Some investment visionaries are rubbing their hands in gleeful anticipation of what AI (artificial intelligence) can do and what they can earn from it. AI has already shown that it can, cheaper and better, do the jobs of warehouse workers, doctors, lawyers and so many other professions. We ask the question what if it could do the job of investing better than capitalists themselves? How would that work? Would capitalism as a way of providing what we need become outdated?
For a long time now, the liberal attitude is that private enterprise, driven by greedy but well-meaning people with money they want to see grow is the best in class problem-solver. Transport? Enter the Henry Fords. Internet services? Enter Googles. Shopping online? Enter Amazons. A sustainable, equitable society? Enter … well we are waiting.
It only takes a short flight of the imagination to see the potential. Already, city developers and other experts are painstakingly developing the workings of something that could change the very logic of investment forever: cities that work for people, owned by people, supported by AI.
City infrastructure – power, transport, waste handling, commerce, water etc., key to creating sustainable cities, cannot be left to individual contractors and private investment to get the city quickly on the path to sustainability. Consultants like Resilience.io are offering infrastructure design applications that optimise infrastructure, use the latest and most sustainable solutions available, and end up often reducing investment needs by as much as 40%.
It is only a short step away to applications like those from Resilience.io can begin writing requests for tenders and indeed legal agreements. In fact, AI could start to propose whole company structures with business plans accompanied by full financial analysis.
So how about planning a city? One not just with an infrastructure that is eco-friendly, circular economy, but one that affords all citizens a decent life? And that includes the city’s vast hinterland. If AI can write songs, stories, design products, prepare legal cases it could well design not only spaces but ownership patterns, investment instruments, jobs, organisations, indeed whole cities.
Now, the wealth created from investment seldom trickles down to the poorer inhabitants. Current capitalist or even social democratic approaches are simply not cutting it.
Suppose, then, that this AI system gets tasked to design optimal sustainable infrastructure along with the optimal ownership pattern of the companies building and running the infrastructure and benefit for residents.
This is new. Under capitalism and social democracy firms produce primarily for profit rather than need. In this proposal, the firms should produce primarily for need. Obviously, one driving force, the possibility to earn money, should be there for private enterprises.
I imagine the AI system might come up with some form of Public Private Partnership. The firms building and operating the infrastructure are 50% owned by private interests, and 50% owned by an investment firm where every city resident is an investor and has equal voting rights.
In this way, not only does the city get great infrastructure, but the better the firm runs, the more dividend goes to residents (and private investors). And citizens get to have a say. One share gives one vote. They might even want to buy more shares if they believe in the company.
As they own part of the infrastructure residents might even be interested in looking after it, reporting faults, handling it with care, etc.
Maybe AI can be the force to help us get past the current impasse of capitalist/socialist – left/right outdated thinking?
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.
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
The product cost price equation reveals the opportunity
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.
Add a progressive charge on virgin material and distribute it to all taxpayers alike. (Fee and dividend model.)
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.
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 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.
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.
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 .
Some results from alpha testing of the Universal Basic Income simulation game
Together with the Swedish Sustainable Economy Foundation I am developing a Universal basic Income “Business Game“. The idea is to take a simplified, fictive country and play around with various aspects of UBI to learn by doing.
We are into the first alpha testing phase and have produced an overview dashboard to look into what sort of figure we are interested in following as the game progresses
The above run was a force run to see how raising taxes and lowering numbers in work looks in the system. As you see the state gets less to spend on services as income declines. Maybe not so interesting. The next run looks at raising UBI from under minimum standard and just raising VAT.
The second run added spending power of UBI takers to the dashboard. If you raise VAT you lower spending power. Interestingly – in the simplified model at least – you get MORE state income and the UBI takers do not get lowered VAT. This gives us a hint that it might be possible to raise UBI and Universal Basic Services, although the UBI eats away at the money available for social costs.
Modelling like this raises many detailed questions and it is a difficult task to make the game engine simple enough to handle in a game situation ( so that you learn basic principles) and complex enough to give a feeling of “real life” (so it feels authentic enough).
Let me know in the comments if there is any logic I am missing or any metric you want to see on the dashboard.
Our analysis of signals of change in the world tell us that there are major changes being called for.
Eliminate poverty – we already decided
The Sustainable Development goals set a new precedent for human development and it is still sinking in that the majority of countries in the world have signed up to eliminating poverty (SDG1) and hunger (SDG2) and eliminating threats to the environment.
A new Green Deal proposes massive investment in a new USA
From the Democratic party, the New Green Deal is the boldest proposal to come from the US for a long time – it will aim to eliminate poverty, create green jobs and transform the technical infrastructure of the US to a circular economy
The Circular Economy is central to achieving the SDGs and the New Green Deal
The idea has been with us for a while, and it is slowly becoming more and more apparent that nature works in a circular way and society needs to fit in. The possibilities are huge, from green, dignified jobs for all to eradication of pollution to a better life for future generations.
Heavy fees on things that pollute like fossil fuel can be a blessing
We are noticing how more and more economists are realizing that a heavy, increasing fee on fossil carbon could stimulate the economy rather than slow it if the fees are paid back to taxpayers. Some estimates point to 70% of citizens being better off under the scheme as those who use fossil fuels are ofter the wealthiest.
Have you ever pondered over the role played by the neighbourhood- cobbler, electrician and tailor in recovering resources and reducing waste? Most of us have never even noticed them. If I say that they like wastepickers and recyclers are going to be the pillars of ‘Circular Economy’ envisioned by economically advanced countries, will you believe me?
I am assured that your first question will be ‘What is circular economy?’
According to the authors- Peter Lacy & Jakob Rutqvist of the book ‘Waste to Wealth- The Circular Economy Advantage’, ‘
Shifting to a circular model means changing our linear economy’s supply logic. We will need more renewable energy, more biomaterials and biochemical that can degrade safely, and more technical materials like metals that are designed to use recovered secondary material and for low cost end of life recycling, effectively closing the manufacturing loop. We need components designed for reuse and products…