, CONG provide concentrated, transportable sources of utilisable energy.

However, this ease of use distracts us from their lifetime energetic (entropic) performance: that is, how efficiently they capture, store and render the sun’s energy over their lifetime.

We tend to think of CONG as energy itself, but this is not accurate. They are storage media for concentrated solar energy which was aggregated by photosynthesis in prehistoric vegetation and then subjected to nearly 100 million years of geological process. In conceptual and literal terms they are natural batteries, comparable to a lithium ion battery storing energy derived from solar PV.

The Sun is the original source of almost all energy, arguably excepting nuclear, geothermal and tidal. This common origin provides the opportunity to derive like-for-like comparisons of energy sources.

Comparing the entropic performance of energy sources provides us with a way of assessing and therefore pricing the total efficiency of a wide range of energy sources. This could be called ‘entropic valuation’.

Why entropic valuation matters

Entropic valuation is a means to compare the total energetic efficiency of solar derived energy sources, it considers: “How many solar kilojoules (kJ) have gone into this storage media in order to obtain 1 kJ of usable energy from it?” This ratio can then be used to assign a nominal price to the results.

If common solar origin is considered for a range of energy types then a very different picture of value and efficiency emerges. For example, if we consider the conversion of solar kilojoules into usable kilojoules, then solar PV is circa 100,000 times more efficient than oil.

This may be technically correct, but what difference does it actually make? After all, while CONG includes many million years of investment, we don’t pay for that time and can simply reap the benefits of its existence. However, there are compelling reasons to explore the real total energetic (entropic) performance of different energy sources.

Benjamin Franklin wrote that “the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things”.

The false estimates that we make of the value of fossil fuels blinds us to the challenges which arise from their use. Beyond the pollution impacts of burning irreplaceable stored energy, the belief that fossil fuel energetically outcompetes other sources of energy has lead to distorted markets and incentives to pursue resources that are ever harder to exploit.

Projects such as Carbon Tracker have begun to highlight the extent of the problem, calculating that only 20-40% of carbon assets held by listed companies could be burnt without exceeding global warming of 2°C. Yet the worth currently assigned to these assets can only be realised if they are used. In our current industrial model this would be a onetime use: valuable in the short term, but catastrophic in both planetary and financial terms in the future.

Applying entropic valuation to differing solar derived energy sources reveals that fossil fuels carry sunshine at a much lower rate, in terms of original energy received, than the real-time production of solar PV and storage.

overpowering fossil fuels

The above table compares the energy conversion (of solar input) efficiencies of a number of energy sources. Put simply, coal, oil and natural gas capture only 2.4% of solar input received, while solar PV captures vastly more, varying between 15 and 40%.

This ‘capture gap’ is compounded through the geological translation of ancient vegetation into concentrated fossil fuel, meaning that while every KJ of sun energy received by solar PV produces around 0.1kJ of usable energy, oil produces only 0.00000094 kJ – more than 100,000 times less!

This analysis highlights an interesting relationship between the energetic efficiency of ‘real-time’ or ‘live’ energy generation and that of fossil fuel energy generation.

These differences can be translated into money. Using the relative efficiency figures from the table above, energy sources can be priced on an equal basis. If each input kJ of Sun energy cost $1, the product energy price required to break-even per kJ produced are shown here:

The fossil fuel price problem

The whole picture – don’t forget the externalities

While comparisons of total energetic performance are dramatic, we should also remember that significant external costs arise from the use of CONG.

These costs, rarely integrated into the actual price paid for energy, exist across a range of “balance sheets” and consist of the following dimensions:

  • Climate impacts the contribution of CO2 and other emissions driving climate disruption.
  • Pollution direct impacts from extraction, production and refining in addition to combustion emissions for energy and other uses.
  • Opportunity costs one time use of such complex, time-rich compounds precludes a huge range of other uses, for: plastics, agriculture, pharmaceuticals and possible future technologies.

Use of oil - entropy

There appears to be a correlation (but not necessarily a causal link) between energetic performance and the scale of these externalities. While climate and pollution costs are well documented, the huge differences in energetic performance perhaps highlight the scale of opportunity costs incurred by our predominantly “one-time” use of fossil fuels.

Towards real-time energy

Francois de La Rochefoucauld noted that “The principal point of cleverness is to know how to value things just as they deserve.”

It is just such intelligence that humanity must apply to the environmental and energy challenges of the coming decades.

Clear and unarguable environmental and resource trends indicate an overwhelming need to connect energy pricing with the fundamental realities of physics in terms of:

  • overall energetic performance
  • longevity & replenish-ability
  • cleanliness/pollution
  • significant/irreversible opportunity costs

Entropic valuation provides a means to connect these aspects, founded in immutable physical law.

Entropic valuation reveals the orders of magnitude difference between the life time efficiency of “live” solar generation and the ‘stored sunshine’ of fossil fuels.

It suggests that truly sustainable solutions lie in growing ‘real-time’ energy and moving rapidly away from our dependence on upon finite, and borrowed, prehistoric time.

It’s time we paid rather more mind, and money, to entropy.

 

Entropic Valuation is idea developed by Joss Tantram in conjunction with Sean Grunnet Cuthbert and first tested in public at the Energy Storage World Forum, Berlin, April 2013. Our motivation in developing the idea was to explore new ways of looking at old problems and to connect energy perspectives with the energy reality defined by the laws of thermodynamics.

A slightly shorter version of this article was first published by Green Futures Magazine on 3/02/14.

Sustainable futures and the status quo bias

Dr Pangloss, “Candide”, Voltaire

Winning the battle but losing the war?

Sustainability has become a concept that, by certain measures, has gone mainstream. It has become an expectation, rather than an exception, that companies of global (and smaller) significance have staff and effort expended towards some form of sustainable, responsible or citizenship related endeavour.

However, this does not mean that the “war” for the protection and enhancement of the global environment has been won. To the contrary, all the scientific evidence tells us that the overwhelming global trends in environmental quality are downwards (with the odd little piece of less-bad news).

The reasons for this are many, varied and complex. It is perhaps easiest just to say that sustainability was never a design consideration of economics, and therefore, by extension, of capitalism.

However, from a psychological and neurological perspective, there are also some other, very interesting, factors at work.

The forces of reaction and the forces of protection

Beyond the forces of reaction – those who believe that environmentalists are wrong, are wrongheaded, or who have wilfully or naively misinterpreted data; and beyond the forces of protectionism – those who may privately agree that environmentalists have a point but are having far too good a time to want to change, there is a further challenge we face in building a sustainable world – status quo bias.

 

Status quo bias – the best of all possible worlds?

It is not reason which is the guide of life, but custom.

David Hume

Status quo bias is the phenomenon (backed up by some significant evidence) that humans have an objectively non-rational preference for the status quo. A 2009 paper published by the US National Academy of Sciences found that, when faced with difficult choices, people are more likely to choose the status quo. In addition the study also noted that these choices were frequently not the “best ones” but that the difficulty of making the decision was a factor in driving people to stick with the familiar.

A common example is that presented by an over-abundance of choice, for instance when faced with too many varieties of cereal in the supermarket, we often find ourselves buying either what we always buy, or refusing to make any choice at all.

Status quo bias implies that, than rather than setting us free, choice may actually imprison us.

This phenomena presents a huge challenge for building a sustainable world, even though that world might be demonstrably more likely to benefit us all. It also calls in to question the idea that a sustainable world can or should be achieved through presenting people with a greater variety of sustainable choices when perhaps such a change would make little or no difference.

Change and the fear of change

Change alone is unchanging.

Heraclitus

To an extent, status quo bias can also be attributed to a natural fear of change. As a man, this is something I am of course familiar with; move the contents of kitchen cupboards around and I become lost, listless and existentially challenged until my brain eventually gets used to opening the correct door.

In contrast however, humans actively embrace certain types of change, notably those we label as progress. In the last 20 years technologies have transformed our access to knowledge and learning – a change we have embraced as undoubted progress, and our ability to travel and explore has expanded also.

Fundamental, radical, change happens all the time and humans are quite capable of adapting. My grandmother, for instance, was born into a world which was in many ways indistinguishable from that of two or even three hundred years before. Yet when she died the world had convulsed, tens of millions had been killed deliberately and died preventably. Technology had boomed and mass material production and consumption had become a core mode of good citizenship, as had universal healthcare and the chance for many of not dying from dirty water and many communicable diseases.

Yet, while we are living it, change appears not to be something called change, just life, which may or may not have new features from one day to the next. Our lives are defined by change, however small – so why does real sustainable change seem like such a challenge to achieve?

It is perhaps not change which presents the problem for building a sustainable world, but the fear of change. It is also the fact that, whether we like it or not, we tend to assume that the status quo, the now, is somehow right and natural; an instinct which prompts us to instinctively reject visions of the future as containing more design and value judgements than our present reality.

The argument goes like this – “You may consider that the environment is important, and want it to be protected or valued differently, but doesn’t the valuation or protection you propose require value judgements as to what is important? Who are you (or anyone) to make judgements which may not be shared by all?

This is of course a fair point – any environmentalist seeking to assign or champion value or behaviour without some logical and empirical framework underpinning their thinking should be ashamed of themselves.

Value judgements are a fact of life so let’s get on with it

Any vision for change from the status quo will involve value judgements, but aren’t we already wrestling with a set of value judgements that tell us that economic activity (i.e. a developed wetland) is more valuable than none (an undeveloped wetland), regardless of the consequences for the system as a whole?

We live in a world of value judgements; therefore to suggest that some value judgements may produce better outcomes for common-self interest than the current set of value judgements doesn’t really seem to me to be imposing anything.

Towards common value (judgements)

Visions of a sustainable future are by their nature based upon judgements as to what is valuable. At a species level, I would suggest that most of us would probably agree on what is valuable: water, food, air, shelter, warmth, security, equitable income, education, communication and representation.

Equally, in terms of what is valuable in nature, it is fairly clearly understood that qualities of diversity, resilience and productive capacity are critical for thriving ecosystems and we also have a pretty good idea of how to support and encourage these characteristics.

Given the possibility of consensus we mustn’t confuse the way we happen to do things now with the “right way to do things”.

We must not let our comfortable attachment to the norms of today prevent us from embracing the change that a sustainable human future demands. Yet we must also understand that there are good reasons why we tend to associate what is familiar with what is “best”.

 

This post was originally published in a marginally more sober form by Guardian Sustainable Business on 15/02/2013

A sustainable world before the end of our world?

Life will not perish! It will begin anew with love; it will start out naked and tiny; it will take root in the wilderness, and to it all that we did and built will mean nothing — our towns and factories, our art, our ideas will all mean nothing, and yet life will not perish!”

Karel Čapek

The possibility of death in the mind of someone living

Many years ago when I was studying Human Ecology in sunny West Yorkshire we learned about Deep Ecology; which sought to place the human species in the wider context of the Earth’s history and its other inhabitants. Viewed via this perspective the infinitesimal instant in the planet’s history in which we have been around is a mere blink of the Earth’s eye, we are newcomers when compared with almost any of our companion species on this planet.

This planetary perspective gave me, as a callow youth, great comfort. I had grown up lucky enough to have the free run of countryside and had always felt an empathy with the eternal changing of the seasons and cycles of life and death. To feel that, in time, my life would conform to these natural cycles felt natural and right and that life on this planet, in whatever form, would persist long after the passing of our species felt equally right.

Of course, with age, the naive bravery of idealistic youth gives way to elements of fear, for ourselves and for the next generation. This warm comfort, whilst I still feel it, is mixed with a desire and hope for the end of our species and civilisation to perhaps be further away in our future than charging ever faster around time’s corner towards us.

Why all this talk of death? Because a subject that seems to be emerging in sustainability circles is that of remaining optimistic in the face of overwhelming odds. The past decade or so has seen massive progress in the acknowledgement of the need for sustainable change by international institutions, visionary businesses and governments, yet the actual practice of modern life is still dreadfully unsustainable.

Given this lag or dissonance between rhetoric and practice, the extent to which sustainability professionals can remain optimistic has been the recent focus of a number of bloggers, activitists and writers.

Some are arguing for optimism, such as Hunter Lovins, and some, such as Osbert Lancaster, calling for a recognition that the possibility of achieving a sustainable world is slipping further from our grasp with every passing day. This latter call for realism makes the point that professional optimism – focussing on sustainable hope for a possible future rather than unsustainable likelihood – is disingenuous at best, and that truly acknowledging the likelihood of failure is a pre-requisite for re-imagining our possible futures.

Such an approach is an interesting one, acknowledging not just the possibility but the likelihood of failure does not come easily to those of us who have dedicated our lives and our hopes to making some contribution to a sustainable world.

Of course, in planetary and universal terms – what we do with our lives matters not one jot…

Eschatalogically speaking – we really are all doomed

Of course, we are, as individuals, societies and likely as a species, all doomed. Death is the inevitable reciprocal of life, so as individuals we have to get our heads around this at some point.

Human history, short though it is planetary terms, has seen the rise and fall of many civilisations and societies- there is, after all, no certainty but more uncertainty.

In a cosmic context, the long term outlook is not too rosy. Eschatology (religious or philosophic studies of the end of the world/ the end of the universe) presents many, many physically certain ends for our planet (e.g. when the sun burns all its hydrogen in about 4.8 billion years) or the slow heat death of the universe (likely to come at a time in the future with so many noughts attached that its best if you just look here).

Is wilfully blind optimism dishonest?

Many people involved in sustainability and CSR are professional optimists, celebrating relative gains in company performance or highlighting the positive possibilities for a sustainable world. Great swathes of the internet are dedicated to CSR and sustainability news sites trumpeting the most minimal changes in the environmental and social impact profiles of companies. They ignore the overwhelming trajectory of our species’ consumption habits and trends and instead try to link these tiny changes to a wider (possible) trend towards different, more sustainable, industrial models.

I have often called myself a (wilfully) blind optimist – an optimist by inclination rather than faith. The trouble with acknowledging that we are all doomed is having to find something to do with the rest of your life – I would rather my life was dedicated to trying to make positive change happen than to spend the rest of my years buying an isolated property on the top of a hill, laying down the tins of soup and long life milk and building a high wall.

OK, we are all doomed, what shall we do now?

Optimism for a sustainable future might be pointless in cosmic terms but then so is pretty much anything when viewed in this light. I would rather feel that I were a soldier in a thousand year war – unlikely to see victory but pretty sure of the rightness of my cause – than give up trying to achieve a sustainable and equitable future.

Of course it is unlikely that we are going to seamlessly achieve the transition of economic, industrial and social models, but the question that we need to ask ourselves is not whether it is logically possible, but whether it is impossibly logical? If we value what we have now then surely it makes no sense not to strive to sustain it.

I believe that, whilst unlikely, a sustainable world remains within our species’ grasp.

There’s a 50/50 chance of achieving a sustainable world, though there’s only a 10 percent chance of that.

(after) Ed Hocken (George Kennedy) in The Naked Gun

 

This post was originally published (with fewer jokes) in Guardian Sustainable Business on 14/09/2012

Valuing abundance – breaking the tyranny of scarcity

We can only see a short distance ahead, but we can see plenty there that needs to be done.

Alan Turing

Scarcity is So now…

Every day we hear more and more about scarcity. We hear that the expected demands of an growing world population will increase conflict over scarce resources. We hear that delivering against the growth plans of global companies and the expectations of a growing middle class will put pressure on supplies of food, water and the rare metals present in the goods we have grown to depend upon for our sense of self.

We are fixated upon the scarcity of valuable resources.

In the coming decades, we are told, we will need to compete ever harder over smaller and smaller quantities of materials which we once treated as effectively limitless.

Limits to growth?

The earth is an island of life floating in a pretty sterile sea of space. While we receive a daily bounty of 84 Terawatts of solar income every day, we get precious little else. Were we to receive new supplies of minerals or metals they would likely arrive with the rather high delivery cost.

It would be logical to organise ourselves in cognisance of these facts.

However, our economic and industrial models do not recognise these parameters as part of their design principles. The two big challenges we face are that:

  • We are using resources which are only replenished over geological timescales at a rate likely to give rise to intense scarcity, and:
  • Our use of such resources, combined with the unsustainable harvesting of natural productivity, endangers the functioning of our life supporting ecosystems.

Who ate all the pies? – We did (in the West). The pies that we ate were extravagant, wasteful and wonderfully tasty. How extravagant? Very – eighty percent of the world’s resources are consumed by just 16% of the world’s population. Moreover, that consumption is highly wasteful; the US economy for example, has been estimated to have a total material efficiency of between only 1% and 10%.

The pies we have been enjoying are going to become increasingly scarce and expensive in the coming years – and more people have equally justified expectations of being able to enjoy them. We either need to stop eating pies or change the recipes we use.

On a crowded planet, scarcity is of limited utility

As the churn through vital resources gets ever faster we become necessarily more and more fixated on scarcity and the perverse relationship between scarcity and value grows ever stronger.

Yet scarcity is pretty useless if you have big plans. We need to break the link between scarcity and price.

Scarcity may be economically very powerful, but it is of very limited value for a future of 9 billion people, all seeking the material and financial wellbeing and security that those of us lucky enough to be born in the West have grown to consider as our birth right.

Scarcity is not a good basis for a viable business strategy

Basing technology on recognisably scarce resources and materials makes no business sense either. What rational business would, on the one hand, make plans for growth in the production and supply of products and services whilst on the other hand building those technologies and services using resources that are not abundant or safe enough to meet these growth targets? Surely such an inherent contradiction should be of prime concern to company leaders and investors?

But scarcity does exist, it can’t be denied

Of course scarcity exists – but the risk that it poses to our ambitions in business, economic and quality of life terms depends almost entirely upon how we undertake the following:

  • Focus on the sustainable use and continued re-use of scarce resources.
  • Prioritise the use of abundant and renewable resources.

 

 New opinions are always suspected, and usually opposed, without any other reason but because they are not already common.

John Locke

Abundance is So tomorrow

Scarcity is a fundamental component of the derivation of price. Current economics uses the scarcity of a good or service to determine its price through a combination of supply and demand.

However, price has failed to adequately equate to value – the value of the natural systems that support life has been treated as an externality and largely ignored.

Scarcity may provide a simple and effective way of generating price but it is fatally flawed as an approach to delivering a sustainable future on a populated planet. Abundance is a far more valuable criterion for informing price than scarcity.

Delivering abundance

In this context, abundance is either a natural aspect of a resource, good or service, or can be achieved through the sustainable management of non-renewable resources, thereby suggesting two forms of abundance, literal and functional.

Literal abundance

Literal abundance is just that, a good or resource which depends upon components which are naturally abundant, or which can be derived amply through sustainable production and stewardship approaches.

Ecosystems run on abundance, not on scarcity or even efficiency. Natural systems produce material in abundance and wastage provides feedstock for other parts of the system. Basing our technological and industrial models upon these types of raw materials and flows would allow us to operate without the conventional limits to growth which currently constrain us.

Technologies are starting to exploit such resources, including the use of materials such as hemp for making body panels on cars, microalgae for producing jet fuel and bacteria to extract precious metals from waste.

Functional abundance

Functional or technical abundance, though often under another name, is a relatively recognised concept. In their Cradle-to-Cradle approach, McDonough and Braungart talk of a “technical cycle” – where scarce and potentially harmful materials are cycled endlessly through closed loop industrial models.

The concept is echoed in the developing circular economy approach. The focus of the Ellen MacArthur Foundation, the circular economy seeks to design industrial models based upon stewardship and symbiosis, where the waste of one process becomes the feedstock of another.

There is much distance left to travel

While many of the technologies and approaches needed to build our economies upon abundance exist, some require vast efforts of R&D and investment in order to discover, implement and scale technologies that can deliver performance and utility to the whole of the world’s population.

If one way be better than another, that you may be sure is nature’s way.

Aristotle

Vital technologies – the next industrial revolution

Our technologies and production processes must take a step towards the realms of science fiction to crack the mysteries of nature, to mimic the elegance, simplicity and safety of biological production.

We call such production “lifelike vital technologies”, those which borrow from and harness biological production techniques, including: ultra-low energy growth, abundant degradable production and room temperature chemical and material production. Such approaches are not just fiction; Biomimicry seeks to learn from and adapt design techniques from nature and even more revolutionarily, significant investments are starting to be poured into advanced approaches to using biology for technological and industrial production.

Defeating the tyranny of scarcity

Scarcity makes us think small at a time when we should be thinking big. Scarcity makes us fight for our share of the scraps when our planet’s life could support us in sharing abundance. Scarcity fills us with fear when we need to grow our hope.

It is time to defeat the tyranny of scarcity and to truly value abundance.

 

This post was originally published in Guardian Sustainable Business on 08/08/2012

Calm down dear!

Lustrum trading, a solution to market hysteria?

Lustrum trading is a simple concept, it proposes that:

Shares for each listed company should be traded once every 5 years – on one day – 3 months after the company makes its lustrum (5 year) dividend.

Rational or hysterical? You decidePanic Button

Ever wondered why, if markets are so rational, there is so much talk of “market confidence” and “market sentiment”?

Recent times have shown the clearest indication yet of the real power within our societies. The Eurozone crisis has been precipitated by credit ratings concerns and banks have failed to pass on the bounty of Quantitative Easing to businesses which make actual stuff. Politicians, technocrats and commentators have paid attention to only one constituency, the markets. The emotional state of the markets; the happiness, or otherwise of the bankers, seems to have been pretty much the most important issue in the world.

Whilst this is undoubtedly bizarre, it might make sense if the markets could be said to be more rational, more objective or somehow more able to take decisions for the common good than politicians and others who might be said to have narrow or subjective agendas.

Yet markets are not objective – in any way. They are not even supposed to be. Their goal is to seek profit, and often profit lies in market movement and, if you are a hedge fund, in volatility.

As with any crowd behaviour, markets move relative to the herd, not through rationality. Markets are innately hysterical, not rational.

Man leaves bank for while to get some sleep, panic!

Let’s take a recent example. Last year, in the UK, the part taxpayer owned bank, Lloyds, temporarily lost its CEO, Antonio Herta-Osaria, who took a leave of absence due to overwork.

The market reaction? Lloyds stock immediately lost 25% of its value.

But what had really changed in the fundamentals of the business? Had 25% of its mortgage customers defaulted? Had bad debts increased? No, the underlying nature and purpose of the business was unchanged from the previous day.

All that changed is that one man in a suit decided he needed a break. It’s not really news is it?

This is not to say that profit warnings and temporarily departing men in suits do not have some relationship to the future viability of a business, it’s just that markets are unable to act proportionately because of the herd mentality. No-one wants to be left behind so everyone stampedes and people get crushed underfoot.

Sustainability requires long term thinking

It’s time to move away from market hysteria, market sentiment and market confidence. Such emotionally volatile behaviour does not deliver the rational, logical, evidentially based decision making that ought to be at the heart of building and maintaining the security and prosperity of the human species.

This was recognised in June 2011 when the UK government commissioned the respected economist John Kay to review how the equity market functions and to suggest better long term incentives.

In a speech revealing some of his preliminary thoughts earlier this month, Kay noted that the practice of quarterly company reporting was a factor in preventing the development of long term thinking. Of a number of consultees to the review; “Many considered quarterly reporting and interim management statements to be ‘useless or misleading’”.

The link between short termism and unsustainability is clear and well established. Where short term profit taking provides overwhelmingly larger rewards than long term stewardship then sustainability will never be a priority for either companies or markets.

Yet we do not believe that abolishing quarterly reports goes far enough. Not by a long shot. Longer timescale solutions are required.

So, what to do? Towards Lustrum (a period of 5 years) Trading

One provocative proposal is to try to minimise the sub-second hysteria of the recent years in finance by radically restricting trading in shares and, though this, allowing companies to respond to the fundamentals of resource supply, customer demand and wider environmental and social trends without the distractions of the emotional meltdowns of the market.

Shares for each listed company should be traded once every 5 years – on one day – 3 months after the company makes its lustrum dividend.

Companies should report their ecological, social and economic performance annually, yet their decision making should not be affected by share trading which acts only in the interests of share traders, not in the interests of the company, economy, the planet, society at large or even the real asset owners (share and pension holders).

Naysayers may say: “Nay!” and argue that 5 years presents a cover which would allow all sorts of dodgy company behaviours and that the scrutiny of the market presents a guard against nefarious activity. However if that were true then our current market would bear this out. It does not; recent years have been littered with scams, corruption and failed companies. Companies will continue to rise and fall, through fair means or foul under lustrum trading, but the overall outcome just might be a more sustainable one.

This shouldn’t put all investors out of work, it also shouldn’t prevent individuals from buying and selling shares. On any given day a multitude of companies will have shares available to trade, just not all of them all of the time.

We have to find our way away from hysteria and to design markets and economies which automatically value and reward long term success, stewardship and social utility. Trading a company’s shares once every 5 years might be a valuable contribution to this goal – the idea might not be bulletproof, but it is interesting!

Our Days are Worth Years

Is time running out for a sustainable world?

The value of life lies not in the length of days, but in the use we make of them.

Michel de Montaigne

Lots of timeEvery day we are assailed with bad news about the environmental and social challenges coming our way. By 2050 we are told, we will have many millions (even billions) of hungry mouths to feed and less food, water or fertile soil available to support them.

We are also constantly told that the time to take action is running out. The inertia of our current industrial and economic models means that, even if we chose to change course, we will be experiencing the negative after effects of current practice for years to come.

All of this bad news may well come to pass. But it may also be worth striking a note of optimism about the amazing capacity the human species has for creativity, innovation and hope. However, do we have enough time left to act?

We don’t always have to think of time as a linear pathway towards the future. Many millions of years are lived by human beings every day – just imagine if we could harness and make use of that time …

Life in parallel

There are currently (March 2012) just under 7 billion people living on the earth. These 7 billion people live 7 billion days each diurnal cycle.

If we divide this number by 365, we find the equivalent number of years lived by the species every single earth day. Humanity lives 19,178,082 years every single day. That is a lot of time – surely some more constructive use could be made of it?

Looked at in this way, time is only running out if we decide not to make use of the abundant human time we have available each day on this Earth.

It’s time to start thinking of radically different types of organisations and initiatives; those that can utilise and benefit from parallel time.

A thousand year per day organisation

This would mean that every organisation or initiative capable of coordinating the action of 36,500 staff or volunteers would be a 100 year per day organisation – making achievements possible that might otherwise take a whole century.

Similarly, 365,000 people working together could achieve a thousand years of activity in a single day, a 1,000 year per day organisation.

A different way of looking at time

This is not just a conceit; of course it is more difficult to achieve coordinated things in parallel than linearly.

However, what if it is not time that we lack but coordinated will and intent? What if this provides the seed of a more positive way of looking at the world and the future? What if the sheer number of people on the planet could be seen as an asset to build a sustainable home for our species?

It is sometimes difficult to look at the future with hope, perhaps it is time to look at the present as an abundant resource of time, just waiting to be used to deliver a sustainable future.