This summer I had the pleasure of attending a rather unusual type of art class: the lessons were about creativity with basically nothing taught about actual painting. That’s right. I spent a lot of time in front of a canvas with brushes I knew very little about how to use and paint I knew even less about. And I learnt more than I could have dreamed of, even painted some paintings. Read More…
Extractive economy is business-as-usual and the mental model taught in business schools. It is not called that of course, but examining any business textbook will reveal that the mental model – or paradigm – of extraction is underlying most teaching. This article aims to explain in clear terms what extractive models are, point out some of the shortcomings and hopefully opens up to the possibility of other, more functional, models. Read More…
- Phosphorus is mined and processed into fertilizer along with other nutrients like potassium and nitrogen.
- Applied to the fields, it is incorporated into vegetables and sold direct or as animal feed.
- Phosphorus leaks from agriculture into waterways and is exported to shops as food.
- Consumers purchase food for consumption.
- Phosphorus leaves the body mainly as urine.
- Sewage is processed at water purification plants.
- Some phosphorus is dumped as waste from purification, some ends up in waterways.
- Eventually phosphorus travels to the sea.
- Some phosphorus can be recovered from the sea-bed, most remains in the sea. New technology is being tested to restore seabeds and recover nutrients. Read More…
Could it be so that it is a badly-constructed monetary system that is holding humanity back in its shared project of peace on Earth? Or at least this miss-construction is not doing us any good? Marc Gauvin, money theoretician and author of two websites Money Transparency and Bibo Currency offers some interesting angles on money as a system. In recent correspondence, he suggested that the money system itself impacts peace negatively, but the system could be adapted to be a peace-promoting tool for humanity. We’ll lay out the ideas here and look forward to hearing your comments in the comments box below. Read More…
This presentation comes from the “Future day” seminar arranged by waste handler Ragnsells.
It covers why phosphorus requires to be treated as a special case in the circular economy, indeed in a circular economy culture. And gives a few ideas how to do that – mentioning the acute need to do something about the Baltic Sea.
Slides can be downloaded here. RAGNSELLS1
To learn more about the circular economy see the online courses available here http://circleeconomy.tssef.se
Launched just a few days ago, with Stephen Hinton as one of the main course developers, this new site will be offering both free and paid courses in the circle economy.
The site offers courses appealing to a wide range of audiences, from entrepreneurs, activists, policy makers, macro-economists and even those working with the peace economy.
Currently the site offers two free courses, one for entrepreneurs and the other connecting macro-economics and the circular economy.
Be sure to sign up to get notifications of coming courses!
Maybe it is just a sinking feeling you get in your stomach when you think of the global economy, or maybe you have delved into the depths of economic thinking. Either way we are not alone if you are concerned that the great human invention – money – is dysfunctional. Many are commenting on how our economic system – often called capitalism although that is hard to define exactly what it is – is coming apart. The comments are coming from the direction of Marxists, conventional economists, free thinkers and even the World Economic Forum.
In other words, the way we use money is not fulfilling the purpose of distributing wealth, ensuring the basic for survival, or driving stewardship of land and minerals.
People have started taken action. Although in their infancy, alternatives abound, including the REconomy movement – a branch of the Transition Towns movement that seeks to help create social, resilient enterprises based on local conditions. REconomy is very much a grass-roots movement. Those involved in REconomy locally have very little time for coordinating with others, sharing knowledge or engaging in EU-funded large projects. Making something happen on a local basis takes a lot of effort. Despite the initial enthusiasm you can whip up initially, it is a long, hard slog to get your high-street, if you are lucky enough even to have one (most are gone in Sweden), free of the domination of global brand chains. Indeed its hard enough just to get a local bakery started.
But it IS working. In several places the REconomy movement has increased the number of jobs in local firms, seen businesses be more sustainable and helped foster a sense of community,
The REconomy movement doesn’t have to start its own brand chain. Like many other movements it sees itself as a community of practice (COP). A community of practice is a network of practitioners helping each other get on with their practice, or business. A community of practice does not have to have its own organisation, rules, by-laws, membership fees, shareholders, stakeholders or the like. Just people sharing experiences. It COULD have some or all of that – if it helped – of course. You can commercialize a community of practice. Do that in a fair way and you get a platform co-operative.
A shared language of patterns
One thing that helps communities of practice is to develop a shared language. Terms appear that only practitioners understand the real meaning of – like names of tools used by people pursuing the same craft. But how do you share experience? The answer came from Christopher Alexander who put forward a ‘pattern language’ approach. He believed – and proved it – that you can describe something in a way that others pursuing your craft can follow. They can at least get started, copy what you describe and learn from experience from there.
As Alexander says: “no pattern is an isolated entity. Each pattern can exist in the world, only to the extent that it is supported by other patterns: the larger patterns within which it is embedded, the patterns of the same size that surround it, and the smaller patterns which are embedded in it. This is a fundamental view of the world. It says that when you build a thing you cannot merely build that thing in isolation, but must also repair the world around it, and within it, so that the larger world at that one place becomes more coherent, and more whole; and the thing which you make takes its place in the web of nature, as you make it”.
We need to name the patterns in operation. And evaluate them
This is huge. As Peter Senge pointed out in his book the Fifth Discipline, we all go around with patterns in our heads of “good ways to get stuff done” without even knowing. For practitioners of a craft, as their surrounding context changes, for them to change with it they need to be aware of the pattern (or paradigm) they are applying and question whether it will take them into the new context.
This is REconomy : Bringing to the surface the patterns that are hidden but operating, putting them together with the new context, questioning their fitness for purpose and developing new ones.
What follows is a first attempt to create a pattern for how to describe an emerging pattern for REconomy , based on experience.
- What is the underlying economic paradigm that is working, hidden.
- What is the context that it is operating in.
- Explain how the paradigm is unfit for purpose.
- Summarize the problem or challenge that the REconomy pattern you have discovered will address. you can use question form like “how can we increase employment in locally-owned companies?”
- Explain what this new pattern will do, how it will help
- Give your explanation as succinctly as possible with enough detail that it can be tried elsewhere.
- Include: number of people, the time-frame, the geographical reach and resources needed.
- Explain how your pattern addresses the initial challenge
- Provide additional information including other patterns this pattern works with, reference links and next steps to move forward.
Very useful in this context is to understand the two loops theory of system change. We are in a dying system and a new one is emerging.
Footnote: you might be asking for an example of the way this pattern language could work in practice. If you revisit the article you will see it is written using my proposed structure. Still needs work but a start at least!
Extractive economy is business-as-usual and the mental model taught in business schools. It is not called that of course, but examining any business textbook will reveal that the mental model – or paradigm – of extraction is underlying most teaching. This article aims to explain in clear terms what extractive models are, point out some of the shortcomings and hopefully opens up to the possibility of other, more functional, models.
Seldom do business textbooks describe the paradigm of modern business as extractive – that is to say based on extracting resources from the earth without replenishing or recycling them. This is possibly because the practice is so ingrained in our way of life that it is taken as the only way. Extractive business practices deplete resources and downgrade capital. It is rather surprising that the dominant business paradigm is capitalism and yet it runs on degrading capital. On a finite planet, this is surely not good business let alone good for the planet. A dialogue around extractive approaches can be helped by naming what is going on and describing the paradigm. Several patterns associated with extractive approaches are described including the bell-curve of oil field extraction and the accumulated capital investment curves precluding break-even. Extractive approaches have many social downsides including externalization of negative effects like pollution and noise, but the main challenge is that they are actually not even good business, especially as investments for fiduciary investors.
The basic idea of extractive business
The basic idea of extractive business is that there is a resource to exploit to produce goods and services which are sold at a profit.
By exploiting the resource:
- it gets used up (resources) or degraded (capital asset)
- money gets made by the people putting up money in the beginning
- money is made by the extractor
- it creates livelihoods for employees along the whole supply chain
- the extractor typically moves on, using knowledge and technology gained to the next pool of resource
Both resources and capital can be extracted
We should explore the distinctions between resources and capital – both essential components of business approaches. Extractive approaches use up resources, but even risk depleting capital. One of the definitions of capital is that which is used in production of services for payment but not used up. Obviously natural capital is one of the things that firms can use, but capital also includes built capital; buildings, machines, human capital, workers and so on, and social capital; organisations.
Capital can be drawn down, or reduced. For example, natural capital can be eroded if it is treated in such a way that more is extracted than can be regenerated. In this way capital can be treated by firms as a resource. Another example might be railroads. A firm can own railroads and rent them to railroad companies. The firm can maximize profits by reducing investment in maintenance. After a while, the capital asset – the railroad system – is worth less as the functionality of the system is degraded.
Typical examples of resources firms use up to earn money include:
- coal deposits
- oil deposits
Indeed, extractive business like energy companies and food distributers are among the largest corporations on Earth, so it is understandable that the extractive mindset is still dominant in the way business is taught.
TABLE: Largest corporations globally by revenues and their extractive approach Source: Wikipedia
Typical examples of resources being used up include:
- Soil farmed and not regenerated
- Forests clear felled and their ability to regenerate compromised.
- Workers losing their working ability through accidents or industrial illnesses.
Patterns of extractive business approaches
Extraction of resources typically follows a bell-shaped curve, illustrated below.
Initially, infrastructure needs to be set up to start extracting the resource, and as this is added production ramps up to about half of the resources are extracted. Typically, the other half of the resource is harder to get at, and production tails off from its peak.
This pattern is seen in oil field exploitation as shown below.
Another way to see this pattern is the “S” curve of accumulated extraction. This pattern is the corollary of the bell curve. Starting fairly slowly, the total amount of extracted resources accelerates and then tapers off towards the end.
The next pattern to consider is how business can be set up around this resource.
Typically, an investment needs to be made before anything can be extracted. This investment – money put up before any earnings can come in – typically comes from the owners of the business who are shareholders/stockholders or from outside investors who offer loans.
This investment follows the pattern below which shows money accumulated as investment.
As you see, the need for money invested rises rapidly in the beginning until a desired rate of extraction is reached. The slight rise after that represents the investment in replacing worn-out equipment.
The diagram below illustrates some key points in the business cycle.
- Time to production – from the first dollar invested to when production starts
- Time to break even – where the money earned from the operation is equal to the total amount invested.
- The final result – in this case the accrued profit is about 30% higher than the investment over the total lifetime of the business.
- The costs – these are not shown on the pattern. Costs include maintenance, inputs like fuel and labour.
- Throughout the lifetime of the business it generates jobs and livelihoods for both direct employees and employees in suppliers. It also generates livelihoods for customers using the products.
So what are the downsides with extractive business approaches?
Frontier mentality is unsustainable – cannot go on forever
The amount of extractable resources is finite, so with each completed extraction there is less to find. The model only works when there is a relatively large amount of potential resources to be had. The model drives itself as the investment in one extraction in terms of knowledge and technology can be transferred to the next, so there is a incentive to continue to the next resource. This mentality is something that may have developed in conjunction with the discovery of the North American Continent, as the frontier to the Wild West pushed forwards, successful businesses sought to repeat themselves further across the frontier.
It externalizes a lot of its true costs
Some of the costs of this type of business are actually moved across to society as a whole to to bear, and are not born by the producer or customer. For the oil and coal business these include:
- injured and disabled workers
- the consequences of climate change
- dealing with workers laid off after the industry declines
- changing infrastructure to use alternative sources of product (includes closing down townships near the facility, investment in new railways, etc)
It creates dependency on the extracted resource
The availability of an extracted, finite resource creates dependencies that require whole system changes after the resource depletes. One example we are dealing with today is the need for investment in renewable energy as oil and gas reserves are drawn down.
One way dependency is dealt with is through globalisation. When oil reserves deplete in one country the corporations move to another. So dependency drives globalisation and the risks of exploitation that follow it.
Unavailable for future generations
The whole problem with extracting finite resources in ways that do not let them be re-used is selfish in a way. Firstly, they are made unavailable for future generations, and they are used just by those who happen to find them. There is no thought of just distribution in the extractive approach.
Together with the need to make money to pay investors back, the model pressures wages into a negative spiral towards austerity
It follows from the discourse above that one way to get more money out of an investment is to reduce costs. Labour costs are one obvious target. Once an investment in infrastructure is made, with owners and borrowed money, the race is on to not only cover costs but to find a way to repay the investment with a profit. So there will always be a downward pressure on wages. That in turn creates an affordability problem for the workers’ essentials like fibre, fuel and food. If workers have less money, they have less to spend on goods produced. In order to sell goods produced from extractive practices at prices affordable to workers, there is more pressure to extract, even more cheaply, from land and from the earth. This creates a downward spiral leading to austerity, and ultimately conflicts.
The extractive economy and its relationship to property rights
Extractive business approaches tend to, where property is involved, draw down the ecological functionality of the property if it is land, and if it is machinery, emit pollution and exert other externalized pressures onto society around it.
- Mining – which affects the water quality of the surrounding area
- Industrial agriculture which imposes a nutrient burden on the eco-system around it.
- Vehicle ownership – which emits noise to surroundings
Extractive practices are actually supported in many cases by lax laws that do not protect the rights of surrounding eco-systems or society. For an extractive approach to be acceptable in the modern society, strict environmental, waste and pollution laws should apply.
A doubtful target for fiduciary investing
Through any project’s business cycle, institutional investors, like pension funds, will be looking to place their money to get dividends so they can pay their members’ pensions. These investors are expected to invest with prudence – to provide pensions whilst not degrading living standards for their pension-takers. Extractive businesses, whilst offering shorter-term possibilities of returns, always – by definition – reach an end-point. These businesses are only able to offer the kind of constant returns pension fund seek by having an ongoing portfolio of young, mature and ending extractive projects. As we saw earlier, this means that ordinary workers are being required to invest in extractive business approaches with externalized costs being placed onto society and bearing the risk that the available resources get depleted.
We cannot run all businesses with an extractive approach
We have to find ways to prosper in our present reality where we understand there is no Planet B. In that reality, an extractive economy is quickly seen as truly unsustainable when you start to analyze it. We can’t keep taking more from a place where there is only so much. There ARE alternative non-extractive but harvestable resources. Examples include well-managed soils that continue to be fertile for generations, well-managed forests that can provide fibre and fuel indefinitely, and the sun and wind and tides that can provide energy. There are, too, ways of recycling extracted minerals like copper indefinitely.
If extractive is the dominant business paradigm, the alternative is regenerative. This approach harvests resources whilst ensuring that the underlying capital – soil, forest, energy installation, minerals, etc remain functional and preferably function even better. This is the subject of future explainers.
For a more mathematical treatment of the subject, read this article.
Find courses on circular economy here
If business as a discipline is to develop away from extractive practices we need to develop a mathematical language to help economists and policy makers model alternative approaches. Modelling – using both standard business calculations and simulation tools like those developed by Steve Keen – can help decision making at the level of the individual firm and policy level. We propose that adaptations of the Cobb-Douglas Equation can be used to help those doing macro-economic modelling of the sustainable economy. We hope this article contributes to knowledge. Read More…