Standard makers and standard takers

In the movie the Godfather, Vito Corleone, the mafia boss (Godfather) played by Marlon Brando, is asked by his godson Jonny Fontane to help to secure a film role that will boost his fading career. The head of the film studio, has previously refused to give Fontane the part. The Godfather tells Johnny:

"I'll make him an offer he can't refuse."

The studio head later wakes to find the head of his expensive racehorse in his bed. Fontane is subsequently given the part.

Standards are necessary tools for the globalized market, based on unlimited competition between exchangeable economic units, be it companies or individuals.  Production is increasingly organized in so called value chains. And what the chain leaders have done is to give suppliers an offer they can't refuse –follow the standard. Suppliers in the chain, all the way to the farmers, and sometimes even the suppliers to the farmers, should follow the standards developed by the chain leaders. In many cases the standards also shift the costs away from the chain leader to the suppliers. I order to enforce compliance, suppliers have to use the verification mechanisms, normally private certification bodies, authorized by the chain leaders or auditors from the chain leader. 

Far to seldom do we ask questions about power when discussing standards. 

Read more in my review of the book Standards, recipes for reality.  

70,000 views

a straw man in Hanoi Jan 2012

The number of visitors to this blog is increasing, for the moment steeply. Perhaps as a result of the launch of the book. The number of page views now crossed the 40,000 limit. Thanks for reading me. And, by the way, I certainly would enjoy a bit more feed back on what I write - and I don't mean those, "nice post, please look at my website-which-has-nothing-to-do-with-the-topic" (I delete them whenever I see them). 

Updated: 6 September 2013. The number of page views are now 70,000 (there were 40,000 when I first published the post) and most months there are more than 5,000 page views.

Organic agriculture spreads in East Africa

“When I use chicken manure that I produce from my poultry farming I am able to get 5 tons of Irish potatoes on one hectare while I use to get not more than 2 tons per hectare using chemical fertilizers. And my products are the most favored on the market and consumed before others. The price doesn’t matter, people like high quality products,” said Jean Marie Vianney Ngiruwonsanga, an organic farmer of Rulindo District,
Muhondo Sector in Rwanda.

“What struck me about the whole idea of organic farming is that with my little farm space, I could grow enough food to feed my family and supply to the market. And that is without the use of synthetic fertilizers, pesticides and herbicides that are expensive these days,” says Sally Niaisiae, an elderly mother of six in the outskirts of Nairobi, Kenya

Jennifer Kigunda's one acre land is divided into several portions, growing maize, various vegetables, and different potatoes varieties. Previously she would only grow maize and beans –the two most popular food crops with subsistence farmers in Kenya mainly grown using conventional farming methods.

“I would harvest on average six 90-kg bags of maize from the farm and on average three bags of beans,” she said. With her small family, she prefers to sell most of the harvest, fetching around 400 U.S. dollars per season, meaning she would make on average double that amount per year from the sale of surplus harvest.

But since the change to organic farming, Kigunda’s family income has increased tremendously as the sale of organic food from her farm brings in on averaged, 200 dollars per a three month season meaning that in a year, she now makes at least 3,600 dollars a year from her one acre farm, a 450 percent increase.

“We have a ready market for organic foods and we get a premium price for it at the market. What else would a farmer look for?” she asked.

Typical diverse production of African smallholder

 Organic farming proves again and again that it is capable of producing healthy and safe food in sufficient quantities, not only for the rich.  I have written about it in many blog posts here, e.g. 
Growing with love and care, Organic agriculture grows in Africa
People, Planet and Prosperity-organic agriculture as a development concept
But I also emphasis that, in the end, economic factors are determining who will eat and who will be hungry. Read: Markets don't distribute food to those without money
Read more stories from Kenya organic farming on Coast week. 

Farming as landscape art

 

At the recently concluded Biofach fair I listened to a presentation by Douglas Tompkins about his farm  Laguna Blanca in Argentina. Well listened? mostly I watched (see below). I am not easily impressed but this was spectacular.

Laguna Blanca is of 7000 acres of land in the Entre Rios province of  Argentina. Organically grown, for sure. But not only that also incredibly beautiful. Tompkins called their tractor drivers for painters.



Tompkins, who he is? Well he was the founder and CEO of both Northface och Esprit, and then he married the boss of Patagonia. He and her are the biggest private owners of conservation areas in the world, mainly in Latin America. They have also published the collected works of Norwegian eco-philosopher Arne Naess - the one who coined deep ecology.


Normally I would rant about capitalism - that it is easy to do things like this when your awash with money, but just enjoy the movie first! 

Organic certification - Is it worth it?

The main positive development reflected in the 2013 Organic Certification Directory is the rapid increase in the number of certification bodies accepted in the EU and in the US. This is driven by the EU-US equivalence agreement and by the new EU regime for direct approval of certification bodies as being equivalent. It is encouraging to see this development and it certainly shows that recognition of other systems is more a matter of political will than a technical matter. Late in 2013 a new equivalency agreement between Canada and Switzerland was announced (for more details see TOS 141). It is important that organic products imported from third countries to countries in an equivalency agreement are included in the scope of the agreement. If such products are excluded the third countries may face reduced market access as a result of these agreements.  

Organic certification bodies, The Organic Standard, Feb 2013

In Asia they still think it is fun or profitable to start organic certification bodies, while the enthusiasm in Europe and the Americas is waning. A general trend is that when governments start regulating their organic sector, a number of new actors step in to offer organic certification services to what they believe is a burgeoning market. In most cases, however, after an initial growth, numbers rapidly go down as a result of failure by certification bodies to fulfil government requirements and a lack of profit.

Worldwide, organic certification costs the sector approximately 500 million US dollars annually, which is at least 1% of the retail value of the products. The indirect costs – activities that operators do just to fulfil certification requirements, such as filling in forms, participating in the inspection, preparing inspections and responding to requests from the certification body – are probably in the same order of magnitude. Historically, most organic certification bodies were associations, foundations or other not-for-profit organisations. Today, most are for profit. But even if the cost of the service is high from the perspective of the clients, it is doubtful that there is a lot of profit generated by selling certification services.

The important question is, perhaps, not how many dollars or euros certification costs nor is it whether certification bodies make too much or too little profit. The important question is whether certification adds sufficient value to the production to motivate the investments. And this is different for different producers. For a small producer with diversified production and direct marketing, the direct and indirect costs, as well as the administrative pressure are often too high. Standards and certification, by their very nature, almost always discriminate against small and diverse production. This is especially painful for the organic sector, as diversity is a cornerstone of organic production. The solution to this problem is two-fold. First, as much effort as possible should be spent within the system to accommodate the needs of small producers. Second,  small producers should be allowed to identify themselves as organic in the market place with other tools specifically designed for them.

The number of private standards is declining, and only a fourth of the certification bodies today have their own standards, the others provide a certification service to a standard set by someone else, normally the government of their country. This is likely to result in  diminishing returns from private standards. Those that still invest in them are forced to make them differ substantially from the regulations so as to motivate consumers to select them over following just the regulations. On the one hand this creates some dynamism in the market place. On the other hand it is resource-consuming and poses huge challenges for trade. It also makes keeping a consistent message for consumer communication and fostering market recognition for organic products difficult.

The question of added value also applies to accreditation. IFOAM Accreditation has – after almost twenty years – still only got 31 accredited schemes. ISO 65 accreditation is much more widespread, but one should not believe that it gives greater added value. ISO 65 is wide-spread because some regulations, most notably the EU Regulation, require it. The added value, both in the market place and for the integrity of organic production, of ISO 65 accreditation is often, rightfully, questioned. Now that the Regulation is under review, one would hope that the EU will look into this once more.   

(first published in The Organic Standard Issue 142, February 2013)

A pilgrimage to the origin of global capitalism

Genoa is a maze of infrastructure, layer upon layer. Far under my feet rivers decked over since centuries are flowing, on top of them a road. My pedestrian path crossing them and the rail road is above me. In some places it is so steep that people park their cars on top of the neighbours' . Modern houses are erected on foundations that might be five centuries old. New and old mixes in an almost organic way.

And then we have the port, where old warehouses mix with modern yachts and cruise ships. And it is in the port it all started.

I have found the beautifully decorated Palazzo San Giorgio the goal for my 'pilgrimage' to Genoa to look for the origins of global capitalism. The Bank of Saint George (Banco di San Giorgio, officially Casa delle compere e dei banchi di San Giorgio) was founded in 1407, making it one of the oldest chartered banks in Europe, if not the world.

A number of prominent Genoese families were involved in the establishment and governance of the Bank, including the Houses of Grimaldi & Serra. Because the Republic's ruling oligarchs were normally prominent in Bank politics, it is often difficult to determine where the Bank's influence ended and the Republic's began.

At the end of the thirteenth and beginning of fourteenth century a trade network from China to England, From Scandinavia to Africa was established and had expanded substantially. In Europe, the main beneficiaries of this were the Italian city states, in particular Florence, Milan, Genoa and Venice, where Florence and Milan were engaged in manufacturing and trade towards the Northwest, Genoa was oriented to the silk trade, i.e. Central Asia and Venice in the spice trade, i.e. South Asia. The trade generated a lot of wealth; the value of the sea trade of Genoa was estimated to three times the revenue of the Kingdom of France. At some point in early 14th century the trade tapered off which triggered a period of fierce competition between those city-states. They were mercantile states where the traders and manufactures had a lot of influence, so competition was not only commercial but extended to a series of wars. The wars strengthened the merchants even more as the state had to borrow money from them to conduct the wars (which was non behalf of the merchants in the first place).

In Genoa it led to a private take-over of the cities finances via the Casa di San Giorgio while in Florence the most powerful family, de Medici, took over. Now the wars themselves become a commercial undertaking. “What capitalist groups could no longer invest profitably in trade, they now invested in the hostile takeover of the markets or the territories of competitors both as an end in itself and as a means to appropriate the assets and the future revenues of the state within which they operated” (Arrighi 2010). The Italian city states developed high finance, financing in particular war-making governments. It is there in Florence and later in Genoa that the toolbox of managing money and transactions develop; it is there cheques and bills of exchange are used, most transactions are made through bank transfer and the art of managing client accounts to make the capital work for you is taken to new heights. 

The Bank lent considerable sums of money to many rulers throughout Europe during the fifteenth and sixteenth centuries, gaining widespread influence. Charles V was heavily in debt to the Bank during much of his reign.Many of Genoa's overseas territories were governed either directly or indirectly by the Bank. In 1453 the Republic handed over governance of Corsica, Gazaria, and a number of other possessions to Bank officials. It was the Genovese who bankrolled much of the Spanish expansion and then later on where the ones to convert the Silver from America into gold coins to pay the armies.

In the seventeenth century the Bank became heavily involved in maritime trade, and for a time competed with the Dutch East India Company and the English East India Company.

Giovanni Arrighi, in his masterpiece, The Long Twentieth Century, Money, Power and the Origins of our Times (a must-read!), sees Genoa as the first representative of global capitalism. The merging of military might of the state with commerce and finance was the foundation of the European aggression to the rest of the world, a world that was taken by surprise by these new guys on the block. When the British also included production of goods – and weapon – with the support of fossil fuel energy, in the capitalist undertaking, the conquest was a given.

It is this narrative, a narrative of aggression based on collusion between capitalists and the state – and not the narrative of the free private entrepreneurs that innovate and exchange good with happy citizens in a market place – which is the true story of the origin of capitalism.

And what happened to the Casa di San Giorio? When Napoleon invaded Italy, he suppressed independent banks, and this led to the Bank's closure in 1805.

Give it back to Monsanto and Syngenta

In a seminar at the Biofach fair, Dr Hubert Weiger from the German environmental organization BUND, informed us about that Glyphosate, the active ingredient of the herbicide mostly known as Roundup, is now found in people's urine.

A recent study show:

"To determine if only individuals who are in direct contact with contaminated feed or glyphosate laced compounds are at risk of glyphosate poisoning a study was conducted in December 2011 of an urban population in Berlin. The urine of city workers, journalists and lawyers, who had no direct contact with glyphosate, was examined for glyphosate contamination by a research team at the University of Leipzig. The study found glyphosate in all urine samples at values ranging from 0.5 to 2 ng glyphosate per ml urine (drinking water limit: 0.1 ng / ml). None of the examinees had direct contact with agriculture."

Glyphosate was originally mainly used on weeds to clear land for planting, but is increasinglu used to kill off the crop just before harvest, so called dessication. Syngenta’s advertising brochure says “For professional producers chemical desiccation now counts among the standard measures to assure high quality production [...]. In this context one also speaks of the “economic maturity” of crops, as the usage of herbicides allows for a safe termination of the harvesting procedure.”

The report quoted above says, "for potatoes, spraying herbicides on the field immediately before harvest (2.5 l / ha), hardens the skin and reduces its susceptibility to late blight and germination, which improved the potatoes shelf life. Active compounds of the herbicide directly enter the potato through the leaves; however, decomposition of the poison takes place in the body of the consumer."

These companies that claims patents and trademark rights on their products should be hold accountable for where they end up. Ultimately, governments should ban the use of herbicides. There are readily available alternatives available. Their use will cost a bit more for farmers - but that is a small price to pay to avoid poisoning.

Until governments have taken action, my humble proposition is that we should collect the urine and send it to Monsanto, Syngenta and the others.

Garden Earth - a regenerative society

The coming week I will launch the book Garden Earth at the Biofach fair in Germany. Below you find the final chapter of that book. In the final chapter I talk about Garden Earth which is my metaphor for a regenerative society. A regenerative society is a society that regenerates natural and social capital instead of squandering them. 

The book is already available as a paperback and ebook at Amazon (see how to order here), and within a month or so it will also be in selected bookshops in the UK, Canada, USA, Australia and most internet bookshops around the world. It will also be available in Japanese by Dayosha. 

Chapter 33: Garden Earth

 

You may say that I’m a dreamer

But I’m not the only one

I hope someday you’ll join us

And the world will live as one

(John Lennon,‘Imagine,’ 1971)

The book Garden Earth

Hunters and gatherers lived in a wild nature, although they manipu­lated it more than most are aware. Their values, religion and society were shaped by their environment and ecological niche. A small fraction of the primary production of ecosystems was taken care of by human beings. With agriculture, it all changed. A part of nature, gradu­ally growing, was occupied fully by the human species, cleared from undesired species and put directly, and uniquely, in our service. In this way, we maximized our share of the biological production, and favoured those species that produced what we needed. Because of more intensive use, buffers were smaller and agrarian society was thus vulnerable to disturbances and shocks, such as climatic events, disease of crops and animals as well as of ourselves. Soil erosion was an ever-present threat and a cause of societal collapses or simply slow decline. Our relationship changed not only with nature but also with each other and with the society that was established to manage this new system. Human society changed from a basically egalitarian society of small bands to agglomerations of authoritarian lordships, kingdoms and empires, and from a society with very limited division of labour to a stratified society where each had his or her well-defined role. 

With the Industrial Revolution, based on fossil fuel, human control and reach expanded even more, to almost all nooks and corners of the globe. Humankind went further, climbed and flew higher, dived and dug deeper—all in the effort to find more resources to exploit. More and more parts of the living as well as the dead were put in direct service of humanity. Industrialism also brought new impetus to farm­ing. The first stage brought tools and the power to extend the land under plough, but gradually also more and more machinery to in­crease productivity per labourer. This was stimulated by an in­creased use of fossil fuel so that farming from being a net producer of energy became a net consumer. Chemical fertilizers, extracted, manu­factured and shipped from far away, were a step towards freeing agriculture from the limitations of the site, to manipulate life processes. These changes were also accompanied by increased use of pesticides and medicines. Now, when the rich supply of genes in nature doesn’t suffice, or there are natural barriers for combining them as desired, genetic manipulation is used. 

At the same time as we are dependent on more and more of the bio-geosphere, people live lives increasingly more distanced from it. The warmth doesn’t come from wood that we cut in forests, but from distant power plants, district heating or oil and gas pumped from far away. We rarely touch the soil; the green plants most touch are retarded, tamed and flower-induced pot plants, if they are not plastic. We rarely feel the hot wind on our cheek, the rain in our hair or the bitter cold in our marrow. Still, we are more dependent on nature than ever before. Nature doesn’t care for humankind because it will survive well without it, but humankind has to care about nature.

Modern society has been successful in delivering personal wealth and economic growth, for a few people, that is. It has also broken down old prejudice and expanded human rights, freed people from bonded labour and other oppressive institutions. It has come a long way in ending discrimination of women and other groups often victimized, and been extremely successful in producing more things for the health, comfort and joy of human beings. The system, however, has not been successful in replacing the old system with a new one that gives people a feeling of meaning. Personal wealth and growth have become ends in themselves to such an extent that they remind of cancer. 

The economic system and society have reached a critical limit through population explosion, unscrupulous and reckless exploitation of natural resources and constantly increasing energy use. For some resources, the limits have been passed already, which puts increasing pressure on societies, the global community of human beings and the foundations for human existence. We hunt for more and more things and satisfaction through consumption; the enormous choices haven’t made anyone happier. Unprecedented wealth is created, but it has not spread to most citizens of the world, despite everyone living in the same global economy. The gap between the rich and the poor is widen­ing. Despite constant increased productivity leisure time doesn’t increase; contrarily, one’s leisure time and private sphere are invaded by the capitalist paradigm and behaviour patterns—to consume be­comes a compulsion as strong as to work.

The capitalist system is a system of colonization, bent and suitable for geographical, physical and economic expansion. Society has now reached a stage of saturation; there is nothing left to colonize. The behaviours that were appropriate or at least acceptable for a species in rapid expansion are not the ones suitable for a life in balance. In some ways humanity seems to adapt to it—how else would one explain population ceasing to grow in developed countries? Organic farming, passive heating, electrical bicycles and solar energy represent techno­logical developments better adapted to ‘householding’ societies with regenerative economics. The wild finds new ways of cohabiting with human beings and human beings find new ways of interacting with the wild. Cooperation within civil society has increased tremendously globally and is revived locally. There is a shift in values, where more and more people want to jump off the treadmill and seek that which gives ‘real’ well-being. This maturity is reinforced by the population ageing. The values of older people are adverse to risk and expansion­ism, and are more reflective and caring.

In the discussion about growth and limitations for human use of natu­ral resources, it should not be forgotten that the poorest third of humanity needs to increase its use of natural resources, while the rest of humanity takes a break and enjoys life. This increased use is certainly not decoupled from direct exploitation of resources; it is the development of very real things such as electricity, houses, roads, water and sewage. Still, many old and new technologies can be deployed to make this growth less wasteful than previous moderniza­tion; these technologies include solar energy, distributed power, separation of water toilets from other water use, or buildings made from adobe, etc. 

Most people have not yet realized the extent of the change re­quired; humankind needs a completely new economy, a new society. Another society has to be built on values and conditions other than those of the capitalist society. It is a society oriented to closing gaps—gaps between people, between man and woman, between ruler and ruled, between ‘we’ and ‘them’, between one country and another and between man and nature. It is about unifying the many divisions that currently exist—division of labour, division between production and consumption, between work and leisure, between the individual and society, between economy and society and between beauty and efficiency.

As an alternative vision to the capitalist ideology I offer Garden Earth.

• Where capitalism sees self-interest as the major human driver, Garden Earth is built on human needs satisfied in many ways and with voluntary cooperation.
• Where capitalism is based on private property, the foundation for Garden Earth is stewardship of common resources.
• Where capitalism sees nature as commons free to exploit, to mine and to use as a dumping ground, Garden Earth sees nature as our home.
• Where capitalism sees specialization and division of labour as something very good, Garden Earth sees it as a potential evil, a risk that needs to be limited and its effects on individuals and society mitigated. 
• Where human energy in capitalism is used for salaried labour that a few profit from, in Garden Earth people work for their satisfac­tion and for doing something for the community.
• Where technology in capitalism is developed and chosen to maxi­mize some peoples’ profits, in Garden Earth it is selected to make life more enjoyable or transcend resource limitations.

We need each other and the existing form for our cooperation is what is called society or community. It is ruled by laws of nature, ecological conditions, human laws, norms inherent in our culture and values. The human being is part of society and vice versa. The well-being of humankind and society is intricately intertwined forever. Markets, the state, civil society and the private have roles to play in the future society. It is about expanding liberty and the notion of liberty to include also the capabilities of the individual and to resolve the false contradiction between the freedom of the individual and that of society. 

We simply have to go back to the Garden of Eden. But we can no longer do so as the hunters and gatherers who were driven out. Humankind is no longer equal to the giraffe, the carrot or the sheep, even less to the stone. Man is part of nature; thus, the well-being of human beings and of other species is intertwined. Because of the numbers, intelligence and development of the human species, we have a special responsibility for the survival of other species and for the relative stability and productivity of the earth’s ecosystems. 

Whether or not we like it, the survival of not only the human species but also many other species is in the hands of the human being.

Energy is the substance of the economy

“The compounding mistake, ... was a wide-eyed belief that ‘globalisation’ would make everyone richer, when the reality was that the out-sourcing of production to emerging economies was a self-inflicted disaster with few parallels in economic history. One would have to look back to a Spanish empire awash with bullion from the New World to find a combination of economic idiocy and minority self-interest equal to the folly of globalization.”

 This was not written by Naomi Klein or Vandana Shiva but by Dr. Tim Morgan at Tullet Prebon, one of the largest inter-dealer money brokers in the world, in the report The Perfect Storm. It has a certain extra tang and interest when you get damning opinions about our economic system from those that profit from it and have inside insights, even if they don’t say so much different than the anti-capitalists.

The report is one of the most damning analysis of where the global economic system is headed and in particular where “the West” has gone. For coming from the finance sector it has also good insights in how important (cheap) energy is and has been in the capitalist saga. I probably helps that Dr Morgan studied history and political science.  The four interrelated trends that have brought us where we are, according to Dr Morgan are: 

First, the Western world is still mired in the fall-out from the ‘credit super-cycle’, a financial bubble so vast that it makes Dutch tulips, British south sea stock, the 1840s railway boom and “the roaring twenties” look like “little local difficulties.

Second, globalisation is now being exposed as a disaster which has driven a critical wedge between Western nations’ consumption and their production.

Third, policymakers and the public do not even have access to data reliable enough for an accurate appraisal of the predicament.

Most important – given that the economy is an energy dynamic, not a monetary construct – the critical surplus energy component is now in rapid and seemingly-irreversible decline.

“Reducing production, increasing consumption and taking on escalating debt to fill the gap was never a remotely sustainable course of action. What this in turn means is that no return to the pre-2008 world is either possible or desirable”.

The folly of the ever increasing indebtedness has been explained by many others. The reports states that: “Between 1981 and 2009, debt grew by 390% in real terms, far out-pacing the growth (of 120%) in the American economy. By 2009, the debt ratio had reached 381%, a level unprecedented in history. Even in 1930, when GDP collapsed, the ratio barely topped 300%.” Dr Morgan says that it is not the debt itself that is remarkable but how long this could go on. A main mechanism to have it going and supported by the public was the extended period of ever increasing property prices, reaching its highest level of folly in Japan where one square meter in Ginza in Tokyo fetched up to US$ 215,000, which is what you pay for 100,000 square meters of the best agriculture lands in the world (and those prices are also inflated!). Adding to the illusions was the innovation of new financial instruments, which supported lending also to those who could not afford it. While US economic growth was $4.1. trillion between 2001 and 2007, consumers increased their debt with an enormous $6.7 trillion.

The damning account of the follies of globalization was what surprises me most in the report. Dr Morgan dismisses the talk of Western economies modernizing themselves by moving from production into services as obscuring the fact that “Western consumers sold each other ever greater numbers of hair-cuts, ever  greater quantities of fast food and ever more zero-sum financial services whilst depending more and more on imported goods and, critically, on the debts used to buy them.”

Consumption by Americans increased by $6,500bn between 1981 and 2011, while consumption by their government rose by a further $1,700bn. Meanwhile, the combined output of the manufacturing, construction, agricultural and extractive industries grew by barely $600bn. Net exports of services was worth $200bn in 2011, i.e. far from sufficient in bridge the gap between consumption and production.

Dr Morgan delivers an interesting critique of the theory of competitive advantage (originating from David Ricardo) which has underpinned the globalization “project”. According to the theory, the general wealth will increase if all countries specialize in those activities in which they possess the greatest competitive advantage over others. “This logic is valid if – but only if – the scope for growth is infinite. Unfortunately, an unlimited capability for growth can only exist if the supply of resources is infinite as well.” says Dr Morgan.

I am not able to judge the accuracy of the third major cause of the mess, the distortion of data, but it is certainly remarkable. Dr Morgan claims that inflation figures, GDP figures and several other key economic data are inaccurate. The US GDP is inflated by 15% through various “imputations”, such as the “owner-equivalent rent” which includes the estimated “rent” that a house-owner would have paid for his house were it rented in the commercial market.  

”All goods and services on which money can be spent are the products of energy inputs either past, present or future.”

Many have claimed that our economy is mainly an energy equation. For example, I write in Garden Earth:

”A barrel of oil represents the energy of 25,000 hours of human toil, that is, 14 persons working round the year with normal Western labour standards. The cost for pumping the oil is not more than a few dollars per barrel, and even with an oil price of many hundred dollars per barrel, it is very cheap[...] From this perspective, our current wealth can be easily understood and demystified. Even hundreds of years ago, long before industrial society and capitalism, the person who had hundreds of others working solely for him or her could lead a comfortable life. ”

It is more unusual that persons submerged in the financial system have these insights. But Dr Morgan certainly has. He states that the economy is a physical construct based on energy rather than a financial construct based on money. We have been blinded by the fetish money (read more on this on The business plan of the factory is to produce externalities): “money is the language rather than the substance of the real economy. Ultimately, the economy is – and always has been – a surplus energy equation”.  From there he continues to discuss the huge impact on the economy that a declining Energy Return on Energy Invested (EROEI) will have. I explain EROEI in this recent post. 

Dr Morgan states that the average EROEI has gone down from 40:1 in 1990 to 17:1 in 2010 and might decline to just 11:1 by 2020. This would cause an average increase of energy costs with 50%. In this perspective it is worth noting that the EROEI of the famed US shale oil is somewhere around 4-5:1. With an EROEI the direct energy share of the GDP would go from 6.7% to 9.6%, and perhaps reach 15% by 2030. Notably, increased energy costs cascade through the whole economy, and will cause cumulative effects. 

Clearly, cheap energy has been one of the major drivers not only for our increasing wealth, but also for globalization and for the debt economy, “debt really amounts to ‘a claim on future energy”. Similarly, the end of cheap energy will mark a tectonic shift in our society.
   

I am a strong believer of the huge importance of energy for our society, but perhaps Dr Morgan goes just a bit too far here. The fact that a lot of development has used cheap energy as its main driver is not necessarily a proof that energy itself constitutes the essence of human society. He claims, for instance that it is likely that food production will decline with half if energy becomes scarce. True, energy has a very important role in today’s agriculture system (read for instance Why oil price and grain price follow each other or Agriculture: How cheap energy (and capitalism) increased the gaps between rich and poor), but this is also an effect of that energy is cheap.

Choosing between several options for increasing production and productivity, methods involving high energy use are likely to dominate when energy is cheap. It is cheap fossil energy that has made the widespread use of nitrogen fertilizers a cornerstone in the farming systems, but if chemical fertilizers become uneconomic to use, farmers will use more biological nitrogen fixation, nutrients that are now flushed to the waterways will be recycled etc. Cheap energy has also driven globalization and increasing international trade in foods, but many countries could produce more food if global competition was less, and prices higher. 

I missed an analysis of the effect of the demographic transition. It seems to me be a fifth important trend to consider.I also missed an analysis of which role capital accumulation and capitalism play in the system.

The report is worth while reading, and it has a number of provoking statements and amusing one-liners.