“Pessimism never won any battle.”
Dwight D. Eisenhower
Towards 9 Billion – capable citizens, thriving ecosystems – delivering the vision
Towards 9 Billion is Terrafiniti’s vision for a sustainable and equitable future economy. Part 1 introduced the concept, this post contains some subtle but radical solutions required to achieve a future that benefits us all.
There are two key changes required in the way that markets function that are required to deliver this vision.
1. A shared strategic goal for markets
Rather than a real coordinated mass-effect of capitalism, Adam Smith’s “Invisible Hand” is instead a post hoc rationalisation of the sum of a multitude of individually motivated market actions, not the actions of individuals subscribing to a shared grand plan – markets lack shared strategic intent.
A lack of coordinated intent makes the delivery of strategic outcomes difficult and to an extent explains why global objectives such as the Millennium Development Goals and other international accords are difficult to achieve in practice. They exist outside or in addition to the daily priorities of capitalism rather than as an integral part.
Towards 9 Billion is designed to address this issue through introducing a clear and economically meaningful purpose to market and business activity, the achievement of a vastly larger and more sustainable market. One which would also provide greater well-being and long-term common good as an innate aspect of its operation.
A shared vision provides a goal for aspiration and also allows clear judgments to be made about whether market and company behavior is likely to achieve that vision or undermine it.
Exactly what goal should markets share?
Over the next 40 years to 2050, markets should seek to deliver:
- Healthy and thriving ecosystems.
- A global human population of 9 billion capable citizens.
(Part 1 of this post, provides definitions of healthy ecosystems and capable citizens).
“The importance of money flows from it being a link between the present and the future.”
John Maynard Keynes
2. Evolve price to equal sustainable value
Towards 9 Billion also requires simple but fundamental changes to the irreducible heart of economics – the price function. All economic behaviour flows from the price function, the ability to generate a price for a good or service which allows it to be bought, sold and traded.
“If you only have a hammer, you tend to see every problem as a nail.”
Abraham Maslow
At present the price function is too one dimensional, it reduces the physical reality and mind boggling complexity of ecological systems to the simplistic binary metrics of supply and demand, completely failing to adequately reflect or consider long-term human or ecological value.
“I conceive that the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things.”
Benjamin Franklin
The consequences of the failure of price to reflect such value present clear, existential threats to the continuation of our current model of capitalism, the prospects of security of the developed world and the legitimate hopes for improved quality of life for everyone else. Not to mention the destruction of the very fabric of life which supports and subsidises human existence in the first place. The stakes are (ahem) high.
Four principles for putting sustainable value at the heart of economic price
Subtle but radical changes in the origination of price would allow ecological and social sustainability to become a natural outcome of economic behaviour. We therefore propose to “hack the price function” by suggesting that instead of deriving price simply from supply and demand it should also be based upon:
- Thermodynamically optimisation – the use of energy and materials should be in alignment with the physical characteristics and limits of the planet with a focus upon ‘entropic efficiency’.
- Abundance rather than scarcity – scarce things are only of marginal utility in a world of 9 billion capable citizens – either natural (e.g. biologically based) or managed (e.g. through closed loop stewardship) abundance is inherently more valuable in this context.
- Natural vitality – making use of the planet’s natural restorative and productive abilities and learning from and utilising natural production techniques as the basis for our technological and industrial models.
- Interdependence – nothing happens in our modern world without the involvement of others. We need to recognise and balance this interdependence so that our quality of life is not bought at the cost of someone else’s and that our quality of life is not at risk if others we depend upon decide to withdraw their subsidy.
Practical Impact
The development of this vision, and the evolution of the price function, would be a major step towards the integration of environmental and social value within price and cost. It would provide a significant drive towards a sustainable world and inherently deliver reductions in systemic risk and market failures.
“There are noble fortunes to be made in the transition to sustainability.”
Ray Anderson
In addition, the motivation of businesses would change towards a positive sum (win-win) view. It would become an economic benefit to design industrial production activities around resources which are more likely to have longevity of supply and which enhance, work alongside, utilise or borrow from naturally productive processes and capacity.
In the social dimension, valuing and maintaining interdependence would result in increasing global equity and help ensure a more even global spread of economic development and increased quality of life.
In summary, companies and markets would, as a natural aspect of market capitalism:
- consider the longevity and safety of supply of the resources they depend upon;
- act to value and enhance the quality and diversity of the natural capital upon which human life depends, and:
- prioritise mutual equity in relationships with suppliers, customers and other stakeholders.
“Big results require big ambitions.”
Heraclitus
Making the vision a reality…
Terrafiniti is committed to playing a role in developing the pathway, identifying opportunities and leverage points towards equipping 9 billion capable citizens.
Our goal is to develop tools, solutions and materials that will encourage, support and drive change, which can be used by organisations of all kinds and which will be freely available where possible.
“The difficulty lies not so much in developing new ideas as in escaping from old ones.”
John Maynard Keynes
Partners
We are actively seeking relationships with entrepreneurial and visionary organisations, investors and thinkers who share our passion for positive change towards a sustainable world.
Partners may be companies which understand that business as usual is insufficient to cope with current environmental and social trends, investors who can see the long-term challenges of short-term thinking, organisations whose role is to stimulate change and philanthropists and visionaries who want to make a meaningful, compelling contribution towards making humanity fit for the planet and fit for the future.
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Towards 9 Billion: Infinite economy on a finite planet – Part 1
On basic principles, I could not agree with you more. I am disappointed that there is nothing in this second part which details how you propose to reform the pricing system to achieve these goals. That, surely, is the crux of the issue. Government intervention in pricing (eg creation of the carbon market, the RHI) are so often hit by the law of unintended consequences). At present, for example, the incentives for renewable district heating, being a subsidy geared as an amount per unit of energy delivered that is greater than the marginal cost (in order to pay for the capital cost), gives an incentive towards wasting heat, albeit with a cap. Adjustments to incentives (as with the FIT) by bureacracies are often clumsy and give an element of arbitrariness that hampers business development.
Dear Stephen,
I agree that there is more work to be done in terms of reforming the pricing system – and in terms of our thinking. Of course I recognise that there is a gap between articulating a desired end point and mapping the steps from here to there!
To some extent, regarding your specific points, we are seeking to engage in a debate about the origination of price, and the components that goes into that origination rather that focus upon post-facto instruments to adjust price, such tax incentives etc.
We are therefore seeking to explore the fundamental mechanisms which give rise to price – less the province of governments than economic equations. We believe that this is the area of focus likely to be most fruitful for those of us seeking to encourage economics to reflect sustainable value.
This does not mean, however, that we have any magic bullet for achieving this change, just some thoughts which we hope might help!
Joss
Joss,
Nice Blog, thank you for the link from the Guardian.
Lofty and admirable goals. But to my point earlier: achieving a shared goal, no matter how well intended, (and preserving the planet’s ecosystem is certainly worthy), suggests the imposition of values and judgement from one segment of the population onto the other.
I read that you have an intention to change the focus of business from wealth creation to sustainable production and protection of the ecosystem, along with the nourishment and development of the planets population. Nobody can argue against those ideals. But the development of the price function through the three points outlayed, are again, subjective. Scarcity can only be judged against function, can it not. For example, are trees really scarce if their only function, and this is simplified for arguments sake, is to provide firewood, when an alternative fuel is available? The availability of an alternate fuel source renders wood obsolete and therefore of no real value. The only remaing value for trees becomes subjective, how pretty is the view.
And who gets to decide that?
To your point: linking value in an inter-connected ecosystem is a huge and somewhat impossible task. I look forward to reading more on your ideas of how to achieve this.
Dear kdawg,
Thanks for your comments and questions, I have some initial thoughts.
Re linking value in an interconnected system – it is of course entirely possible that we do not have an answer to an impossible question. However it is worth pointing out that a pretty workable concept to address this issue was developed in Germany (in the pre Nazi 1930s) which has found its way into the foundations of a vast amount of existing environmental legislation – the precautionary principle.
This principle assumes that the environment is valuable and introduces a presumption against environmental damage.
In our approach we are merely just picking up this concept and seeking to place that presumption within the price mechanism. Of course this involves 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.
The points you make about utility really only apply if we view everything in the narrowest and most extremely utilitarian way, and are also unable to reconcile a spectrum of benefits, value or purposes.
If the value of a tree (and apologies, I know you were simplifying, and not being literal) is manifold – flood defence, soil creation and maintenance, homes for insects which pollinate and provide food sources for other animals, micro-climate maintenance and fuel wood, then we should not merely price it as a source of only one of these utilities – fuel – but find ways to innovate our counting systems (economics) such that they are capable of reflecting, valuing and indicating benefit from, the multiplicity of valuable things a tree can and does do.
The bizarre thing, from my perspective, is that what all this comes down to is a discussion of whether economics provides an accurate picture of the world and therefore provides a value free basis for decisions in the common interest.
I don’t think it does, for some simple and obvious reasons (see also our blog post:https://www.terrafiniti.com/blog/living-in-a-material-world/).
However, I do think that it could do a far better job.
“The difficulty lies not so much in developing new ideas as in escaping from old ones.”
John Maynard Keynes
Joss
In “Capitalism as if the World Matters”, Jonathan Porritt suggested a depreciation of natural capital charge to be included in business accounts. He didn’t elaborate much on how it might work and I haven’t heard him speak much of it lately but I believe it could provide a quick, simple solution.
Material input is either recoverable, recyclable or irredeemably changed (burning fossil fuels obviously falls into the third category). These categories could provide the bands of depreciation so it is levied at three differing rates. The actual % is obviously going to be contentious but for recoverable and recyclable materials could be linked to the regeneration cycle while the ‘used up’ category is depreciated according to estimated years supply left available (or useable, so fossil fuels would maybe attract a depreciation of say 15%).
The money charged against the depreciation account would actually have to be spent on a qualifying project within, say, 18 months of the accounting period. Qualifying projects would either be directly restorative (e.g. tree planting, fish restocking), preventative (e.g. mangrove protection or the Yasuni project) or future focused (e.g. energy or materials research).
The government would grant qualification to individual projects and provide a “default” fund. Companies can deposit their funds with the default or choose projects that are directly relevant to their operations. This allows both choice and encourages efficiency through competition.
It doesn’t necessarily address the pricing of abundance but it would certainly go a long way to correcting the false profits that are currently enjoyed by business and without too many unintended consequences.