The convenient illusion of the fair market

Jopseh raking sea weeds from the beach

I am spending a few days at the Sarova Whitesands in Mombasa, a very large and posh hotel (participating in a workshop).

Every morning there is an army of people raking sea weed from the beach. They are paid by the government to clean up the beach to make it attractive for tourists.

It is just one of many examples of how those that are better off - including myself - benefits from the poverty of others. If Joseph and his colleagues got paid the same as I, or you, this work would be so expensive that it would not be possible to do it.

Also those that never go abroad or even see or meet a really poor person can still benefit from their labour. A glaring examples was of course the collapse of the textile factory building in Bangladesh which left more than a thousand people dead. It is their blood that makes our clothes cheap. Of course one can argue that if we didn't buy the clothes, or if tourists didn't come to Mombasa, these people would have no work at all. But I do think that is a far too convenient argument that we have heard to often. People with privileges always find moral excuses for maintaining them.

Our excuse is that the market is always fair. This is underpinning our whole society. Markets are by definition self-regulating and fair. 
  
But, the unequal value we (well we don't want to admit that it is "we", but instead it is this power of nature - the market) assign to peoples work is simply not fair or reasonable, it doesn't matter if we discuss the difference between the top CEO in Sweden and the workers in the same company or the difference between those workers in Sweden and the farmers producing their morning coffee. As we all live in the global economy, comparisons should also be global, and measuring (in)equality should be global.


And the sea weed? Unfortunately nobody takes care of the sea weed - it is an excellent fertilizer. It is washed out into the sea, and most of it comes back the next morning...
I think Joseph is done now, time for a swim.

Heinberg: growth will end.period.

Economic growth as we have known it is over and done with; only relative growth is possible. The world economy is now a zero-sum game, with a shrinking pie to be divided. According to Richard Heinberg in End of Growth, Adapting to Our New Economic Reality, the three factors that stand firmly in the way of further economic growth are: resource depletion (oil, minerals, fresh water), negative environmental impacts (climate change, pollution, loss of biodiversity), and financial collapse (debt crisis).

The language is vivid and clear, the argumentation is solid. Heinberg clearly has both broad and deep knowledge about many important parts of the marvelous creation that we call society, and why growth will end.


The industrial revolution was really a fossil fuel revolution. Petroleum plays as big role in this book as it does in modern society. “Energy is not just a commodity; it is the prerequisite for any and all activity. No energy, no economy,” says Heinberg, an American journalist and the author of ten books. He serves as a Senior Fellow at the Post Carbon Institute and was one of the first to bring up the huge impact peak oil would have on modern society.

Not only are fossil fuels depleted but also fresh water is being critically overused and degraded. In the US, many mineral resources, including bauxite, copper, iron ore, magnesium, phosphate rock, potash, and zinc, are well past their peak rates of production.

The central discussion in End of Growth, however, is the financial collapse of 2008, and the following global crisis including the Euro crisis, Heinberg says “marks a permanent, fundamental break from past decades.” He says that “the entire economic system had come to depend on impossible-to-realize expectations of perpetual growth and was set to detonate.” Money was tied to banks making money when issuing loans and credit was tied to assumptions about growth. When growth stalled in 2008, there was a chain reaction of defaults and bankruptcy.

I find it very hard to know if the financial turmoil of today is really a fundamental break or just one of many stations on the path of a train downhill. Viewed in the longer perspective, I have no doubt that Heinberg’s link between the economy and resource depletion is real. Whether contraction is chaotic or controlled, and whether it comes sooner or later, a radical simplification of the economy is more or less inevitable, as systems designed for cheap energy and resource depletion reach environmental limits.

When energy declines, the trend toward specialization will be reversed and so will urbanization. Urbanization depends on surplus agricultural production from agriculture, which in turn depends on cheap oil. Whether we like or hate globalization and specialization, we will rely more on local resources and production capacity. “How far we will go towards being local generalists depends on how we handle the energy transition of the 21st century,” says Heinberg.

Heinberg certainly doesn’t sugarcoat his messages. It is possible to have a civilization without fossil fuels, but this civilization will be different than ours. How far will we have to retreat? Can we surrender cars, highways, and supermarkets, but still keep cultural exchange, tolerance, and diversity, healthcare, and instant access to information?, he wonders.

End of Growth is not a comforting book to read, and it shouldn't. “I may seem to have gone out of my way to focus relentlessly on negative prospects, discounting possibilities and opportunities while highlighting limits and dire outcomes,” writes Heinberg and explains that because the end of growth is an unattractive notion most people are likely to avoid considering it.

Heinberg identifies, like many others, that the problems of dwindling resources and environmental destruction are compounded by population growth. Any gains from increased efficiency of resource use are erased by growing populations.

One aspect of demography missing in this otherwise excellent book is that of demographic changes themselves causing growth to shrink or even cease altogether. The importance of population growth for our unprecedented economic growth is underrated. There is a very strong correlation between the phases of the so-called demographic transition and economic growth. Countries that undergo the transition will have a once-in-the-lifetime-of-their-civilization window of opportunity, when workers are many, the number of children has gone down and the number of elderly is still small.

In the same way, once the cohorts of working shrink and population ages, growth will inevitably slow down. Heinberg notes this about China, “Beginning in 2015, China will see a growing number of older citizens relying on a shrinking pool of young workers.” However, this is not unique for China. Japan and most of Europe has already undergone this transition, which is a major reason why their economies hardly grow anymore. Apart for the resource scarcity, environmental problems and financial melt-down, I venture that we also reach Peak Work. In the United States, 67 percent of the people in working age were engaged in the labour force in 1998, up from around 50 percent in the 1950s; this has now dropped to almost 63 percent and the numbers are still falling

The list of critical problems facing civilisation is nearly endless, but for each problem there is a solution. But if there are so many solutions are available, why does the scenario for the future look so dreary? asks Heinberg and explains that most people assume that solving a problem means being able to continue doing what we are doing now. “Yet it is what we are doing now that is creating our problems.”

The mere idea that all challenges are problems to be fixed is perhaps “part of the problem”. John Michael Greer talks about the difference between a problem and a predicament. A problem calls for a solution; a predicament, by contrast, has no solution. Faced with a predicament, people come up with responses. Those responses may succeed, they may fail, or they may fall somewhere in between, but none of them will “solve” the predicament, in the sense that none of them can make it go away.

It seems to me that it is hard to discern what is needed to save the economy from imploding with a big bang – something that will cause enormous suffering and social strife – and what is needed to induce a smooth transition. This is, of course, extremely difficult to know when you are in the middle of it. One thing seems clear – that it can hardly be more of the same that will get us out of the mess.

Heinberg also sees a conflict between the survival strategies of individuals and what is good for society at large, at least in the short-term. Individuals should be disengaging from consumerism, getting out of debt, becoming more self-sufficient. But if everyone did this, it would keep the economy from recovering and would push us further into recession.

Heinberg points to local currencies, Transition towns and cooperatives as useful tools. He also floats the idea of locally-based Community Economic Laboratories established in the center of towns. But he also notes that “there is no hope in hell that Transition initiatives, co-ops, and alternative currencies will spring up fast enough and on a sufficient scale to avert general economic misery.” Heinberg banks on our abilities as social beings; he believes our most valuable assets will be local communities composed of people who are willing and able to work together. To maintain the social cohesion must be our single highest priority.

Heinberg has changed the discourse from discussing why growth should end to that growth will end. Period.


Read more: Richard Heinbers's web site
Other endorsments
"Heinberg shows how peak oil, peak water, peak food, etc. lead not only to the end of growth, and also to the beginning of a new era of progress without growth.”
–Herman E. Daly, Professor Emeritus at School of Public Policy, University of Maryland and author of Beyond Growth

“Dig into this book! It is crammed full of ideas, information and perspective on where our troubled world is headed – a Baedeker for the perplexed, and that’s most of us.”
–James Gustave Speth, author, The Bridge at the Edge of the World: Capitalism, the Environment and Crossing from Crisis to Sustainability
More endorsements for ‘The End of Growth’

Ebook
I used  End of Growth as a test case for reading an e-book. I liked the book a lot more than I liked reading on the PC-kindle! Admittedly the Kindle was great for copying text and for highlights, but somehow I don't get the same overview when reading on the e-book.  Perhaps it will come with practice.

African Experiences in Resilience and Sustainability

I have had the pleasure of being one of the co-editors of the book, Organic Agriculture: African Experiences in Resilience and Sustainability, which is now published by the FAO.
The book is available for download at: http://www.fao.org/docrep/018/i3294e/i3294e.pdf

The publication stems from the conference on Mainstreaming Organic Agriculture in the African Development Agenda, held in Lusaka, Zambia, from 2 to 4 May 2012. All papers and presentations from the conference is available here.

Ten of the papers of that conference has been reworked into this beautiful book.The different chapters in the book document sustainability experiences, including: mainstreaming organic agriculture into African development approaches; community-based livestock systems combining holistic range management; indigenous ethno-veterinary practices and customary systems of resource management; ecofunctional intensification through management of legumes, systems of rice intensification and integrated farming; and smallholders’ knowledge harnessed through family farmers learning groups and customized information and communication technologies.
 
Included in the book is the Lusaka Declaration on Mainstreaming Organic Agriculture into the African Development Agenda, which was an outcome of the Conference. Among others it said:

We agree that organic agriculture  plays a key role in sustainable development, food security, poverty reduction, environmental security, climate change adaptation, human health, preservation of indigenous knowledge, plant varieties and animal breeds as well as socio-cultural development. We shared international research results confirming that the adoption of organic agriculture practices significantly increases yields and improves livelihoods and food security in Africa.  Based on locally available renewable resources instead of purchased chemical inputs (over 90 percent of which are imported in sub-Saharan Africa), organic producers are less vulnerable to international input price volatility. Moreover organic agriculture is climate smart agriculture, as it produces lower emissions and also provides much greater resilience in times of climate extremes such as drought and heavy rains.  

The Lusaka Declaration also urges all African Governments to include organic agriculture in their policies and agricultural development agenda, including their Comprehensive Africa Agriculture Development Programme (CAADP) Country Compacts and Investment Plans, in consultation with the organic agriculture stakeholders in their countries.

Capitalism: The right to extract wealth

"When we buy stock we are not contributing capital: we are buying the right to extract wealth."

(Marjorie Kelly,The Divine Right of Capital, 2001)

The legitimacy of capitalism rests on two arguments, closely related to each other.

The first is a system that in a rational way, through peoples’ self-interest, efficiently organizes production and consump­tion, with little or no government control. This system creates increasing wealth. Although this system has created enormous wealth and a tremendous increase in useful as well as useless ‘things’, the wealth is very unevenly distributed, resulting in enormous gaps in society. It has also not made people more satisfied. Meanwhile, it has created havoc in nature, from pollution of a local water source to disruption in life-supporting cycles such as the carbon and nitrogen cycles. ‘As efficient as markets may be, they do not ensure that individuals have enough food, clothes to wear, or shelter,’ says Stiglitz (2002: 222). There is a need for constant government intervention to correct all so-called market failures. It is wise to exempt large parts of society as well as nature from the logic of the market. Most people who are essentially positive towards capitalism and market economy realize that.

The second argument is a moral defense both for the accumulation of capital and for making profit. Even if it can appear a bit unfair, these mecha­nisms are needed to stimulate innovation and development. In the long view, everyone will benefit. The sometimes absurd profits are explained—and defended—by Schumpeter (1942) as follows: Spectacu­lar profits, much bigger than needed to motivate the action, are gained by a very small group of winners. The possibility, the dream, of these enormous gains stimulates normal business more efficiently than if everybody got only a very modest profit. They overestimate the possibility for the big win in the same way as a poker player or a lottery-ticket buyer. In Schumpeter’s view, one should agree to these giant profits, and the thereby associated differences in income and wealth, because it is the best way to stimulate development. This is the essence also of others’ defense for capitalism, even if modern propo­nents mostly express themselves a bit more politically correctly than Schumpeter did. Let us study this argument a bit more in depth and how well it passes the test of reality.

Capitalism doesn’t require limited companies, but it is the institution that most clearly epitomizes capitalism. Take the example of a small limited company. It has existed for 10 years and its total revenue over 10 years is in the range of US$ 30 million. The start-up capital invested in stocks was US$ 60,000. The shareholders have got small dividends over the year, just corresponding to a typical interest rate; they wanted to keep the profits in the company to allow for rapid growth. Through accumulated profits, the company is now worth some US$ 500,000; that is, the value of the ‘investment’ has increased eightfold in 10 years. This is nothing exceptional but all in all it is a reflection of a moderately successful company.

During the 10 years of existence, some 10 people have been working in the company. They have had a good salary; they even have been part of a profit-sharing programme. One now wonders why the ones who invested the original capital 10 years earlier should be the owners of the whole company. Isn’t it the fruits of the 10 people who work that has made it what it is today? The original capital, representing less than 1 person-year of work in value is now worth more than the 100 person-years of work dedicated to the company over the years. Strangely, this is accepted as the most natural thing.

The stated purpose of limited companies is to supply their owners with profits. This is motivated by the owners supplying the capital that is needed to start and invest in the operations. This is also the reality when many companies start. The bulk of the trade in stocks is not about company start-ups, however, but about stocks that are bought and sold purely speculatively. In the period 1900–1953, new stocks contributed less than 5% of the needed capital for business in the United States. At the end of the 1990s, only 1% of the value of the stock that was bought and sold reached the companies, the rest was only transfer between stockowners (Kelly 2001).

As the system is now, the stockowners have the power over compa­nies and the exclusive rights to profits. Not the total right actually; the other power centre in society, the state, has ascertained its share of the profit through company taxes, in almost all societies. One can also see this as a payment for the services companies get from society, such as an educated work force, health system, legal system and protection. The employees, the clients, the local community or the environment have no right to a share in profits. Between 1987 and 1997, the stocks in the Dow Jones index went up 300%. In the same period, real wages in the United States dropped 7%. That can hardly be fair, reasonable or even efficient. As Schumpeter (1942) noted, when companies are not managed by entrepreneurs but by professional managers, and owned by investors, the whole idea of ownership and entrepreneurship is destroyed.

In a limited company, the owner has unlimited rights to the profits of the company, but only limited responsibility for the losses. This is the essence of limited companies; 200 years ago this didn’t exist. It is an innovation and a privilege extracted by the rich in the same way as the nobles saw to it that their rights were enshrined in law. There were shareholding companies earlier, but the owners were personally responsible. The emergence of limited companies is the first example, and one of the clearer examples, of how the wealthy class tries to privatize gains and socialize losses, something that became very apparent during the financial crisis of 2008/2009 where a trillion of dollars or more were used by governments just to prime the financial markets because they were not willing to take any risks; the same markets that claims the legitimacy of their mere existence with that they are needed to provide businesses with risk capital!

It is an undisputed fact that capitalism is very good in making business out of innovation, but that doesn’t mean that most ground­breaking innovations in society have been made by private companies. On the contrary, most big innovations have taken place in very different arenas. Automobiles, television, radio, nuclear power, antibiotics, wind power, sailing, electrification and the Internet are all examples of groundbreaking technologies that were driven primarily by governments or by curiosity and the ‘wish to know’ rather than by capitalist innovation (Hourihan and Atkinson 2011). When a big leap in technology has already been made, entrepreneurs find commercial uses for the new technology. The Internet is a very good example of this. Entrepreneurs are also very good at moving those technologies out to the people.

Technological development was rather slow before capitalism, and one of the reasons was that there were few incentives for people to improve efficiency. The rich could extract value added by serfs, tenants or slaves and didn’t need mechanization and the poor had neither resources nor real possibilities to turn any innovation into business. Having said that, there is certainly no reason to believe that innovation will cease without the profit motive. To make the job easier or more entertaining is a driver for innovation as well. Human nature is curious and innovative and that will be the case also without profit motives. To do something new, something good, not only for oneself but for the whole community can be a forceful driver, and it is also something that could be highlighted and emphasized more in a way that it renders more status.



(Extract from Garden Earth: from hunter and gatherers to global capitalism and thereafter
Available from Create Space, Amazon.com , Amazon.de, Amazon.es, Amazon.fr, Amazon.it, Amazon.co.uk and most book retailers)

The frog that jumped out!

Communicating climate change: may the force be against you!

Posted by Ugo Bardi

Yoda's three fingered force push - from Star Wars.

Don't you have the impression, sometimes, that the force is against you? Every time you try  to say something about the dangers of climate change, you see people literally being pushed away from you by an invisible force. It feels like being Star War's Yoda, pushing away enemies with "the force". Read more


This is to spread the word about a new blog initiated by Ugo Bardi and others.
It presents itself like this:

Telling the truth is not enough

This is a blog dedicated to communication in climate change. 

We are a group of concerned people who believe that the risks involved with climate change are clear enough that it is time to act.


So far, however, the task of communicating the urgency of the climate problem has not been successful. Telling the truth turned out not to be enough to spur people into action. We need to do way better.

This is what we want to discuss in this blog. We need to learn how to communicate. It means to learn how to tell the truth on climate in a way that doesn't scare people  but, on the contrary, stimulates them to action. It is possible, but we need to do it right.

We chose the image of the boiling frog as a reminder of the human situation on planet Earth. We hope it is to be intended as meaning that we are (or should be) more intelligent than frogs. We can still jump out! 

 

Another inequality measure - airmiles

Sometimes images are telling a lot. The picture below is from worldmapper and shows the flights in kilometers from different places. It says something about carbon foot print and it certainly says something about inequality in the world. Especially inequality between the countries.


"In 2000 civilian aircraft flew a total of 25 billion kilometres. If someone flew this distance they could circle the earth more than 630 000 times. If the total distance flown by all aircraft passengers was divided equally between everyone living in the world, we would each fly 317 kilometres a year. In fact some people fly thousands of kilometres a year, whilst others have never been in an aeroplane. The people flying the most kilometres tend to be from island territories. On the other hand, people from Haiti and the Dominican Republic, also island territories, are amongst those flying the smallest number of kilometres per year."

Growth is gone - welcome steady-state

Perhaps we should stop discussing whether growth is good or bad and just conclude that it is ending...
Clearly, growth has stalled the last decade. Of course, some still put their faith into that growth will restart again, and they have all kinds of ideas what societies should do to re-start growth. Many, including myself, question the growth paradigm itself. Well, perhaps we don't have to discuss it anymore - growth is declining.



This is particularly apparent if we look at GDP per capita which adjust for population growth. In most rich countries the number of people working in the economy is declining and with them economic growth - Macrofugue Analytics talks about Peak Capitalism. In most parts of the world, we have reached Peak Child. For a while those countries, such as China will go through a period of growth stronger than ever before and ever after, but gradually growth will subside. While we will not run out of fossil fuels, there is no doubt that new sources are much more expensive to extract and has lower EROEI than earlier finds and therefore contributes less to growth. 

It seems to me that young people in Europe or North America today can not assume - as my generation did - that things will be better and better. And this is even without the drama of climate change taken into account. Youth unemployment in Spain has reached 56 percent these days.

So, instead of arguing if growth is good or not, perhaps we should instead discuss how we will manage a society without growth. Also those that are in principle in favour of continued growth might find it wise as a safeguard - a contingency planning.

It seems to me that we need to re-think a lot in our societies if growth is not there. One apparent thing is of course pensions. We can already see a pension squeeze in many countries. Intra-generational conflicts might increase when the cake is not constantly growing. Many business models are built on assumptions of growth and many peoples' housing "careers" are built on ideas of ever increasing house prices - assumptions that already have proven wrong and dangerous. 

As a matter of fact it might be the case that our entire system requires growth. But then we would have to revisit the system rather than desperately trying to incite new growth, with higher and higher social costs.

The religious belief in constant progress needs to be revisited.


read also:
Lagom is good enough
We get richer also without growth
Aging populations will end growth
Japan: post growth and post-peak-oil works?