Post revisited – Peeled potatoes

Post revisited – Peeled potatoes

In Monty Python’s infamous movie Life of Brian the masses lament their lot and decry “What have the Romans ever done for us?” only slowly realizing it was just about everything that made life livable.

This was, of course, a satirical stab at the economic system, the one everyone moans about all the time for its addiction to growth, our slavery to it, and the fact that it is so sacred that no one can touch it.

This post from 2011 begins with a similar lament but ends up somewhere else…

Peeled potatoes

In our world of doing it all easy, the latest labour saving option in the kitchen is pre-peeled potatoes.

What an outstanding idea. No need to whip out the peeler and waste time or get mud on your fingers. No more peels to get rid of and litres of water are saved from not having to clean off the grubby bits.

What, you are kidding!

How lazy can we get? It takes no effort at all to peel a potato or two. This has to be consumerism gone mad. ABC radio host Richard Glover thought so and created a funny skit to point out the craziness.

Only there are a couple of things.

First thing. An inevitable consequence of a market mechanism is that new products will emerge. Whatever people will buy, whether they really need it or not, the market will provide. The market will also provide things that they hope people will buy, often well before customers recognize that they might have a need for it. In the end, if a product works for even a few of us then it may be worth manufacturing. Witness, ‘peeled spuds in nitrogen’.

Second thing. There is always an opportunity for more efficiency in they system. If the supplier of the potatoes also recycled the peels into compost, this would be useful second product from the potatoes. Very few of the customers would do this and even if they did there would be no scale benefit.

We are at the stage where every nutrient and kilo of organic material that goes back into our agricultural soils is worth the effort given that fossil fuel based fertilizers are rapidly becoming another of our limited resources.

Our system of resource use is so bloated that there are efficiencies that will help our sustainability just about everywhere. All we have to do is look. One of these efficiencies, conversion of organic waste into fertilizer, will become commonplace. As will novel ways of doing it.

The idea that the recycling happens before the product reaches the kitchen might just be one of the better ones.

In short, the market is bad unless it is efficient.

What the Romans did was create efficiency through commerce that made lives easier and more livable in the time before sanitation, antibiotics, and mass transport. And for better or worse, the market has done the same for the majority of westerners since the industrial revolution.

But for the system to deliver livability for the majority,  over time, it has to be efficient and resilient, especially in the use of resources. Resource wise, peeled potatoes might work efficiently if the peelings are actually composted and returned to the farms that produced the potatoes. Market players can clip their margins along the supply chain so long as consumers are prepared to pay a premium for pre-prepared convenience. If they are, and the peelings feed worms, all is well.

Then we find out that 40% of Australia’s banana crop never leaves the farm because the fruit is misshaped. Not even in a parallel universe is this efficient. I can see Minions crying at the piles of rotting yellow.

We also know that wealth is increasingly concentrated because this is also how the market works. Money and resources churn but the clip ends up in the hands of a few. This is also a criticism of the Romans and any number of subsequent empire builders that followed their example — wealth is concentrated as the masses are exploited.

Except that the Romans did a whole heap of things that kept people alive and moderately well. And, arguably, in much better shape than they were before.

Our dilemma is the same.

Maximising shareholder value

Maximising shareholder value

Any sane historian would have to admit that the wealth generated from the industrial revolution has come at an environmental cost.

Forests converted to paddocks, wetlands drained for suburbs, coal mined and burnt into the atmosphere, not to mention the supply chain infrastructure criss-crossing the landscape to feed and house everyone. The more perceptive would also see the trend as ongoing, boring into the environmental fabric that delivers fundamental human services. Development has done more than create smartphones.

The entrenched requirement to maximise shareholder value — it is usually illegal for company directors not to do this — ensures resources are exploited and costs externalised. And the legality neatly justifies these outcomes.

Except that value to shareholders is time bound.

Suppose that shares in a company have generated a consistent dividend of 7% per annum for a decade. These are not spectacular returns but a solid delivery of shareholder value over time. Inexplicably over the next few years, the dividends tank and the share price goes south too. The directors pull out all the stops to maximise shareholder value and their fiscal reporting says that they have done everything possible. It’s just that they maximised a very small amount of value.

A second company returned 4% on shares over the same ten years. Not so good. However, shares continue to return 4% for the next decade and the decade after that because the directors chose not maximise value. Instead, they maximised longevity in returns. They optimised shareholder value for the long haul… and went to jail for breaking the law.

If you invested $1,000 in each company, reinvested your dividends and chose to liquidate your overall value after 30 years, which company made you the most money?


Post script — It would seem that shareholder primacy is the formal term for some of this concept and people are questioning if it should still be the purpose of corporations