Posts Tagged ‘business’
“Man is a part of nature, and his war against nature is inevitably a war against himself”*…
A sobering new study finds that the world’s biggest industries burn through $7.3 trillion worth of free natural capital a year. And it’s the only reason they turn a profit…
The notion of “externalities” has become familiar in environmental circles. It refers to costs imposed by businesses that are not paid for by those businesses. For instance, industrial processes can put pollutants in the air that increase public health costs, but the public, not the polluting businesses, picks up the tab. In this way, businesses privatize profits and publicize costs.
While the notion is incredibly useful, especially in folding ecological concerns into economics, I’ve always had my reservations about it. Environmentalists these days love speaking in the language of economics — it makes them sound Serious — but I worry that wrapping this notion in a bloodless technical term tends to have a narcotizing effect. It brings to mind incrementalism: boost a few taxes here, tighten a regulation there, and the industrial juggernaut can keep right on chugging. However, if we take the idea seriously, not just as an accounting phenomenon but as a deep description of current human practices, its implications are positively revolutionary.
To see what I mean, check out a recent report [PDF] done by environmental consultancy Trucost on behalf of The Economics of Ecosystems and Biodiversity (TEEB) program sponsored by United Nations Environmental Program. TEEB [Editor’s note: TEEB is now known as the Natural Capital Coalition] asked Trucost to tally up the total “unpriced natural capital” consumed by the world’s top industrial sectors. (“Natural capital” refers to ecological materials and services like, say, clean water or a stable atmosphere; “unpriced” means that businesses don’t pay to consume them.)…
The majority of unpriced natural capital costs are from greenhouse gas emissions (38%), followed by water use (25%), land use (24%), air pollution (7%), land and water pollution (5%), and waste (1%).
So how much is that costing us?… the total unpriced natural capital consumed by the more than 1,000 “global primary production and primary processing region-sectors” amounts to $7.3 trillion a year — 13 percent of 2009 global GDP… Of the top 20 region-sectors ranked by environmental impacts, none would be profitable if environmental costs were fully integrated. Ponder that for a moment: None of the world’s top industrial sectors would be profitable if they were paying their full freight. Zero…
The distance between today’s industrial systems and truly sustainable industrial systems — systems that do not spend down stored natural capital but instead integrate into current energy and material flows — is not one of degree, but one of kind. What’s needed is not just better accounting but a new global industrial system, a new way of providing for human wellbeing, and fast…
“None of the world’s top industries would be profitable if they paid for the natural capital they use,” from @grist.
See also: “The Biophilia Paradox,” from Clive Thompson (@pomeranian99).
* Rachel Carson
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As we buy it because we broke it, we might recall that it was on this date in 1980 that Coyote finally caught Road Runner– in Chuck Jones’ “Soup or Sonic,” which aired as part of the television special Bugs Bunny’s Bustin’ Out All Over.
“They laughed at Columbus and they laughed at the Wright brothers. But they also laughed at Bozo the Clown.”*…
Most technologies that grow up to be important, Benedict Evans observes, start out looking like toys with little or no practical application.
Some of the most important things of the last 100 years or so looked like this. Aircraft, cars, telephones, mobile phones and personal computers were all dismissed as toys. “Well done Mr Wright – you flew over a few sand dunes. Why do we care?”
But on the other hand, plenty of things that looked like useless toys never did become anything more than that. The fact that people laughed at X and X then started working does not tell us that if people now laugh Y or Z, those will work too.
So, we have a pair of equal and opposite fallacies. There is no predictive value in saying ‘that doesn’t work’ or ‘that looks like a toy’, and there is also no predictive value in saying ‘people always say that.’ As [Wolfgang] Pauli put it, statements like this are ‘not even wrong’ – they give no insight into what will happen.
Instead, you have to go one level further. You need a theory for why this will get better, or why it won’t, and for why people will change their behaviour, or for why they won’t…
That’s to say, Evans suggests, you need to be able to envision a roadmap from “toy” to wide, practical use…
These roadmaps can come in steps. It took quite a few steps to get from the [Wright Flier, pictured above left] to something that made ocean liners obsolete, and each of those steps were useful. The PC also came in steps – from hobbyists to spreadsheets to web browsers. The same thing for mobile – we went from expensive analogue phones for a few people to cheap GSM phones for billions of people to smartphones that changed what mobile meant. But there was always a path. The Apple 1, Netscape and the iPhone all looked like impractical toys that ‘couldn’t be used for real work’, but there were obvious roadmaps to change that – not necessarily all the way to the future, but certainly to a useful next step.
Equally, sometimes the roadmap is ‘forget about this for 20 years’. The Newton or the IBM Simon were just too early, as was the first wave of VR in the 80s and 90s. You could have said, deterministically, that Moore’s Law would make VR or pocket computers useful at some point, so there was notionally a roadmap, but the roadmap told you to work on something else. This is different to the Rocket Belt [pictured above right], where there was no foreseeable future development that would make it work…
Much the same sort of questions apply to the other side of the problem – even if this did get very cheap and very good, who would use it? You can’t do a waterfall chart of an engineering roadmap here, but you can again ask questions – what would have to change? Are you proposing a change in human nature, or a different way of expressing it? What’s your theory of why things will change or why they won’t?
The thread through all of this is that we don’t know what will happen, but we do know what could happen – we don’t know the answer, but we can at least ask useful questions. The key challenge to any assertion about what will happen, I think, is to ask ‘well, what would have to change?’ Could this happen, and if it did, would it work? We’re always going to be wrong sometimes, but we can try to be wrong for the right reasons…
A practical approach to technology forecasting: “Not even wrong: predicting tech,” from @benedictevans.
* Carl Sagan
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As we ponder prospects, we might send carefully-calculated birthday greetings to J. Presper Eckert; he was born on this date in 1919. An electrical engineer, he co-designed (with John Mauchly) the first general purpose computer, the ENIAC (see here and here) for the U.S. Army’s Ballistic Research Laboratory. He and Mauchy went on to found the Eckert–Mauchly Computer Corporation, at which they designed and built the first commercial computer in the U.S., the UNIVAC.
“Whoever pays the consultant gets pretty much what they want to hear”*…
For as long as there has been business, there have been consultants– outsiders hired hired by organizations to advise (on strategy or marketing or whatever), find opportunities, or fix problems. And like any large class of vendors, it’s been a mixed bag; some of those counselors have been helpful, some less less so, and some, downright harmful. What we come to think of as “management consulting” has grown up over the last century or so.
But over the last four decades consulting has changed in a way analogous (and not altogether unrelated) to the rise of the financial sector over roughly that same period (e.g., from about 5% of GDP in the U.S to nearly 8%; globally, the World Bank estimates that financial services have grown to 20-25% of the world economy). While there are still myriad consulting firms offering an astounding array of services, “consulting” has come to denote an industry dominated by firms like McKinsey & Company, Boston Consulting Group, Bain & Company, PricewaterhouseCoopers, and Deloitte– an industry that has had astonishing growth in recent decades. The worldwide market for consulting services is now worth somewhere between $500 billion and $1 trillion a year.
Mariana Mazzucato and Rosie Collington‘s new book, The Big Con: How the Consulting Industry Weakens Our Businesses, Infantilizes Our Governments, and Warps Our Economies, traces that growth, and it’s too-often painful consequences…
The authors race through a medley of involvement in misconduct — price gouging vital medicines; corruption in South Africa and Angola; forest destruction from Brazil to Guyana; ICE detention camps; the asset-stripping of public services from health care to railways; brutal economic restructures of struggling economies; mass layoffs; tax-dodging; the 2008 crash; and the Enron scandal, to name a few. One quickly gains the impression that there isn’t a single major act of state or corporate malevolence in our lifetimes free of the big consultancies’ fingerprints.
But despite a roll call of cartoonish villainy, The Big Con is more of an academic intervention than a boilerplate attack on unscrupulous businesses. First, it challenges the consultancies’ fundamental value proposition: that the industry’s success is based on increasing efficiency and profits even in a narrow sense. Second, it interrogates and historicizes consultancies’ success, rooting it in the peculiar history of recent capitals. And finally, it makes a strident call not merely for undermining the power of McKinsey and similar companies, but for reinventing how we produce value in a time of huge challenges…
Collington and Mazzucato focus on several particular forms of business. There are the “Big Three” strategy consultancies; the “Big Four” accounting firms whose profit is today based far more in consultancy than in their original functions; the “outsourcing” firms that claim to offer specific services to government such as IT or security but in practice effectively perform the role of government; and smaller firms based in similar models.
This sector has been at the heart of a decades-long transformation in both business and government. In-house expertise and specialized knowledge have been eroded and replaced by dependence on consultancies and their short-term, one-size-fits-all methods.
Mass privatization is, of course, a far broader phenomenon than consultancies. NATO’s wars in Iraq and Afghanistan saw private military and security contractors explode in size relative to the armed forces, resulting in both huge financial costs and human tragedy…
The privatization doctrine has also been enforced on the developing world, with brutal results. In every case, the public purse assumes most of the risks and the private sector profits most of the rewards.
Twin ideological doctrines have underpinned such a shift. In business, the “managerial revolution” — in which internal expertise is deprioritized, workers are ignored, downsizing solves everything, and all incentives are subordinated to short-term shareholder value — has been comprehensive. Recently the Boeing 737 MAX incident, in which passenger aircraft were effectively programmed to crash themselves, was attributed to the consequences of this revolution.
And in government, the historic experience of state-led innovation from NASA to the UK National Health Service (NHS) has been forgotten, and replaced with the inflexible view that the state is always less efficient than the private sector; public servants cannot be trusted to work for the common good; and where government has to exist it should resemble business…
A powerful– and painful– critique of consultants: Nathan Akehurst on The Big Con: “Consultancies Have Been the Handmaidens of Neoliberalism,” in @jacobin.
See also: “Need a consultant? This book argues hiring one might actually damage your institution” (source of the image above)…
While the modern consulting industry has a history stretching back over a century, Mazzucato and Collington write that the use of consultants really exploded after the 1980s. That’s when proponents of freer markets, like Ronald Reagan and Margaret Thatcher, began dismantling government bureaucracies and regulations. More left-leaning “Third Way” leaders, like Bill Clinton and Tony Blair, continued in their wake. “Public sectors were transformed under the credo of New Public Management — a policy agenda that sought to make governments function more like businesses and diminished faith in the abilities of civil servants,” Mazzucato and Collington write.
As governments lost the faith and capacity to do things themselves, they increasingly turned to consultants to help them accomplish tasks. Governments began using consultants for seemingly everything, from devising new tax rules to advising armies to overseeing the privatization of state industries to administering IT departments to devising strategies on how to cut carbon emissions.
At the same time, private corporations also increasingly turned to consultants to help them become more profitable. And here, Mazzucato and Collington portray consultancies as opportunistically surfing wave after wave of destructive capitalism. McKinsey & Company, for example, was involved in the Enron scandal and profited from the opioid crisis, helping Purdue Pharma “turbocharge” sales of its OxyContin painkiller.
“The Big Con is of course not responsible for all the ills of modern capitalism, but it thrives on its dysfunctionalities — from speculative finance to the short-termist business sector and the risk-averse public sector,” Mazzucato and Collington write…
@NPR
* Matthew Stewart (an author and philosopher who worked in consulting for seven years before turning away)
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As we look askance at avaricious advice, we might recall that it was on this date in 1767, in a letter to Frederick II of Prussia, that Voltaire wrote “Doubt is an uncomfortable condition, but certainty is a ridiculous one.”
“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair”*…
Mike Konczal unpacks happens when one takes the AEI graphic of items that have had high and low inflation, but extend it to all categories…
This graphic is in the news again:
Its creator is Mark Perry of the American Enterprise Institute, who last posted an update to it in July 2022. He’s been doing a version since at least 2016, and if you read enough economics blogs or content you’ve probably seen some iteration of it.
People are talking about it again after Marc Andreessen posted it under the headline “Why AI Won’t Cause Unemployment.” Andreessen describes what people generally take away from it – blue line capitalism and dynamic, red line government regulations and stagnant…
Matt Yglesias noted on twitter that he’s “come to think it’s misleading — by being very selective in which categories of labor-intensive services it chooses to chart, it’s generated a narrative that relative price shifts are just about government regulation.”
That seems correct to me; these categories are pretty loaded. Let’s see if we can do better by including every possible category… let’s download all of the current Consumer Price Index (CPI) data off the BLS download site…
Since the BLS is constantly changing categories, we have to select the items that exist in both January 2000 and February 2023 to duplicate the chart. That leaves us with 62 categories. Doing a quick glance (and seeing in Perry’s own chart) the year-by-year evolution over time doesn’t really tell us much, so we can go with a simple bar chart for overall change. Let’s chart that here in full:
There are a few key takeaways looking at it this way:
In our version of the AEI chart the number one item isn’t health care but ‘delivery services,’ which is “fees for delivery of items such as letters, documents, and packages at non-US Postal Services facilities.”Think UPS or FedEx. This is pretty far from a government monopoly, indeed it’s the private sector alternative to a government program. But it is services and it is labor intensive.
The biggest thing, to me, isn’t “regulations” but whether it’s a service or a good…
More on how and why that matters in “A Better AEI Graphic of Inflation Over the Past 20 Years.”
* Sam Ewing
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As we ruminate in the rise, we might recall that it was on this date in 2006 that Twitter co-founder Jack Dorsey sent the first tweet.
“The idea that there might be limits to growth is for many people impossible to imagine”*…
Jason Wilson on the Carthusian monks’ decision to limit production of their famed liqueur and what it says about quality and scale in our modern world…
[In January, 2023] a letter from the Carthusian monks in Voiron, France circulated through the world of spirits. It was, in the hackneyed parlance of journalism, a “bombshell.” The letter explains a decision by the monks to limit the production of Charteuse, their famed Alpine liqueur dating to 1605, in order “to focus on their primary goal: protect their monastic life and devote their time to solitude and prayer.”
Apparently this decision had been made quietly in 2021 (quietly being how most decisions are made in a monastic order sworn to a vow of silence). A growing Chartreuse shortage started being noticed by spirits enthusiasts during 2022. The drinks website Punch verified the letter a couple of weeks ago. Chartreuse will now only be sold exclusively under allocation, making it much more difficult to find.
First of all, allow me to applaud this stance by the Carthusian monks. I deeply admire their willingness to say “enough” to the relentless market forces pushing them to produce more, more, more, at all costs. It’s honestly inspiring that the monks refuse to see their earthly purpose as satisfying the demands of some knucklehead mixologist doing his little riff on the Last Word at some lame speakeasy in some third-tier city.
Less but better and for longer. What a refreshing thing to hear in 2023. In nearly every other realm of our soul-crushing age, the focus is to scale everything as big as possible, quality be damned. As someone who operates in a media industry that values an endless stream of cheap, SEO-driven clickbait over well-written, thoughtful content that costs effort and money to produce, I stand with the monks…
“Where Has All the Chartreuse Gone?” from @boozecolumnist.
* Donella Meadows
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As we find balance, we might recall that it was on this date in 1915 that Absinthe is outlawed in France and several other countries.
Absinthe was a licorice/anise flavored liqueur that contained wormwood, and was 132 proof. The high alcohol content, and the presence of the toxic oil thujone from the wormwood, seemed to cause hallucinations, convulsions, and severe mental problems amongst hard core absinthe drinkers.
In response to the ban, Henry-Louis Pernod, who manufactured Absinthe, came out with the lower alcohol, wormwood free liqueur ‘Pernod’, to replace Absinthe… though Absinthe sales were subsequently reinstated in the E.U.
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