Patchwork Design Lab

May 5, 2010

Valuing the Commons

Filed under: Human Ecology, System Dynamics & Culture, Systems Ecology — Tags: , — Lonnie @ 7:33 am

President Obama’s recent remark that we will repair the damage caused by the recent oil platform explosion and subsequent, ongoing oil hemorrhage off the gulf coast no matter what the cost is interesting to me. First of all, what is the cost of such an operation? Can he even know this? Certainly he has at least a vague idea that it must be in the billions of dollars. Second, is such a thing even possible? There is a difference, after all, between cleaning up the spilled oil and actually reversing the damage done to the local economies and to the ecosystems of which they are a part and upon which they depend. The movement of money in an economy carries information about the value of goods and services. But to whom do you send a check in payment for the work done by a forest as it contributes to annual rainfall, the ongoing supply of fresh air, and the building of fertile topsoil? Who receives the payment for actually producing the fish that are harvested from wild fisheries?

The fact is that since we simply help ourselves to these services and send no check to any theoretically external agency for these benefits, the circulation of currency carries absolutely zero information about the value of these services. So in the most literal sense, President Obama has no way of knowing the cost of his promise. Furthermore, there are legal limitations on a corporation’s financial liability in these cases. A corporation can be held accountable for immediate damages to property and local businesses, but as I understand it is exempt from accountability for the long term health, economic, and environmental consequences of its screw-ups. So whatever the full cost of remediation may be (to the extent that it is possible at all), the lion’s share of the burden falls upon the shoulders of the taxpayer.

This situation shouldn’t be at all surprising; it arises quite naturally from two archetypal system-dynamic traps. These dynamic patterns underpin the contemporary global economy to such an extent that once you understand how they operate, you begin to see them everywhere. They are called the Tragedy of the Commons, and Success to the Successful. The tragedy of the commons is a dynamic by which rational decisions made without ill intent but with a view to maximizing one’s profit cause one to take actions whose benefits accrue only to oneself but whose negative consequences are shared by all. Because you receive all the benefit but only a portion of the cost, you perceive the action to be quite reasonably taken. You perceive the odds of a major catastrophe to be low and take the projected long term effects to be purely hypothetical. And your increased income provides you with insulation against many of these consequences. Further, your perception of them is tempered by how dearly you value what has been lost. Clearly, the CEO of a company like Exxon or British Petroleum will not view the damage to coastal ecologies in the same light as will an Alaskan fisherman or Louisiana shrimper.

The second dynamic pattern, Success to the Successful, functions, effectively, to institutionalize the Tragedy. In a game where it takes money to make money, the wider your profit margin, the more quickly it grows – a classic case of exponential growth. Conversely, the slimmer your margin the greater the struggle required to maintain it. Those with a wide and rapidly expanding profit margin have disposable wealth which they can use to reinforce the circumstances that enabled them to succeed. They can influence legislation through lobbying. They can influence opinion through media ownership. They can even sway the types and quality of goods and services available to all by sheer volume of consumption. McDonald’s is a case in point. McDonald’s demand for a consistent product worldwide has so influenced the way beef is produced that it effects what is available even to those of us who never set foot in one of their establishments.

Accountability is a good thing. Everyone says so. Yet we exempt from accountability to any significant degree those people and organizations who have the greatest power to do harm. It’s not difficult to see how this comes about, given the dynamics at play, but it’s puzzling, sometimes, that remarking on the irony of the situation seems to be a public taboo. I guess such an observation is lacking in nuance.

The Problem of Money and Value

Filed under: Human Ecology, System Dynamics & Culture, Systems Ecology — Tags: — Lonnie @ 7:06 am

Ruin is the destination toward which all men rush

Many economists, though by no means the majority, recognize two distinct ways of understanding wealth and value. There is intrinsic value, the value of things-in-themselves, of embodied energy, information, form. Then there is market or exchange value, in which price is determined by market demand. In the first case value increases with abundance; in the second value increases with scarcity. The more arable land and potable water you have, the more people you can feed; ergo, the greater the wealth or value. On the other hand, the more severely you can limit access to arable land and potable water, the greater will be the demand for it and the higher its price. There is another element in this equation. In order for higher price to translate into a wider profit margin, there must be a price spread created either by economies of scale or by preferential subsidies from the government. Either way, the key that opens the doorway to arbitrage is ample capital – enough to purchase land in large quantities or to subsidize the candidacies of key representatives.

A rational man, desiring to maximize the value of his holdings, is motivated to increase his market share, thereby creating relative market scarcity and raising the exchange value of his holdings. He can accomplish this either through acquisition or destruction. The marketplace, with its invisible hand, turns a blind eye to this distinction. Here is a case for keeping government and commerce separate with the same vigilance that we use to maintain the separation of church and state. Government’s job is to identify, develop, and protect the country’s critical resources, both natural and constructed. Enterprises generally wish to sequester and limit public access to resources so that they can buy low, sell high, and maximize their profits. Undue influence of either on the other impedes the proper functioning of both.

This war of competing values sets up a conflict between public and private interests that tends to play itself out in a scenario first described in 1833 by amateur mathematician, William Foster Lloyd (1794-1852) and reintroduced to a wider public under the name tragedy of freedom in a commons, or simply tragedy of the commons by Garrett Hardin in 1968. Here is the scenario in his words:

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.
As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks “What is the utility to me of adding one more animal to my herd?” This utility has one negative and one positive component.

  1. The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of an additional animal, the positive utility is nearly +1.
  2. 2) The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of -1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another… But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit – in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

An economic system based exclusively on exchange value is the perfect expression of and arena for this dynamic. As such, a system of this type will never produce abundance for all. The rising tide does not lift all boats. The system is designed to create difference, apartheid, extremes of wealth and poverty. Those who benefit the most are the ones in a position to set policy.

This, of course, runs utterly counter to the prevailing economic paradigm, which says that the combined efforts of rational decision-makers, each working purely in her individual self-interest, will redound to the benefit of all. I believe that the basis for this kind of thinking, which was born in the 17th century European Enlightenment, lay in an early and somewhat rudimentary insight into system dynamics. Adam Smith understood markets to be largely self-regulating – self regulating within certain limits. These limits had to do with resource constraints. This idea of constraints was quickly discarded as unimportant, relating only to externalities, by his successors. They were more impressed with his notion that the marketplace has an invisible hand.

Classical economics presents a very neat and elegant system. There is a perpetual-motion-like cycle where money flows to investment which mobilizes resources to produce goods and services which generate money which flows to investment, and so on. The flow of money and resources through this cycle is regulated by a mutual compensating loop dynamic, which Adam Smith characterized as an invisible hand. This dynamic operates to regulate price via demand and demand via price. As demand rises, the price tends to rise. Rising demand creates an apparent scarcity which enables suppliers to raise their prices. At some point prices climb high enough to dampen the demand, causing it to fall and so lowering the price as well. In theory, these oscillations gradually subside, and supply and demand are brought into balance at a relatively stable price. Stable prices allow people to make reasonable financial plans; stable prices create a stable economy, which benefits one and all by allowing the perpetual cycle of money and production to continue.

This all takes place through the actions of a multitude of economic players, each trying to maximize her individual benefit in a purely selfish way. And it works quite well as long as you discount a few empirical facts. Many economists, even some who are Nobel Laureates, claim that in economic terms, resource limitations do not impinge on this system in any significant way. Their argument is basically that human ingenuity is unlimited, and for every critical resource that is exhausted another will be found. The question in my mind is do they really believe that? If I were to go to a bank and ask for a loan using my unlimited ingenuity as collateral, how much do you think they’d lend me? Okay they say, ignoring the question, look at the history. In the very early days of the industrial revolution, when England had exhausted its wood fuel through deforestation because of overharvesting, they discovered coal. And again, when the supply of whale oil was threatened, again by overharvesting because of growing demand, what did we discover? Rock oil (of all things): Petroleum. Of course the costs of these discoveries – the soil-destroying, climate-changing loss of biodiversity through deforestation, the wholesale destruction of entire watersheds through efficient coal mining practices, more recently the ongoing destruction of coastal ecologies and (by the way) gulf coast fishing and tourism industries because of an explosion on a drilling platform that triggered a deep water oil hemorrhage – are not economically relevant.

But never mind that. Let’s just look at history. It’s easy to find historical corroboration for almost any position (this is where human ingenuity is most outstanding). As counter examples to the industrial revolution, what about Easter Island’s population crash or the collapse of the Classical Mayan civilization, both caused by the economically irrelevant drawdown of critical resources, trees and topsoil, mainly? What about the gradual desertification of the fertile crescent through the dual practices of upriver deforestation and long term over-irrigation and over-grazing?

What about physics? The claim that there are no relevant resource limits violates the first law of thermodynamics, which says that while matter and energy can be transformed one into the other, neither can be created or destroyed. The total amount of matter/energy in the universe is constant. The amount of matter on Earth is finite and very nearly constant, disregarding the loss of particles stripped off the upper atmosphere by solar winds. Therefore any material resource is finite, as is the total number of theoretically interchangeable material resources. Additionally, the perpetual cycle of money to investment to production/consumption to money, etc., violates the second law of thermodynamics. A closed-system perpetual motion cycle is not possible, because there will always be some loss of energy and information in every transaction. You may hide your income from the IRS, but the universe’s accounting system is flawless and never misses a single transaction.

Then, we could discuss how lousy a model of a human being is the rational utility maximizer of modern economic theory. We could talk about how perception affects exchange value and how plastic and easily molded through media bombardment perception has proven to be – also considered irrelevant in theory though quite clearly recognized in practice. But you get the picture.

The prevailing economic paradigm is tantamount to a state religion whose precepts are upheld and enforced regardless of any and all discorroborating empirical facts. These precepts, unsupported by rational examination, are upheld through faith alone, which makes the theory behind the global economy look either like a religion that extols greed and exploitation, or else, if that possibility is too discordant to your ear, simple pseudoscience.

April 20, 2010

Dreaming a Post-Industrial World


Do a search on the phrase post industrial society and very likely the first hit will be Wikipedia’s definition – a post industrial society is a society in which an economic transition has occurred from an manufacturing based economy to a service based economy, a diffusion of national and global capital, and mass privatization. The prerequisites to this economic shift are the processes of industrialization and liberalization. This economic transition spurs a restructuring in society as a whole.

This, emphatically, is not what I mean when I talk about a post industrial world. Nothing, said King Lear, will come of nothing; speak again. There is no such thing as a service economy. Imagine sending an army of hair dressers and personal trainers, baristas, barristers, and mortgage brokers someplace like Detroit or Braddock, PA to get their economies back on track. This is nothing against baristas, for whom I have nothing but the greatest respect and affection. Service economy is nuance-speak for manufacturing has been shifted to countries where labor is cheap. Then, back home in the service sector, people get to hold down two or three part-time service jobs so they can buy stuff from the off-shore manufacturing sector, whose workers aspire to nothing so much as joining the ranks of the privileged uber-consumers back here in the service sector.

Nothing will come of nothing. People gotta eat and drive and live someplace, and the parts and pieces that go into those things have to be farmed or manufactured somewhere. There is no such thing as an economy built only on service jobs.

Do Something Basic Right

An argument is only as good as its premises. A building is only as good as its foundation. An economy is only as good as its resource base. People who write about sustainability in the mainstream media almost always focus on energy, when they are not obsessing about how to deal with global warming without rocking the status quo. Energy is basic. And it comes in many forms, but not all these forms are of equal quality. Nor are they interchangeable at a low cost.

Your college physics text defines energy as the ability to do work. Then it goes on to treat energy and work as interchangeable terms. Actually, the ability to do work always stems from a difference in potential. There is always a slope or gradient involved. A battery’s charge is equal to the potential difference between its “positive” and “negative” terminals. A furnace can heat a room because its internal temperature is higher than the room’s. You-know-what flows downhill because whatever is at the top is farther from the Earth’s center than what’s at the bottom, a difference in elevation. Project any such difference onto a system of spacial coordinates and you have a gradient. Funny thing about gradients – nature, contrary to popular wisdom, doesn’t have a problem with a vacuum, but nature abhors a gradient. No wonder uneasy rests the head that bears the crown.

Nature expresses this abhorrence in a forceful manner. Anything that is concentrated tends to disperse. A slope tends to erode. Temperature gradients produce heat flow to equalize the disparity. Structures fall apart, and what sticks out gets worn smooth. If the world were indeed flat, as one popular pundit would have it, then nothing at all would happen, ever. The forces that drive these flows do all the work and produce all the transformations in the entire universe. Heat flow can drive mechanical motion can generate electrical charge can motivate motors, and so on. But there is always a loss. And what is it that bears this loss? The structure that supports the difference that set up the gradient that caused the flow suffers some decrease in definition, sharpness, or integrity. Structures that tend to persist tend to divert some of the energy flow to processes that restore their definition, sharpness, or integrity. Or they may spend their capital making copies of themselves.

And what are these structures, you may ask, of which I speak? They are the containers that embody and concentrate the energy. They are the embodied, concentrated energy. They are the geological formations, the trees and lakes, the fruit and leaves, the mineral deposits, the very elements that compose all material objects. They are the resource base.

This is your planet; this is your body. Your resources are finite, as is your time. There is no operating manual. Good luck. Do something basic right.

You Can Never Do Just One Thing

The consequences of our doings always branch and multiply. The physical, chemical, geological, and biological processes that make up the biosphere are inextricably interconnected and interdependent. They convert solar energy into chemical energy and store it as plant structure. They circulate and recycle water, volatile gases, minerals and metabolic wastes. They maintain themselves and their integrity over vast reaches of geological time. They create structure and embody energy using the very processes by which nature attempts to degrade structure and release embodied energy. We have no technology that comes close to any of this in terms of genius, complexity, efficiency, or reliability.

Perhaps instead of fighting with nature we should be trying to learn from her. Given that anything we do produces multiple and largely unforeseen sets of consequences, it follows that if you do something basic right you are likely to get a cascade of benefits beyond what you might foresee. And if you do something basic wrong? Well, read the papers.

Taking all this into consideration, let’s see if we can begin to write our own operating manual, starting with some general guidelines. (Eventually, I plan to get down to specifics; I swear.)

Work With Nature Rather Than Against Her

This is one of the fundamental principles taught in the Permaculture Design Course. What does it mean? First of all, I’d say don’t replicate work, at considerable economic and energetic expense, that nature is already doing or at least quite willing to do for you. Why spend money and nonrenewable resources to fertilize your soil and manage pests when a properly designed agricultural system will continually improve the soil and balance the deprivations of “pests” in the same manner as any other ecosystem? Unnecessary work creates unnecessary waste. There is a reason that a forest doesn’t require fertilizers, weed killers, and pesticides. Don’t fight biological succession, and you won’t need to poison the soil, air, and groundwater in order to eat food that is contaminated with the poisons you used to produce it. Figure out how to plant in such a way that succession works for you.

To see a couple of examples of this type of agriculture, check out these two videos at you tube:

There are multitudes of natural processes that we can harness or situate to our benefit. People who live downstream of nasty, sweaty, snake infested swamps are drinking some of the cleanest water on the planet. Draining wetlands so we can grow McMansions with two and three-car garages destroys natural, embodied wealth in this and uncountable other forms. Constructing wetlands enables nature to create natural capital in multitudinous forms. Work in a stepwise manner. Do one thing right; then observe what happens next. Use your observations to guide further actions.

Use Nonrenewable Fuels to Invest in Lasting Infrastructure

A friend of mine maintains that we should never build anything that we don’t want to have around (and didn’t design to last) for at least 200 years. A lot of embodied energy goes into the design and construction of a building, particularly a public building, much of it in the form of the fossil fuels that are converted into work energy, heat, and “pollutants” in the process. Yet we’re lucky if much of what we build these days lasts a decade. There was a TV ad for a new housing development here in Albuquerque recently that offered a seven-year guarantee, promising, I suppose, that the houses wouldn’t fall down or leak or engage in other structural misbehaviors for seven whole years.

When you spend money you have in savings, you want it to count. You don’t want to spend your savings going to the movies or driving around town. We should use nonrenewable resources only to create the kind of durable infrastructure that lasts for centuries, collects natural capital passively, and doesn’t require constant additional nonrenewable inputs.

Salvage Before You Mine

The Earth’s crust contains a finite amount of mineral wealth, particularly close enough to the surface for us to mine. Iron and copper, among other metallic ores, are becoming noticeably scarce. Meanwhile tons of metal lie baking in the sun in salvage and scrap yards all over the world.

Nuff said: more tomorrow.

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