Explainer: Real Capital

This article follows on from the previous one in the series on explainers about capitalism “What exactly about capitalism means it extracts and exploits?“. We are gravitating towards offering a solution but we need to take a deeper look at what we mean by capital.

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Recent Assignments: the Swedish Circular Economy Delegation

Stephen Hinton Consulting recently completed the compilation of a database of Market Based Instruments that have been thought of, proposed or applied to stimulating the economy to circularity. The list is far from comprehensive but was put together as a first step for the Circular Economy Delegation to gain an initial insight into the opportunities for politicians and authorities to use these instruments to introduce full circularity into the Swedish Economy.

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Market Based Instruments usher in the circular economy in a timely way

If renewable solutions were cheaper for firms to use, they would. This is how price signals function to steer the behaviour of firms. For the circular economy to function, price signals should favour circular products and production methods. In other words, it needs to make better business sense to install circular and renewable energy infrastructure, and to install and use infrastructure that uses recycled materials. Without that, the linear economy – one that inputs extracted materials and outputs materials as waste – will continue to be the modus operandi of the profitable firm.

This article explores how to use price signals to steer firms’ buying behaviour in a way that keeps the economy stable. Market-based instruments are financial mechanisms that steer price signals to guide the behaviour of firms and markets in general.

What not to do

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The product cost price equation reveals the opportunity

ProductCost= Labour + Energy(Renewable + Fossil) + Materials (Recycled + VirginExtracted)

From the equation above it follows that the relative prices of renewable energy compared to fossil will affect the choice of energy source and the end-price of the product. So will too the price of circular materials over extracted materials affect sourcing decisions. If renewable energy is more expensive to utilize then fossil energy will be substituted. The same goes for recycled materials being substituted for extracted ones.

As proposed by the Swedish Sustainable Economy Foundation, a progressive extraction surcharge (or import surcharge) on for example fossil fuels could be levied when the material enters the economy. This surcharge is raised at regular intervals. This is a process of discovery; the levy is raised until sustainable products reach price parity with unsustainable alternatives.

A surcharge on waste leaving the firm could have the same effect, assuming the surcharges are carried over to the final consumer price. This makes sustainable products competitive. We can represent this in the equations below.

ProductCost_Linear=Labour +Energy(Surcharge+Fossil) + Materials (Surcharge+VirginExtracted) + WasteSurcharge

ProductCost_Circular= Labour + Energy(Renewable)+ Materials(Recycled)

ProductCost_Linear + Surcharge>ProductCost_Circular

However, introducing the fee would make the overall range of product offering more expensive to the end-user.

ProductCost_Linear+ Surcharge> Normal Market Price

ProductCost_Circular>Normal Market Price

To redress the imbalance, all or most of the fees levied should be returned to tax payers as a dividend. Guaranteeing the repayment of a sufficient fraction of the dividend in equal amounts to every tax payer by law will be an important step in an Environmental Fiscal Reform and an essential component for majority support in a functioning Circular Economy.

The equation would thus look like this:

ProductCost_Circular -Dividend=Normal Market Price

The repayment is needed to secure that the majority of the tax payers will always receive more dividend (repayment) each month than their increased cost of living due to the fees levied to correct the price signals and to create a sustainable economic incentive structure.

To find out more about financial instruments for the circular economy see my website. To learn more about the circular economy visit our online academy for free training. Circleeconomy.teachable.com

Stepping in as Sustainability Committee Chairman for RE Equity Partners AB

Investment will be in restoring real capital to lay the foundations for a green, peaceful and equitable society.

I am pleased to announce that I have accepted the invitation to chair the Sustainability Committee for RE Equity Partners AB.

The company has embarked on an ambitious endeavour to work with investments that regenerate real capital – and when used in sustainable businesses they give impact investors an impact return as well as generating financial returns.

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Greening the desert will help us. In many ways.

A group based in the Netherlands, called The Weather Makers, are rolling out an ambitious plan to turn the Sinai desert green. Apart from stabilising weather in the region and possibly an even wider area, the initiative hopes to bring livelihoods to the area, reducing the risk of conflicts among the troubled people who live in the area. The project literally has biblical proportions as it is the site of what ancient scripts refer to as the land of milk and honey.

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Bathtub economics busts three economic myths

Take a look at the video of bathtub metaphor for economics above. It shows money as water (that’s why we call it “liquidity”) flowing from consumers to companies to governments and municipalities and then back again. It is that simple for 75% of the population who do not own major assets like shares or properties.

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Appreciation for the Circle Way and Medicine Story

This is dedicated to Story Talbot, also known as Medicine Story, who passed away last July, at the ripe old age of 89. Story had dedicated his life to passing on what he called the old ways, traditions and understandings from North American tribes on how to live in harmony with the earth, oneself and each other.  It has taken a long time to gather myself to put down these words. Story’s influence on my life and thinking were so great, and his contribution to our development so profound that I just have to share my perspective.

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What exactly about capitalism means it extracts and exploits?

Not crony capitalism, not raw capitalism, not capitalism in the hands of wrong people but capitalism itself is the cause of the environmental degradation and social misery we see around us. Capitalism offers the rules if you like, the players play by those rules, and the results are what we see. If I am going to say something this bold, I need to be really specific and present good arguments. Let me attempt that, but you will have to bear with me through some details. This is not rocket science, but the whole subject area has many branching ideas so you will need to look hard to see the path through the subject matter.

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Why the doughnut needs the bathtub – economic models for real change

Kate Raworth’s Doughnut model of the way an economy should perform is excellent. But it needs an idea of how to control that economy so it performs to requirements. Enter the bath tub.

Kate Raworth has a wonderfully clear and simple concept – that we should arrange the way we run society on the principle that we do not exceed planetary boundaries – in our relation to nature – on one hand, and that we set things up to avoid people suffering and that everyone’s basic needs get fulfilled – the human dimension – on the other.  She draws it like a doughnut.

In her excellent book, Doughnut Economics, Kate shows how this task is essentially one for the economy and a question for economics. Doughnut economics gives us a very clear set of requirements for how an economy should work. That immediately brings one to think of money, investments, taxes, banks businesses etc. And that is where the model needs a little help .

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