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Thoughts on Limited Liability

June 1, 2006 8:23 AM

One of the persistent threads running through environmentalism is the notion of "Corporate Responsibility." I've been thinking through some of the issues involving how corporations are formed and how the nature of the corporation affects how the economy assesses and handles risk and I'd like to present an idea for comment and examination.

The seed of the idea is that the limited liability corporation is a government subsidy to risky investments and as such may be partly what drives the reckless attitude of corporations towards the environment. Read on for more details.

So, please follow my chain of thought and see where it leads:

1> The difference between a partnership and a corporation is that shareholders in a corporation are protected from liability for the debts of the corporation in bankruptcy (”limited liability.”)

2> The same protection from liability could be obtained in partnership by the purchase of “liability insurance” which would, if the company you co-owned went down, cover your debts. Because of the open-ended nature of the liability being insured against, this insurance would probably be fairly expensive.

3> The fiat (government-created) limited liability provided by the state is actually a subsidy at the expense of those whom bankrupted corporations owe money to, in favor of the investors, and its financial value can be calculated as the total value of the insurance services provided to investors or perhaps as the total cost to the creditors.

It surprises me that I can't find an analysis of how large this subsidy to investors is!

Possibly, if this question was analyzed, we would discover that limited liability protection is the largest goverment programme there is, perhaps even larger than the military. Plausible? Well, consider the total size of the stock market - the market capitalization of the entire economy. Now imagine insuring that. Limited liability moves a lot of wealth from creditors to investors in any given year, through bankruptcy proceedings - how much wealth is transferred in a given year?

This may explain why limited liability creates wealth so fast: by taking an intangible like “risk” and providing an equally intangible “protection from risk” goverments subsidied real, tangible spending with a vast, intangible subsidy.

The Polluter Pays principle becomes interesting when examined from this perspective. If the real polluter is not the corporation, but the benificiary of the corporation's actions - that is to say, the owners/shareholders - then making the real polluter pay may require a change in corporate law. Providing shareholders with blanket protection from the actions taken on their behalf may no longer be a sensible approach.

Unlimited limited liability may, in fact, be a perverse insentive encouraging the economy to continue high risk activities such as unregulated release of GMOs into the environment by subsidising shareholders who assume these risks in their investment strategies.

What if we phased out limited liability? Suppose, for example, we made shareholders liable for up to 1% of their assets in corporate bankruptcy cases - you can lose up to 1% of your net worth to cover the unpaid debts of corporations in which you own stock. Would that change shareholder behavior to less risky investments? Would it cool the economy - or increase corporate responsibility at no cost to the tax payer?

Could regulating the degree of investor protection become one way of pulling corporations back into line when corruption becomes rife? Would ENRON have happened if shareholders had been even partially liable?

I'm not enough of an economist to really understand the implications of this idea, but I'd like to open the floor up to discussion: is viewing limited liability as a subsidy to the investor a valid way of thinking about it, and is reducing that subsidy to the investor a plausible way of making our economy a little more risk-averse and therefor environmentally responsible?

What do you think? Please comment!

How Much More Can We Do With Less?

June 20, 2006 8:18 AM

Just how much more can we do with less?

I recently read an article which discussed a company which went to a 32 hour work week with no drop in productivity. (the story is taken from The Time Bind by Arlie Hochschild)

While this example would not scale over an entire economy - a steel mill, for example, is unlikely to be able to replicate it - it fascinates me that a company could cut 20% of one of it's most critical and expensive inputs (human time) and not change its outputs. While not in the same category as Factor Four it is in an unexpected domain. How much more slack is there in the system?

Is it possible that the inefficiencies in our economy are so large that, in fact, we could tighten 80% of our resource use right out of the loop over a period of fifty years, without developing any radical new technologies (although, of course, we will!). The poster child for this idea in my own understanding is a roll of kitchen plastic wrap a friend bought at a warehouse store. This roll is a two thousand square feet and was purchased for around six dollars, replacing 20 rolls of 100 square feet each, with correspondingly larger purchase, packaging and transportation costs. It is an identical product, of identical utility, simply bought in a larger size.

This might seem like a trivial example compared to green buildings and zero emissions polyester factories and so forth. But what would be the net environmental impact if all products simply dropped the two smallest sizes they were available in? The social impact might hit the poor quite hard at first, but lower long term prices might restabilize them in unexpected ways. Could we really cut 5% or 10% of our national environmental impact simply by never buying anything except in the Super size? It sounds silly, but when you start counting trips to the store, and packaging, and use of temporary alternatives when basics run out. If such huge savings are possible from small changes, what kinds of savings would be possible from big changes?

The more I look at the world around me, the more I realize that a relatively small set of behaviors would have to change to solve nearly all of our environmental problems. From the current status-quo those changes look untenable, but they are not: insulate what is heated or cooled, streamline what is pumped, buy the efficient model. These basic truths are repeated over and over again in different environmental frameworks - everybody has their own way of saying "do the right thing."

If one does not look at demand side reduction, it is easy to assume that we are really in trouble. "Use less" has become contaminated with a thrifty penny pinching mindset. But "use smarter so you get equivalent or better service for less energy" - and we need a catchy mantra for that - might be a very simlar world to the one we live in now, just with the waste taken out.

Diesel hybrids, high performance buildings and pervasive industrial efficiency efforts could reasonably half our nation's energy use. Studies at different times estimate the benefit and potential at different levels, but the savings are huge. But somehow the concept of the "negawatt" - a unit of energy saved replacing a unit of energy generated - seems to have failed to penetrate far enough into the environmental discourse to becoming the defining goal of our movement. New wind capacity is many times more expensive than energy efficiency, but because it is a "more" solution, rather than a "less" solution, somehow it gets higher billing than green home construction.

I feel like the concept of "doing more or the same with less" needs a new brand, a new word, a new identity. Efficiency is too cold and doesn't capture the "picking gold up off the sidewalk" quality of doing the same work in 32 hours as forty, and being happy with it, or cutting your heating bills by 75% and being warmer.

I feel like this may be a quirk of human evolution: we are well programmed at the deep levels to be able to identify "more" - more food, more land, more water, more cattle. But identifying an invisible entity like "better insulated" is more subtle. A windmill pumping out electricity is a "tangible more" but a lot full of well insulated houses is an "intangible less." The low-hanging fruit of energy efficiency simply garners less press, less attention, less buzz.

Can we change that by branding? Can we change that with new tools and new markets which trade "less" as "more?" as Amory Lovins and others have suggested? How do we make it as good business to save power as generate power, given that the environmental benefits are as large or larger? These are not new questions.

What I see in my minds eye is a garbage bag full of waste and two gallons of gasoline attached to two thousand feet of plastic wrap, divided up into 20 small tubes. Every day customers buy that product, over and over again, unthinking and unknowing. And we wonder why the waste continues!

Personal Factor Four: Organizing Real Environmental Action With The Internet

June 24, 2006 7:46 PM

Once in a while, somebody notes that the Internet should be materially contributing to solving the world's problems. I think the notion has been around since about 1965. I'd like to raise some ideas for you, WorldChanging's Open Thinktank, to think about, speculate on, contribute to and improve. Our goal is to get to a personal Factor Four improvement in your environmental impact and mine by using the collective intelligence and collective action that the internet enables...

Natural Capitalism and Waste Aggregation
One of the key concepts ofNatural Capitalism is "Sell Services, Not Products." Part of the rationale for this is what I'm going to loosely term "Waste Aggregation." To take a canonical NatCap example, imagine an elevator. If the elevator is owned by the business which uses it (say a hotel) then the energy efficiency and reliability of the elevator has relatively minor impact on the bottom line of the hotel. As long as it basically works, nobody cares about its quality.

Now imagine this elevator is leased, and the company which leases it to the hotel also has to keep it running. Suddenly this company's bottom line is massively impacted by the reliability of their elevators, because every repair costs them money. For the hotel, a few thousand dollars a year on the bottom line is no big deal. But for the elevator leasing service, all those repair costs aggregate and turn into a large enough pool of money to do real engineering with. By aggregating the waste we make it profitable to get rid of it.

Recycling is a form of "waste aggregation" by the way.

Demand-Side Aggregation
To push this example further, suppose the company which leases the elevators pays for the power they consume too. Now the waste aggregated covers not just the mechanical reliability of the elevator, but also its electrical efficiency. If they also recycle / reuse elevators at end of life there is yet more aggregation. This can be termed "demand+side+aggregation"&hl=en&gl=us&ct=clnk&cd=23&client=firefox-a demand side aggregation.(sorry I don't have a better link for that!)

The Internet is theoretically a great place for birds of a feather to flock together to produce demand side aggregation. (Dan Savage'sLaw of Internet Perversion more or less states that, no matter how weird your kink, there is a community online for you) Another good example of Internet-enabled demand-side aggregation is Fundable.org a site which purports to allow groups of individuals to collect money together in the manner of the Street Performer Protocol.

Where could the Internet's ability to create demand side aggregation be turned into real environmental gains? One idea - and nobody do this as a start-up before I get to it - would be to aggregate demand in an area for green real estate development. Find two hundred potential buyers, then approach green builders and set up a deal for perhaps twenty units, given that the proven demand exceeds the supply by a factor of 10-to-1, reducing risk. Another example might be communities coming together to mass purchase energy efficiency improvements or wind credits.

If we have to solve the problems we have on this planet with the tools available, the Internet is potentially a very, very good tool. Where can we use the aggregating power of the Net to reduce environmental impact worldwide?

All of Us Are Smarter than Any of Us Are
The Peak Energy Blog reads like it was written by a fellow traveller. I just came across it today by chance via a google search. Every time I look something environmental up online, I wind up one of two places: the EIA or some random green weblog. There are a lot of us out there - tens or hundreds of thousands I think.

The environmental problems we face are huge and many of them are amenable, at least in part, to relatively small actions by large groups of people. Furthermore, the intellectual labor of sorting out our environmental problems may not have to be done by a few think tanks stocked with full-on genius polymaths. It may be that a lot of our problems can be analysed to solution by "peer production." If it's good enough for Linux and Wikipedia, after all...

So how do we mobilize the Yacking Hordes of the Internet, of whom I am one, into effective teams to do something about our environmental problems?

There are a set of questions I have about the environment that I have never been able to find a good, clear answer for. That doesn't mean that there are no good, clear answers, but that I haven't been able to find them.

1. Paper or Plastic at the checkout? (I'm joking)
2. How does personal income correlate (on average) with net environmental impact (graphs, please!)
3. What are the ten most environmentally damaging consumer products in America?

These are just examples, you understand. But it seems that small teams of people, like those who operate some areas of Wikipedia, could answer these questions in a definitively well-researched form. If the programmers and architects had enough spare resources to recreate Unix and are working on recreating Windows/MacOS, can the Greens create something of equivalent power and value, a Manual Of Doing The Right Thing that people can refer to to solve their ecological quandries? What other artefacts could peer production create to help us do a better job of living on the planet? Could we start with an annotated library of Buckminster Fuller's patents, for instance?

How many other, better ways are there that we could take the combined brainpower of the ecologically-minded amateurs and start churning out real solutions? How do we actually start to harness our collective intelligence to think our way out of the potentially fatal cultural deadlock we are in about our current energy and environmental crises?

Speculation, if you will, in the comments...

Space travel is a better accelerator for technology than war

"Down throughout history, war has been an accelerator for technology. You might notice, however, that most of our current 'high' technology is derived from the NASA space program. It turns out that not only is space travel an accelerator for technology, it's a much better accelerator than war. The implication is that nations who invest in space technology will out-compete those who are stuck fighting wars." -- David Hurst

It's getting better all the time...

October 21, 2004 9:46 AM

A new generation of consumer electronic devices integrates digital age technologies into traditionally analog systems, producing devices which are massive improvements on the analog systems they replace. The digital revolution is moving outside of computers and cell phones and into items as simple as a flashlight.

Exhibit A: The Underwater Kinetics 4AA ELED. Which is a mouthfull for what is, in essence, a fancy flashlight.

So what's worldchanging about a fancy flashlight? Three things:

1. The flashlight uses a Luxeon 1 Watt LED - an incredibly bright, efficient LED. A single Luxeon can deliver more light than a 4D cell Maglite, although this one is about only 50% brighter than a 2AA cell Maglite. It will essentially never burn out.
   
2. The flashlight is voltage regulated. A tiny power conversion chip compensates for tired batteries, giving you constant brightness right up until just before your batteries die. It's like a tiny transformer.
   Result? Eleven hours, let me say that again, eleven hours of consistently bright, white light from four AA batteries.
   
3. The flashlight is twenty dollars online.
   

Ok, you say, so what? I'm not a boyscout, why does this matter to me? What's important about a fancy flashlight, even if it is only twenty bucks?

The ELED is an example of a discontinuous improvement in a simple consumer-level product based on adoption of incredibly sophisticated new technologies. In the course of twenty years, a twenty dollar flashlight has gone from a lifespan of three hours and dim-but-usable yellow light, to blindingly white light for four times that length of time, based on intelligent power regulation and super-sophisticated LED bulbs. Lighting of this kind was simply not available until a few years ago, at any price point.

At the current level of development, this is still a first world novelty. But if we look another twenty years into the future the "flashlight" is no longer a flashlight, but a science-fiction like lighting device which has properties we can't even guess at, but might include adaptive response to lighting needs, on-the-fly recharge from sunlight or other power sources, and so on. You can't really appreciate how unlike a conventional flashlight one of these things is until you play with one and the light goes on... and on... and on.... and you never worry about bulbs burning out, or dropping it, or getting it wet. Pushed further, as our technologies always are, we start seeing genuinely novel objects within the existing cognitive framework of existing categories. The "Future Flashlight" will still be called a flashlight. But it won't work like one, not at all.

Let's look at another example: Exhibit B, the Panasonic SA-XR45 Digital Amplifier. It's a consumer level amplifier intended for home theater systems.

What makes it special? It's the first cheap ($300) amplifier to feature digial amplification. The production of the signal which drives your speakers is done in power-handling VLSI chips, rather than a bunch of componentized transistors and capacitors.

So what? Why does it matter how the amplification is done? Well, here's a clue: you can't buy an XR45 in America any more. Panasonic sold out. There are simply none left.

Why? Because on listening tests, a new-technology $300 dollar home theater amp regularly beats out thousand dollar two channel audiophile amplifiers.

Now, to really understand that, you have to understand a little about audiophile culture: as a breed, audiophiles hate and fear new technology, viewing each generation as worse than the one before. That's often because new technologies start out unpolished and take time to mature, and also because they often simply are worse (CDs, for example, are said to contain about 40% of the data found on an LP record).

So to have the first generation of a new product recieve this kind of attention is nearly unheard of. For it to be cheap adds insult to injury. But they have flown off the shelves, and a cottage industry has grown up around rebuilding the analog electronics in the power supply to improve the sound quality just-a-little-more so you can still buy an expensive, custom version if that suits your aesthetics.

Things are beginning to change. Both flashlights and amplifiers used to be dumb analog systems. It's no longer true, and even the very early steps in adding intelligence and new power handling technologies are resulting in amazing results.

This is a huge trend to watch: one can look at Hybrid cars as an other example of this trend - replace the analog with digital systems with power handling capabilities - and amazing things result.

We've moving towards a world in which there are no switches, no circuits which are simply open or closed, and into a world in which every power handling system, be it lighting, audio or automotive, incorporates brains which regulate and control. It's been coming for a long time... it's here

Three Approaches to Adaptive Agriculture

September 3, 2004 11:50 AM

Agriculture is hard. Actually getting things to grow in the ground which produce enough enough excess energy to eat is a difficult problem! Our current industrial age agricultural approach is "bang the ground flat and work it with chemicals, machines, and row-upon-row of identical plants." It's inspired by the industrial revolution, by standardization, by quality control and by the fundamental machine-age paradigm of "identical products from identical processes." Every ear of corn alike!

However, there are radically more location-aware and intelligence-added approaches to agriculture, both ancient and modern. "Adaptive Agriculture" is agriculture that pays attention to every square meter of land, producing higher yields with less inputs.

Let's look at a historical example of adaptive agriculture first. The Inca were the first to cultivate the potato. Their model of cultivation is radically different from the factory farming model - the culture knew of around 3,000 varieties of potato, of which over 1200 are still in use, with 250-300 varieties being grown in a single plot [great link.] Because the Inca had to get every last calorie out of the ground, lived in the same places for many generations and had a stable culture to pass on wisdom about species and place, they bred crops to work well in every available niche and for as many purposes as possible. The practiced complex crop rotation and were, in general, great farmers. This is using human intelligence to assess local conditions to maximize agricultural productivity.

The high-tech big-yield model of adaptive agriculture is Precision Agriculture, also called Precision Farming. As farm plots have increased in size, the human knowledge about each hectare of land has fallen and fallen. Precision Agriculture seeks to remedy that by replacing human knowledge with machine knowledge. By using satellite imagine and GPS locators on tractors, yield monitors which measure meter-by-meter of land and dose-precise dispensers for fertilizer and pesticide, PA seeks to put knowledge back in the farming process. Each meter of the field gets individual treatment within an industrial farming context, reducing use of pesticides and fertilizers to the minimum-required levels for a given yield. Precision Agriculture leaves on thing invariant: what is in the field. It still works largely with the concept of monoculture as an invariant.

At the other end of the spectrum, we find the delightfully holistic practice of Seedballing. A seed ball is an earth-and-clay ball with seeds and fertilizer added. Each seed ball contains a mixture of different varieties and different species. even a child can prepare them. When planting time comes, the seed balls are scattered on the land, each falling in place at random. In each location whichever seeds are best suited thrive in their protected mud starter-home, so the field becomes a non-uniform melange of intermixed species.

In seedballing, the intelligence is not human, but evolutionary. By seeding many different possibilities, and letting nature winnow them down to what works and what does not, seedballing puts the right plant in the right place without heavy technical infrastructure. It puts the intelligence back into agriculture in a profoundly different way.

Global scale food production is likely to require the great-grand-children of current Precision Farming approaches. But it's a loveless post-industrial practice. Seedballing, at least to me, has a beautiful and delightful human-scale rightness. Even if it won't feed the planet, it's still beautiful and inspiring. Perhaps future Precision Farmers will use the tools of their ancestors, but have the aesthetics of seedballers, letting each plant grow in it's right place.