Nature does not behave like a banker

Posted on 30 August, 2019 by alloporus

The economic model that has made the west wealthy claims a design that promotes investment with the greatest certainty of returns and least risk.

It is easy to find advocates of this ‘mobilise capital to grow it’ paradigm. A few might even admit that it is acceptable to externalise as much of the cost as possible and minimise the rest with the cheapest labour and materials you can find. All good so long as you are a shareholder and, after all, most of us in the west are thanks to our superannuation or our government’s investments.

Investment options that promote the long, dare we say sustainable, game resolve the full risk profile but often at a cost. They need to discount current profit to ensure that profit accrues for longer. This is the essence of resilient and sustainable systems and is exactly how nature does it.

Try telling that to a banker or a fund manager.

They want to achieve a capitalist outcome. They want to use capital, ideally someone else’s, to generate profit. That’s all. Well, almost all. They also want to do it as fast as possible and they would like to squeeze as much profit as can be squeezed because the sooner the profit accrues the sooner it can be churned back into the system as capital, after taking the clip for the new Ferrari.

Capital is being lazy if it waits around for the profit to accrue. Laziness is judged on the rate of return that itself is set by the market through interest rates and the opportunities for the specific use of funds in each sector and market segment.

This is the dry explanation.

When it comes to the bankers and financiers themselves, well, they are people, individuals with desires and dreams. They want to be successful and competitive so they will be hard-arsed to find and squeeze the best balls of steel deals that they can. It will help them reach their dreams and make them feel good as they do it.

The banker will drive the bargain when an opportunity presents and will walk away in an instant if the numbers or the risk smell of anything below the going rate. For them, efficiency in opportunity is the currency that will bring success.

You should be able to see that this is not how nature does it.

Despite the ‘tooth and claw’ rhetoric that does play out as organisms compete directly with each other for resources, the consequence of competition in nature is to balance resource use and make it efficient. This happens because there are organisms designed to benefit from both the long and the short game – the tree that persists through drought and flood or the weed that exploits in an instant and then dies. Together the variability in nature’s market is absorbed and used efficiently by diversity.

Ecological theory suggests that this is why nature persists, there is always an organism that can exploit and another that can wait until later. It also tells us that diversity is important. Not so with finance.

Bankers are short players. They have always been so. They exhibit diversity but only to shorten the game.

It is time we invented a new breed of financier, one that instead of picking off the best short-game opportunity can look long, very long. What about a financier who invests for returns that accrue to his grandchildren?

It can be done. Indeed, it must be done or there will be no Ferrari.

Agriculture needs long-game players

The place to begin is in food production. The global numbers have demand increasing steadily over the next 30 years by at least 60% for both grains and meat. That suggests a strong market but one that is short of the 7-10% returns expected in most capital markets. A three-year investment yielding 5% will always outcompete a 2% per year, even if the growth continues steadily for a generation.

The temptation is to invest in intensification. A centre-pivot irrigation system that improves yield by 10% with a non-linear 20% gross margin return sounds attractive. Only now the monoculture under the pivot-arm is mining the soil nutrients much faster than before and in a decade the cost of inputs negates that gross margin benefit.

In agriculture at least, high returns often kick ultimate risk further down the road. No problem if the Ferrari is already in the garage but an opportunity missed if the demand keeps growing.

Much better for the farmer and his backer is a longer play that looks to intercropping the cash crop with a legume that replenishes the soil nutrients and carbon. The average yield is lower but is consistent even in dry years. Economic returns are more modest but they are stable and costs go down over time so that profitability increases.

Is there a banker out there willing to play this longer, lower risk game?

Why modern leaders don’t lead

Posted on 23 August, 2019 by alloporus

Here is what Strategic futurist Dr Richard Hames has to say about the reasons modern politicians fail to prepare for the future…

“It takes work and they do not have the time once all of their administrative duties have filled their days. We need to change the shared worldview regarding what is important and re-frame leadership in that context. But there is no time for such work.
The world has become so complex that most leaders are out of their depth. They lack a relevant toolkit and are in no mood to learn a new one because as leaders they are supposed to know and have the answers.”

Dr Richard Hames, Strategic Futurist

Fair call.

Our leaders have the wrong toolkit given that most carry around the one supplied to the stupid white man and no time to do the work to upgrade or to complete the artisanship any new tools would allow them. This lamentable lack of intent to retrain is capped off with a need to save face. No wonder there is no time.

What a mess this is.

There is one phrase that makes the most sense and that leaves some hope… “out of their depth“. This we can deal with if we pay attention. We can ensure that the next leaders are good swimmers.

How?

Create awareness of the complexities.

This is crucial although very hard to do. Europe has a refugee crisis that on no small part led to other crises like Brexit and the horrendous prospect of Boris in the captain’s chair. But why does it have a refugee crisis? Well, there are many people who would risk a sea crossing in a small boat to a country that will not welcome them rather than stay where they are in the land of their birth. It is so bad that they will also risk the lives of their children on the small boats in the hands of the unscrupulous.

Imagine what it must be like to make such a call; to risk the lives of your children. Don’t assume that the gold across the sea is a big pull to become a refugee, even if that might be your first thought, but think also about the push. Mortar fire, foreign soldiers using your garden fence as cover from snipers, food shortages that mean you have to risk the marketplace each day when last week a suicide bomber met his maker just where you buy bread. More bombs. If you live with this evidence you have a huge push and the risk to your children is worth it.

This, of course, should be an easy one that even Boris should be able to comprehend. Most of the world’s complexities are far more convoluted with predictable, unpredictable, and unknown consequences. What happens if the Greenland ice sheet melts, say by 20%? What would a theatre war centred on the Straits of Hormuz do to the global economy? What happens if the required 2% per annum growth in global food production is not met? Do we know what to do if unemployment goes over 20% thanks to some clever robots?

Whatever the complexity, the skill is to understand the feelings and motivations of the people closest to it. Makes their concerns the centre of thought and the guide to the solution.

For example, it’s not that we have climate change and that we could fix it with a trillion trees. It is that the climate is changing, will change, and, even with a trillion trees that we don’t have the land area to plant, the climate is more a people problem than an environmental one.

What will we do when it is too hot for one month and too wet a few months later only to be drought the next year? It messes with people’s heads and they want the government to fix something that is not fixable.

This is the complexity you need tools to handle. They are the tools of courage and awareness.

Some say that empathy is more useful than fear as the solution because “human sense of empathy is a greater motivator for us to join forces to protect each other and to fight for a better world.”

So there you go Boris, put your own stuff down and imagine what it is like to live the lives of ordinary people all around the world, not just those you want to vote for you.

When food and nutrition is a scary prospect

Posted on 16 August, 2019 by alloporus

Alloporus is looking into online courses. I know, once a student, always a student is a nasty affliction.

It is fascinating to see how this format has evolved given that back in the day, that being the late 1990’s when I first built a website for my undergraduate students at Macquarie University, it was a struggle just to code a homepage. How I would have swooned over today’s functionality back then. Uploading self-made videos to cloud platforms with real-time chat, get outta here. I guess that just makes me old.

Anyway, please excuse my reminiscences and get us up to date to an online course from the excellent and free MOOC edX.org entitled “Feeding a Hungry Planet: Agriculture, Nutrition and Sustainability”.

It is fascinating and, I have to say, scary stuff.

Early in the proceedings Professor Achim Dobermann who is Director and CEO of Rothamsted Research UK, the oldest continually operating agricultural research station in the world, gives a 12-minute presentation on the risks associated with agriculture to 2050 should the world follow current business-as-usual for food production.

It is a courageous and smart summary of what global food and nutrition will be like for the next 30 years.

Here are a couple of headline numbers for what is required.

Global per capita meat consumption will rise from 40 to 50 kg per annum that will mean an additional 180 million tons of livestock production or 64% more than today.

Grain consumption per person will rise too and overall grain production will need to increase 1.1 billion tons or 52% more than today, in part to feed the extra animals.

My take is that agricultural and social science is telling us that food supply has to grow at an average of 2% per annum each and every year for over a generation. In short, another Green Revolution.

Such a change to business-as-usual will mean a plethora of production and consumption efficiency gains along the whole supply chain, innovation everywhere, and some nimble policy.

You can see Professor Dobermann’s full presentation here.

These numbers and their consequences present any number of risks to getting a second Green Revolution underway. Here are a few off the top of my head…

not enough land for agriculture
not enough usable water to increase yields
soil degradation, especially ongoing loss of soil carbon
peak fertilizer, especially micro-nutrients
pests and disease, especially of core crops
climate change

These are some of the obvious food production end risks, but once we get to the people part there are many more…

resistance to agricultural innovation
rapid changes to diet
food waste

And then there are the food supply chains themselves that these days are long and involve many parties each claiming a clip. This evens out supply by moving seasonal produce around and feeding the people now congregated in cities — 55% of the total according to the UN. In other words, we would be lost without them.

But long can be brittle, inefficient with losses at each stage and, thanks to the many parties and their clip, raises the price of food; all factors that reduce food security.

On the upside, mass transport and production efficiency has reduced the global agricultural price index over the last century which is a good thing for most consumers; only it has also lowered the farm gate price. This is not so good.

It means that many farmers must push their production rather than nurture it. When the price squeeze happens at the farm gate they must mine their natural capital to keep their business alive instead of investing returns into efficiencies and soil inputs.

Whilst the level of risk and demand growth is scary, at least they are known. The big picture is clear enough.

In addition, we already have a thousand solutions to reduce or mitigate risks from biochar to farmers co-ops to Meatless Monday. We can and should use all of them as and where they make sense because 2% efficiency gains across the board each and every year for 30 years is a massive challenge with unfathomable complexity.

Also, being a bit scared is a good thing. It is a powerful motivator to do something positive.

Endnote on awareness

We have to avoid the single focus solutions.

One of the latest is the trillion trees idea — to save the world from climate change we need to plant a trillion trees.

Good idea if you are worried about greenhouse gas emissions given that trees sequester CO2 into woody biomass that can persist for a long time in the landscape. So yes, we should plant, nurture and grow trees and we should resist cutting any trees down.

Only we have to be very careful where we do it.

We can’t put tree planting on the lists of risks to the 2% per annum of food production growth.

Will we die of the populist virus?

Posted on 9 August, 2019 by alloporus

A populist virus is with western democracy and we have no vaccine.

The virus is virulent with insidious symptoms that begin with the loss of rhyme and reason flowing seamlessly into early-onset imbecility and then late-stage demagoguery. So far there is no cure for the frat party gone wild.

Unlike the cold and flu virus that mutates away into any number of strains and generates fever, coughs and sore throats enough to put all the men in bed for a week, the populist virus is a dandy thing. It incites bouts of clapping, cheering, and crowdsourced glee at almost anything said by a carrier. As its designation suggests, it goes viral online faster than anything carried by a flea and contaminates all feeds all the time.

Being devoid of content, antibodies have nothing to attach to, making it difficult in the extreme for any would-be medic, not even big pharma has enough resources to find an antidote.

Alistair Campbell, spin doctor and thought machine behind Tony Blair and New Labour from the mid-1990s in the UK, talks about the populist virus and had this to say when considering the choice between Boris Johnson and Jeremy Hunt for the next UK Prime Minister

“I mean, we have gone from figures like Thatcher leading the Tory party to this being the choice. But also, it was the extent to which the really simplistic, populist, fact-free rhetoric was the stuff which was getting the applause. Where even five, 10 years ago, there would have been the absolute howl of ‘How are you going to pay for it? What happens if that doesn’t happen?’

When Margaret Thatcher came to power in 1979 I was just about to become a university student. It was a painful time but boy did she get things done. Neo-liberalism was embraced and before anyone really knew what was happening the unions were busted and ordinary folk up and down the UK were buying their terrace house and giving birth to yuppies. Much of this was new and scary and ego-centric but mountains moved.

Likely that the early mutations of the populist virus, the ones with little chance of real success appeared around that time when there were still enough howling to weed them out.

Today we do not have any leaders worthy of the name anywhere except in New Zealand. Consequently, the virus has the freedom to spawn, spread and mess with everyone’s heads so much that people cheer at the detention of women and children in cages at borders.

This is frightening. Not many would look back at the political climate of the UK in the early eighties and lament its strong leadership. At the time it felt like a rape of a socialist ethos, today you would take it in a heartbeat for at least you knew what the leaders were about.

Now we have a virus afflicting normal people with insanity.

Is the populist virus fatal?

Well, we know that populism is doing well and is spreading. Some folk have an innate resistance to it but can still carry it forward to others.

It is pushing evidence and facts to one side as it bends minds away from even the most obvious of conclusions. It means we are running blind into a world that is still adding 8,000 new people per hour and where 3.3 billion souls are getting by on $5.50 per day.

The estimate from the agricultural research community is that by 2030 we need to increase global grain production by over a billion tonnes and meat production by 180 million tonnes, just to get close to the rising demand. That’s 2% per annum food production growth across the board each and every year for a generation. Just because we achieved such a miracle once before in the 1940s and 50s, does not mean we can automatically do it again.

Blindness is not necessarily fatal unless you think you can see. Then you can easily walk out in front of a bus.

The real difficulty with this virus seems to be the antidote. What to take to reduce the effects of imbecility. On this problem, everyone is at a loss, even Jacinta.

Progressives are old and tired and the centre is scurrying to the populist left to express the symptoms of the virus there.

Fringe alternatives are unable to grasp the magnitude of the task for the mainstream – we can’t all live on a mountaintop on goats milk.

The ivory towers are mute and even George Monbiot is struggling to find a whinge.

You know what? I think maybe we will collapse under the weight of this virus or a subsequent mutation of it.

At the very least too many of us will succumb after two terms of Donald, another two of Ivanka, even five minutes of Boris, and become rabid, spreading infection out to the entire world.

But I have a solution…

Get everyone to read The Courage to be Disliked by Ichiro Kishimi and Fumitake Koga and inoculate ourselves with some Adlerian psychology.

More than the rare things

Posted on 2 August, 2019 by alloporus

Suppose you have a choice to make. It is not an easy choice but you have to make it nonetheless, and you only have a moment to think about it.

The choice is this.

You can either

save an endangered plant community from extinction, or
ensure that 1,000 pre-school children in Burkina Faso will not starve to death.

The plants or the kids? I’m guessing that without any context information you would go for the kids even though they are black, a long way away and of a different culture.

Now, let’s make the choice a little more personal.

You can either

save an endangered plant community from extinction, or
ensure that your granddaughter has a good education

The plants or your granddaughters future? Again, I’m guessing that your granddaughter is more important to you than an endangered plant community.

Now you might be asking, what on earth is an endangered plant community? A fair question for otherwise you would have no idea as to the magnitude of your choice.

Formally, a plant community is “a collection or association of plant species within a designated geographical unit, which forms a relatively uniform patch, distinguishable from neighbouring patches of different vegetation types”.

In more simple terms, plants that occur together often enough to form a recognisable grouping.

An ‘endangered plant community’ is a grouping of plants that is at risk of being lost, usually due to some change in conditions brought about by human activities. A typical example might be where a swamp is drained to extend a suburb. The wetland plants cannot survive without the water.

Now the problem here is a value proposition. How much do I value something I might know very little about over something that I can imagine (starving kids) or is personal to me (my granddaughter’s education)?

In the world today there are many endangered plant communities and there are starving children as well as those in need of a good education. The choice may not be explicit but it is actually part of what society has to do. We are going to have to make choices about how much of nature we can protect and save from our own use of resources without compromising human values.

I doubt this is how conservation is proposed. It is usually presented as a ‘we have to or else’ kind of decision and rarely as a choice between competing values. The reason being that if we thought about it in value terms, where human values are among the choices, the people would win every time.

The irony is that this would be a disaster for the people. We might be able to lose an endangered plant community here and there but we cannot lose them all for we cannot live without plant communities. They feed us, clean up our water, produce oxygen… well, you get the idea.

The conservation movement still sets the choice up as a loss of rare things.

Recently the Adani coal mine was approved by the Federal government in Australia. In the absence of any sensible climate policy, the only legislation to stop it was from environmental protection, in this instance some unique plant communities associated with freshwater springs and possible impacts on the Black Throated Finch (Poephila cincta) currently listed as ‘Endangered’ under the Commonwealth Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act).

So when the approval went through and the indignation from the conservationists begaan, they led with the plants and the bird.

What were they thinking?

Just the previous day Norway’s $US1 trillion sovereign wealth fund, the world’s largest, tightened its investment rules to divest further from coal that meant they would pull out $1billion investments in a slew of Australian companies. They should have led with this news. It is hip pocket gold, just as good as choosing your granddaughter’s school over a bird with cute plumage.

Now, of course, cash of this size is about strategy and in the case of Norway the move out of coal into integrated energy companies is as much a hedge against future oil prices as anything to do with the climate. Only that is fine because the climate issue is addressed by the strategy option, numerous values win so the choice becomes less about nature versus people.

It is time we started thinking carefully about the trade-offs that are always present in these value propositions. The green movement really has to or history will record their passion for the rare things as misguided fantasy.