GROWTH AND PURCHASING POWER

If you are against growth think again - if you are in favor of growth think again as well

The Reports to the Club of Rome in the early seventies described the facts beyond any doubt: unbridled growth pursuing ever more gross domestic product will soon hit a brick wall. It is not a matter IF, rather it is a matter WHEN. Exhaustion of natural resources, starting with the commons like water, air and top soil, will lead to a collapse in productivity, rendering societies incapable of responding to the basic needs of all. The concept of the carbon footprint described in clear terms that we are already in need of more than one Earth in order to satisfy human needs. We have clearly gone beyond limits. On the basis of this set of data, we need to stop growth.

On the other hand, there is massive poverty and billions need access to the most basic products and services to lead a humane life. It is impossible to refuse the right to respond to the need for water, food, housing, energy, and health. The drive to supply the basics to the bottom of the pyramid has been considered as an impulse to the old growth model. So the question is: are you in favor of growth, and further deplete the Earth faster? Or are you against growth and negate a few billion fellow earthlings the right to life? It is clear that the issue is not - either / or - we need to change the framework of thinking in order to satisfy both.

In previous articles I argued in favor of the multiplier effect, and the faster circulation of money as appropriate strategies to grow the economy without inflationary pressures. In this blog I expand on the power of innovation to increase purchasing power. In the end what consumers are interested in is purchasing power, not simply a salary. If there are urgent calls for increasing the miner wages in South Africa, the income of electronics industry workers in China, or the airline staff in Germany is that people just cannot make ends meet. Then, the only prevailing logic it to increase wages. However, more income for employees represents higher costs to the company, and in the globalized economy model, this equates to a reduction of competitiveness, profitability and ultimately share value on the stock exchanges. This clear sequence has lead to the absurd logic that whenever companies announce a massive lay-off or closure of operations, that this companyʼs stock price will reach historic highs. There can be nothing more devoid of human logic.

In the 20th century, the social movement set up cooperatives permitting its members to embark on joint purchases, thus reducing cost and improving purchasing power. This cooperative movement still has a strong base in Sweden, Netherlands, Germany, Austria and Switzerland. It expanded from basic needs to insurance, banking, and lately also to green energy purchases. Time has come to revisit this logic of corporatism and and salary negotiations to some more fundamental shifts that will finally achieve the objectives we all want.

For example. If we succeed in bringing a solar system to market that offers power, heat and chill, then we are harnessing the real force of the sun. Instead of having three separate capital investments, we now could combine it all in one. The photovoltaic (PV) cell functions on both sides, regular solar on top and concentrated solar on the bottom; the heat generated by the reflection in the mirror chamber produces hot water, and tubes in the solar cells cool the water to six degrees since the black PV radiates out all heat at night and secures a continuous daily supply of cold water. Since hot water rises, and cold water drops, a hot water tank is always ready for use on the roof top, while the fresh water keeps a container of two cubic meters cool all year in the cellar of the building. On top of that, the casing of the “power, heat and chill system” is made from heat resistant recycled plastics, offering a great market for waste that otherwise gets - at best - shipped off to China to be converted into garden posts.

In Europe up to 30 percent of the electricity and gas is used to heat water. This cost is eliminated in the above described model. The acquisition of a refrigerator is considered key to health and safety, however these cooling devises are equipped with energy guzzling compressors and cost cash to buy and to operate. That is also eliminated. Then, the electricity consumption for daily use is reduced to the PV generated power, which is more efficient than the grid offering access to power at approximately 4.0 cents per kWh. Thus, design of the Solarus triple power panels not only offers a dramatic reduction in energy costs, it eliminates the need for capital expenditure. This releases purchase power for families across the board through the introduction of innovations that really respond to basic needs. And let us not forget, that additional jobs are created by converting waste plastics into a substitute for aluminum represent the entry into the job market that is much needed. This positively affects as much the bottom of the pyramid, more jobs means more income, and then more purchase power for all.

While the salesman of refrigerators is likely to loose customers, and the electricity supplier is not required to plan for an expansion of power generation, society now has additional funds available to make critical acquisitions and expenditures. We need to shift our production and consumption patters towards one that is capable of responding to the basic needs with what we have, so that our carbon footprint remains in line with the regenerative capacity of the Earth. This does not imply a reduction of consumption, on the contrary this model permits an increase of consumption without suffering from the rebound effect, whereby we observe that a lower cost of energy generates more demand so that the absolute effect even is worse than before the improvement.

The well known examples of maggots and mushrooms demonstrate that we are in a position to ensure more food and better health care at lower cost, and since this cascading effect trickles through the system, we observe a decrease of poverty, and an increase in consumer satisfaction, without this explosive overall growth that has dogged our sustainability models for the past decades. In my book “The Blue Economy” I indicated that we have to design with the flow. Each time we must generate value from existing matter, nutrients or energy flows, we must generate good use at every interval. The process to simplify everything so that whatever is not needed is designed out provides further improvements. In the end, we succeed in making so much more with what is available, and we can respond to more critical demands without having to increase salaries. Of late I have been challenged that my examples are always related to food. So let us take a case that has no relation to nutrition at all.

The mining industry in South Africa asked my opinion on the present dilemma of social unrest. The doubling of salaries as requested by unions would be detrimental to the survival of the mining industry. On the other hand, the amount of available cash to the people working in mining should double in order for them to lead a meaningful life. We cannot and should not negate their necessity either. So, if the mine owners and the workers now solely haggle over the percentage of the increase in salary then both will loose. If on the other hand both embark on a bold development strategy using all the assets opportunities of the mine sites both closed and operational, I am convinced that first of total employment could double from the present 500,000 to one million workers in South Africa alone. And second, perhaps more important, specific innovations that target responding to the basic needs for food, water, housing and health using the existing cash flows of the mining operations will make everything cheaper than thus increasing funds for spending without requiring a rise in individual salaries.

Now the doubling of employment in and around the mine sites does not mean a strategy to double output from the mines, or to carry a larger personnel count on the payroll than is needed to exploit the business. It means that we have to convert existing costs into revenues, provisions into investments, undervalued and hidden assets into value adding proposals. My first analysis of the mines unveil multiple opportunities beyond what is obvious for a mine, but self-evident for anyone who knows how to connect the available resources. Let us look at a concrete example of a new mine in Latin America.

Mining concessions reserve thousands of square kilometers of land as their influence zone. A mine requires water. How can a mine not secure that its operations will never interrupt the present supply of water, nor jeopardize future generationsʼ access to this source of life? Mining indiscriminately requires to undertake a surgery in the earthʼs crust. The restoration should include reforestation. Imagine with me the following scheme: 1,000 square kilometers of mining concession is used to regenerate a bamboo forests that once stood. Bamboo regenerates hydrological cycles, creates new creeks and rivers, plus regenerates topsoil at a rate of 50 centimeters over thirty to fifty years, the typical life of a mine.

Three years after planting bamboo (Guadua angustifolia), the first poles can be harvested.  The 25 meter long bamboos offer 6 meters of structural building material, perfectly suited for social housing. The Guayaquil (Ecuador) experience of prefabricated bamboo houses demonstrates that 42 houses can be produced every day at a cost of $950. Now, the remaining 19 meters of the pole can be used to produce fluff, ideal for the production of paper, especially for applications like toilet paper which today requires genetically modified eucalyptus or pine, or recycled paper shipped from around the world.

A mine would typically have to reserve major provisions in its balance sheet to cover the cost of restoring land after extraction of ores. A paper and pulp company would normally have to invest long term in the plantation of forests, a major immobilization of cash to secure supply independent of market price fluctuations. A social housing company cannot afford to buy land, and has left-overs from construction. The production of charcoal from the waste construction material is one option for most of the structural components, offering an additional revenue from the same bamboo. This already offers already a fourth benefit. Now it is most important not to loose out of sight the fact that once bamboo is harvested, it will sprout again annually for the next seventy years.

The outcome is clear: mining is restorative by design, generating more water than there was before, social housing can be offered at an even more competitive cost, and the replacement of a water guzzling eucalyptus with a fibre producing ten times more fluff on land that one does not have to purchase, but rather help restore, and assist in the creation of a model for social housing holds a completely different logic. This mindset underpins a fresh competitive approach to mining, housing, and paper products. The bottom line is that it represents a major cost reduction for consumers, an improvement of their purchase power. This also represents a better use of cash flow and capital investments of corporations. Thus, while the industry gets more competitive, more jobs are generated, thus rendering more income to the people to get out of the poverty trap, while at the same the time cost price for key items is cheaper and the commons like water can now be guaranteed long(er) term instead of falling into the trap of privatization.

Today salary increases are the subject of delicate negotiations between unions and employers. At times of economic downturn as we face now, at best the unions will succeed in getting additional pay in line with the additional inflation rate. This means that there is a fictional salary increase, since there is no additional purchasing power, one only keeps up with inflation.

That is why the economic model of The Blue Economy is more than an bundle of innovative technologies, a proposal of new business models, it is a fresh way of transforming society in cooperation with government, academia, large corporations, small and medium sized companies, NGOs and civil society at large in order to respond to the basic needs of all. It is a chance to eradicate poverty through increasing purchasing power, while securing more entries into the labor market. It is this double effect of more jobs by going beyond the core business model, and higher purchasing power for the basic needs that allows the economy to turn socially just and ecologically sustainable without depleting its resources and forcing the poor to remain poor.


© 2012, Gunter Pauli - reprint only with permission