System description – where are the disconnects? #1

The COVID crisis is exposing many ways in which society isn’t working. We need to get to the root cause. What better way than to start by mapping the system as-is? My recent post system description gave a high-level description of the system we live in. We identified six entities and twenty-one flows. All but two of the entities are man-made, so if we can make something and it doesn’t work work well we can surely improve it? Once we have mapped the system we need to look for disconnects. Disconnects are where things don’t work as they should.

Disconnects that can be captured include entities that do not deliver, non-value-added steps, redundancies, bottlenecks, unnecessary bureaucracy, and any activities carried out in a linear order that could be completed in parallel. In addition to these system design disconnects, we look for process execution disconnects. These are situations in which steps in the process make sense; the societal entity just isn’t good at doing them. The causes could be many: lack of skills, inadequate systems, foolish policies, and/or an unsupportive culture.

Disconnect #1: firms’ activities are putting undue pressure on the environment

Firms are extracting natural capital living and mineral (3,11) like there is no tomorrow (ref.1) and some essential metals like lead and zinc have less than two decades left. (That is bad for we who use the products and the firms that rely on the metal.)

The way the return of materials to living capital (6,18) is happening is also bad deal for nature. For example, one of the world’s most polluted seas, the Baltic, is close to turning into an algal soup from eutrophication.

Disconnect – system fault or poor performance?

Fault of rules: Simple logic tells us that if firms were not allowed to extract natural capital in that way, them they never (or not at least legally) would.

Fault of incentive: Firms must balance income and expenses or they will cease to exist. There is something in the way that production is organised that makes it cheaper to extract irresponsibly – even if it means that the firm will not be able to do that long-term.

Fault of behaviour: business textbooks describe the input of raw materials and output of waste often without factoring in the full and hidden cost of these practices. It seems that we can find fault even in training and education.

Areas to address to change system and system entity behaviour

Firms and natural capital: need for regulation

All firms run under contracts and state legislation. Firms have no contacts with natural capital itself, but with entities who sell the right to use that capital. These natural capital-providing entities could be re-regulated to only be allowed to extract natural capital in a way that makes that capital available for future generations.

Need for financial incentives: increasing extraction surcharge with dividend

Proposed by the Swedish Sustainable Economy Foundation, (ref.2) an extraction surcharge could be levied on all sales of critical material extracted from nature. On selling on the material, the extractor or harvester must pay this surcharge, which will be passed on through the supply chain resulting in the end product being more expensive.

The surcharge is raised until the rate of extraction meets sustainable levels and society develops ways to recycle the material or use alternatives. At the same time, the money collected form the dividend is paid back to citizens equally. This means those who purchase the most goods that require extraction will pay most, and that those poorest will get a net rise in income and be compensated for the increase in costs if they have to buy the goods that cause over-extraction.

Business practices: need to understand the circular economy

The circular economy is one where everything you use you put back in a way that is available for the next time/person/generation.

We can do this

Science has for a ong time been able to provide us wiitha framework for how firms can and should extract and hharvest natural resources. We urge lty need this framework to be turned into rules, regulations and good practices surrounded by and eco-system of financial incentives so doing right is the cheapest and most profitable thing.