The Blue Economy offers concrete perspectives on how to relaunch the economy. The statistics look bad. Unemployment is on the rise, and those who do have a job are hardly receiving a decent pay. Youth unemployment is reaching levels so high that even a sustained growth over years would never absorb the available labor force within a decade. The unemployment levels of youth in Spain (57%) and the inhumane excesses in Palestine (nearly 100% of young under 26 without a job) demonstrates that our present development model and political framework is inadequate. The blind pursuit of economies of scale, where standardized products are manufactured at the lowest possible cost, driven by cheap means of transport, provides conditions where unemployment is a given, even a precondition for the efficient functioning of the market.
The Market needs Scarcity
The market mechanism operates on the basis of scarcity which supposedly permits the efficient allocation of resources. However, in modern day terms this implies that not only employment, but also poverty is a necessary phenomenon in order to secure the efficient functioning of the market. It is a fact that unemployment and poverty are widely accepted amongst macro-economists who peer over statistics especially from the air- conditioned offices of Reserve Banks, World Banks and Monetary Funds. Recognizing the social cost, economist revert to two basic schools for the reduction of poverty: stimulate demand or influence supply. Neither have been capable of addressing the situation, worse political fora like the United Nations are content with cutting the poverty rates in half - never is there a clear dedication to eradicate it. Allocating funds, often under aid programs may have alleviated the hardship of a few. However, the mere dependency on external financial resources has increasingly rendered both poverty and joblessness permanent. This leads me to believe that the market economy as presently practiced sustains poverty and needs unemployment.
Cutting Costs Generates Wealth?
The nexus of the problem is the erroneous belief that cutting costs of production of a product generates wealth for all. The manufacturing of junk at low price has opened a ferocious search for low cost countries where low labor costs and lax environmental regulations combined with the maze of tax havens are preconditions to a competitive position in this globalized economy. Any nation that has the ambition to deliver social services to its citizens and wishes to remain committed to reasonable ecological principles that maintain Nature on its evolutionary path will witness a fast de- industrialization of its economy.
Interestingly enough, our evolutionary economic development model prescribes a path where the primary industries lose importance as industrial activities emerge (and modernization arrives), and even industry become less relevant as soon the service industries become the dominant factor in the generation of value added in the economy. The fact that car companies earn more money financing the sales of cars than their manufacturing has often been heralded as a proof that the transition of the primary to the secondary and the tertiary sector is a natural one. How could we ever have fallen for such preconceived and even perverse ideas that ultimately destroy the very basis on which our economy stands: the community.
Cutting Costs and Community
Another fundamental error is that societies at large have been reduced to consumers with a purchasing power. Communities are not designed to consume at the lowest possible cost. The local economy is driven in the first place by generating more value with what is locally available. Now if we eliminate the primary and the secondary sector by "the grand pathway towards modernity", then communities have little left to generate value in this globalized economy. Hence, any society that is not located in the immediate vicinity of a worldly industrial or trade center will witness a rapid deterioration of the economy, starting with a widespread negligence for the primary sector, followed by an institutional depreciation of the manufacturing sector starting with the educational system that denigrates hand labor. A prolonged shrinking of economic activity leads to a social and ecological disintegration. Hence, the emerging phenomena of violence, drugs and even terrorism. Do we realize that our obsessive pursuit of lower costs has eliminates community, and how we can generate more value locally to sustain it?
Now if the economy is driven by MBAs (Master of Business Administration) who have learned how to eternalize this cost cutting drive against all human and environmental logic, but necessary within the logic of better cash flow, then you have a private sector that has no other option but to cut jobs and get rewarded for it on the stock exchange. The management must search for the cheapest resources and the shortest product life stimulating more demand, while externalizing costs, including recycling. The institutional locking-in of technologies resists fundamental innovations for the simple reason that these breakthroughs endanger one corporation's bottom line. The only way this firm can undertake a humane facelift is by implementing a high profile program for corporate social responsibility (CSR) well supported by public relations initiatives. Whatever CSR projects the large companies pretend to do, the business model on the basis of which they operate is thoroughly flawed from the point of view of the citizens (consumers) they are expected to serve.
From Cutting Costs to Adding Value to What We Have
As soon as we turn the logic from cost cutting to value adding, and once we decide to start with what we locally have, instead of what could be traded from overseas, then we unleash a different dynamic. This approach is easy to observe on islands. Their physical restrictions permit a narrow description of the needs for water, food, housing and energy. It is amazing that islands like Hawai'i with over one million inhabitants a century ago were self-sufficient and now have to import 95% of food and energy. The neglect of local resources, worse, the incapacity to see the local potential which turned invisible through the eyes of a globalized economy, leads to a process of under-development. Communities therefore will face continued levels of high unemployment, worse their culture and tradition will fade in the face of time. Communities die. Is this the age of modernity we all aspire to live in?
The only way to escape from this dead-end is to shift the focus of the economic actors. I am not arguing for an end to the market economy, I am arguing that the obsession with lower costs urgently needs to be balanced by the search for more value added. Now that we have an inventory of +300 projects around the world where solely starting with coffee waste converted to quality mushrooms, it is clear that the local production with available resources does generate jobs, offers healthy food and ensures a competitive industry that uses what is available. It is not since one succeeded to farm mushroom in one business, that we now have the blind trust in getting more mushrooms farmed in standardized facilities. A tree that got to grow 10 meters does not automatically decide to pursue a growth target of 100 meters! The conversion of small local operations into highly automated facilities with little consideration for great taste, where packaging and transportation including temperature controls become the main costs will loose on the market. The opposite, multiple small scale production units will help build community as we have witnessed around the world. The mushroom case may have been the pioneering one, but it certainly is not the only one.
Local Communities Re-Industrialize
The cases we have been involved in demonstrate that a shift away from the core business based on a core competence is the precondition for securing these new levels of productivity whereby it is perfectly possible to increase competitiveness while generating jobs. Now based on the examples before me, a rather interesting observation crystallizes: local communities have the opportunity to re-industrialize. Since any production system requires a continuous supply of materials and feedstock, this process of re-industrialization goes hand in hand with the revival of the primary industries including agriculture, fisheries and mining. Even though most economists would reject the need to revive the primary sectors, I conclude that there is no other option if we wish to reverse the dramatic reality that 25 percent of the young around the world will never find a job. More, if we wish to respond to the basic needs of all on Earth for water, food, housing, health care, energy and jobs - then we will need to improve material efficiency dramatically, and grow the economy. The only option we have to respond to the basic needs of all within the regenerative capacity of our ecosytems is to create value with what is locally available.
The link to the primary sector became obvious when working closely with mining and agricultural enterprises. While Governments have been pushing mining companies to process ore locally, and while agro-conglomerates have been keen on converting produce into ready-to-eat food, the reality is that so much is shipped around the globe for the sake of that one valued ingredient, that local communities are reduced not only to consumers but also to small suppliers of a global commodity managed by world trading companies. The strength of the economy goes up or down with the swings of commodity prices. Still, everyone knows that the price of gold in the form of an ingot is not comparable to the gold paid by an electronic company in the form of dust a few micron thick. The price of rice in bulk paid to a farmer is only a fraction of the price supermarkets command from their clients, knowing that 90 percent of the value added is represented by packaging, transporting and preserving the rice after a thorough quality control. What kind of an economy do we have when the company delivering the packaging makes more money than the farmer?
Going Beyond Core Business
This is why time has come to go beyond the mere search for adding more value to that one sought after ingredient, and rather embark on a design of industrial processes based on the abundant supply of mineral and organic feedstocks with multiple products as output. Whereas the coffee case offers examples in a rural, peri-urban and urban environment, the recent cases demonstrate that this could become a standard. The pioneering case of Novamont converts artichoke thistles (Cynara cardunclus L.) into the feedstock for a biorefinery transforming what once was considered a weed into 6 revenue streams using an available infrastructure of a defunct petrochemical facility. This means that abandoned farmland, because the local population once believed that the future was tourism, can now be productive again, at low cost working with perennials, enticing people to engage in farming at lower capital costs since no irrigation, tilling or chemical inputs are needed, while diverting millions of euros of cash to pay the Middle East for petroleum to paying farmers with local processing. It does not take a PhD in Economics to realize that this process described in less than 10 lines kick-starts a multiplier effect. Since additional income and purchase power is matched by additional production, this is a non-inflationary growth of the local economy.
While we have always been keen to embrace the bio-based economy, I have increasingly become aware that the same logic of coffee and thistles applies to minerals and mining as well. This implies that the link of agriculture and industry is one driver of the economy, mining and industry could be a second one. This is a major breakthrough. Indeed, mining should be practiced the same way as surgeons operate: the smallest possible incision and the least visible scars. Unfortunately, within the logic of the pursuit of more volume at lower unit cost, mining has relied on more dynamite and bolder excavations than on the targeted removal of ore, rocks and tailings. However once mining companies see the value of a smarter extraction that leads to a multiple use of resources through a network of partners, who all complement the core know-how of the mine with the competences required, then a local mine quickly emerges as an engine in the local economy, from farming to processing, beyond the life of the mine itself.
Mining Supports Agriculture?
We typically consider a mine as a detriment to farming. The harsh competition for water is often the prime reason why mines are considered a world apart. The past years have exposed me to sufficient cases to argue even with the fiercest critics that mining must get a chance to reposition itself and become a core partner in modern society. The harsh reality is that we consume excessive amounts of precious, non-ferrous and rare earth metals. Our electronics, transport, energy and medical industry relies on a continuous supply of all types of metals and unless we dramatically reduce our appetite, and improve the urban mining, we will rely for decades on large scale mining operations. And while certain fragile ecosystems should be off-limits for mining, the deposits located in non-sensitive areas should be exploited using the best of all worlds.
This is an opportunity beyond our imagination. When we considered coffee at the outset of the design of the Blue Economy we always insisted that we ingest only 0.2% of the biomass produced by a coffee farmer, thus the potential is factor 500 in case we were able to give value to 100%. Now gold mining goes beyond these extremes. One gram of gold in one ton of rock is only one in a million, thus the potential of mining is either a multiple in disaster or a multiple in opportunities. Now traditionally all waste has been considered a cost, a major cost indeed. The rock refuse deposit as well as the tailing dam typically represent a huge component of the capital cost, and represent a long term liability that makes up a major part of the investment. Imagine that one can eliminate this capital expenditure, while reducing the operational expenses and mitigate the risks associated with these waste streams and their long term disposal.
Mines Make Paper
Today it is confirmed that all rock waste can be converted to stone paper, and most of the tailings dam - after removing the water - serves as an ingredient for the construction industries. Producing paper from pulverized rocks offers an opportunity to produce tree- free paper, manufactured without any water and is 100% recyclable forever. This means that over time the vast swats of land reserved for forests could be substituted by a permanent stock of paper. The cost is now converted into an asset, very much like aluminum cans have ended up on balance sheets instead of mere costs of packaging. The substitution of pulp with stone (and a small percentage of recycled plastics) will free up millions of hectares of land and puts our drive towards food security in another dimension. Mining supporting agriculture seems far fetched indeed but is a reality once we consider the whole system.
Cheap Because of Value
It is along the same logic that we can build hundreds of cases - all demonstrating that an advanced form of material efficiency, generating value from the diversity of materials that any mineral or biological feedstock has, can generate more revenue and jobs in the community. The power of this approach is that it breaks the trend that in order to have higher economies of scale there is a need to invest more capital. Now the multiple revenues generated from one feedstock reduce the requirement for proportionally more capital while it increases cash flow from multiple value propositions. This reduces the cost of the core product - not because you have cheap labor, spoil the environment and exploit tax shelters - because you generate more value. It is even better, this process makes the pricing (and costing) independent of the traditional commodities market.
From the Micro to the Macro
The revolution in the field of seaweeds is a case in point. When China opts for a dramatic reduction of cotton farming, freeing up land and water resources in order to produce more food, the shortfall in cotton fibers is likely to be supplemented by textile materials produced from alginates, extracted from brown seaweeds. Now if countries like Indonesia were to embark on large scale seaweed farming making use of its rich biodiversity of more than hundred species naturally occurring in their territorial waters spread over more than 17,000 islands, then Indonesia could at the same time tackle its strategic deficiency in animal feed.
Today, Indonesia is a large importer of animal feed. If the country embarks on a new growth strategy based on seaweeds for textiles, then the by-product - which will be more than 50% of the feedstock - serves as a key component in a healthy feed supply. The shift from water guzzling and chemical hungry cotton to seaweeds processed without water that provide a solid local supply of animal feed symbolizes the new type of economic development strategy that emerges when the focus is put squarely on generating more value and shifts away from the core business.
The whole stigma of cost cutting and the associated elimination of jobs can be quickly replaced by a development strategy that responds to people's needs with available resources generating income and jobs. While this approach renders commodities increasingly insensitive to the fluctuations on the world commodity markets, it also clears the path for an economy that secures the millions of jobs we never associated with agriculture, mining and manufacturing as we know it today. This new business model represents a renaissance of industry, spurred by the rediscovery of the potential of the primary sector. It is an opportunity for Europe which had given up on economic growth.
Communities Value and Give Value what They Have
If we succeed in relaunching agriculture, mining and manufacturing along the lines described here, then we will be able to respond to the basic needs for water, food, housing, health and energy, while generating the jobs. Better, the new sectors that emerge will be competitive, and outcompete those who stick to the core business model, which means that the jointly generated revenues permit a growth strategy that renders the traditional logic of economics obsolete and drives the economy towards to social and ecological justice based on communities that value and give value to what they have. This is a welcome alternative to the harsh reality of an economic model that considers poverty and unemployment a given in the equation.
The aim of this blog is to present a fresh look at realities around us. Whereas I do not pretend to present the truth nor a definite position, I do wish to push the reader to think beyond the obvious. After all, time has come to dramatically improve the plight of millions, and that requires more than the predictable. Sometimes it forces us into spheres of discomfort.