From Value Chains and Circular Economies to System Value Cycles
* Report: Blueprint 7: Value Cycles. From Value Chains and Circular Economies to System Value Cycles. by Bill Baue, Ralph Thurm et al. r3.0, September 2020
- 1 Description
- 2 Contents
- 3 Excerpts
"Humanity is currently confronting a value crisis: in order to prop up a perpetual increase of financial value, we are degenerating the very social and ecological resources that undergird the intrinsic value of living.
Therefore, we must create a new system of value – one predicated on continually regenerating the social and ecological resources that are vital to the wellbeing of all living beings, in the spirit of interconnectedness.
This Value Cycles Blueprint makes a case for this radical reconceptualization of our system of value as System Value, which would displace the current regime of social and ecological value extraction to support financial value concentration, with an approach that dynamically balances the creation of value across all systems – ecological, social, and economic. And to make this System Value creation durably flourishing, we must shift from the linear and even circular notions of value creation, and instead embrace cyclical and spiral value creation structures, which mimic how natural living systems function."
"The Blueprint asserts that, while definitions of value may differ at the individual level, at the collective level, sustainability is a universal baseline of value – the minimum bar of what’s fit, desirable, and possible.
In Chapter 2, the Blueprint traces an evolutionary trajectory from Shareholder Value to Shared Value to Valueism. It then pauses to consider the confounding question of Valuation to set the foundation for identifying the shortcomings of Impact Valuation – namely, that it considers impacts across diverse capital resources (natural, social, human, etc.) to be interchangeable, and it fails to account for the carrying capacity thresholds of these vital capitals resources.
To address these shortcomings, the Blueprint proposes the next developmental evolution to System Value, which inherently accounts for Intrinsic Value. This Chapter ends by asserting the need to shift to conceive of Economies as Ecosystems, which would enable the actualization of System Value in a Regenerative and Distributive Economy.
Building off the notion of value as a knowledge claim, the Blueprint illustrates the fundamental nature of cycles by appealing to the example of the knowledge life cycle, whereby knowledge is continually produced, assessed, enacted, re-assessed, and either validated for continuation in the cycle, or rejected from the cycle as unfit and/or undesirable.
Against this backdrop, the Blueprint traces the evolution of directionality in conceptions of value creation, from Value Chains to the Circular Economy, critiquing shortcomings of each of these doctrines. For example, a robust body of evidence demonstrates that Circularity does not inherently reconcile with Sustainability, and the Circular Economy stands in need of humanization (to complement its focus on biological and technological metabolism) through the Circular Humansphere.
The Circularity / Sustainability disjunction points to the need for Thermodynamic Accounting that reconciles recycling efforts with the fundamental laws of entropy and the conservation of energy. Applying a geophysical lens to the question of regeneration, the Blueprint then examines Bioregional Circulation as the appropriate scale of intervention. Finally, Chapter 3 ends by positing the Cyclical Economy as the next evolutionary development, predicated on the notion fractal proportionality whereby cyclical value flows are nested between linear and circular flows on the one hand, and spiral flows and the other, and represent the appropriate scope of focus for applying to the macro question of an economy.
* Value Cycles
Chapter Four pulls together the strands on Value from Chapter 2 and on Value in Chapter 3, culminating with a synthesis of the notion of System Value with the notion of Value Cycles to arrive at System Value Cycles as the pathway to a Regenerative & Distributive Economy, and ultimately to Thriveability.
The Chapter then applies the concepts advanced in the Value Cycles Blueprint to the preceding Blueprints in the r3.0 Work Ecosystem, to see how they interweave. Of particular note, the development process of the Value Cycles Blueprint prompted r3.0 to reassess the Strategy Continuum introduced in the first Blueprint (on Reporting), resulting in its redesign and reintroduction as the Maturation Matrix. In addition to covering the alignments with all previous Blueprints, this Chapter also assesses the overlap with other elements of the r3.0 Work Ecosystem, including the Rightholders concept, as well as r3.0’s commitment to Thresholds & Allocations and it advocacy for True Costing, Benefiting, Pricing, Compensating, and Taxing. The Blueprint ends with a set of broad Recommendations.
- 1.1. What is value? 11
- 1.2. What are cycles? 16
- 2.1. Shareholder Value 20
- 2.2. Shared Value 22
- 2.3. Valueism 24
- 2.4. Valuation 26
- 2.5. Impact Valuation 27
- 2.6. System Value 33
- 2.7. Intrinsic Value 35
- 3.1. Value Chains 41
- 3.2. Circular Economy 44
- 3.3. Thermodynamic Accounting 57
- 3.4. Bioregional Circulation 61
- 3.5. Cyclical Economy 63
4. Value Cycles
- 4.1. Systems + Value + Cycles → Regeneration & Thriveability 67
- 4.2. Synthesizing System Value Cycles into the r3.0 Work Ecosystem 69
- 4.3. Baselining a Regenerative & Distributive Economic System 76
• Identify your Definition of “Value”
• Acknowledge the Current Value Crisis, and Work for a New System of Value
• Embrace and Apply the Sustainability Quotient
• Advance a System of Value that Embraces System Value
• Transcend Linear and Circular to Embrace Cyclical and Spiral Value
• Integrate Value Scales through Fractal Nesting (or Panarchy)
• Apply Thermodynamic Accounting
• Encourage Bioregional Circulation
• Spur the Emergence of a Cyclical Economy
• Map Value Development Pathways Using the r3.0 Maturation Matrix
• Apply the Integral Materiality Process to Determine Impact Relevance
Capital, Overshoot, Biocapacity
Ralph Thurm, Bill Baue et al.:
"What are “vital capital resources”? In Catton’s terms, “area” – or the land base – is a “vital capital resource,” in that it generates other natural resources necessary for sustaining the web of life (for example, photosynthesizing plant life for providing converted solar energy to feed animal life). More broadly, capital can be considered a stock of anything that yields a flow of valuable goods or services into the future.16 The term “capital” is traditionally considered to refer to financial stocks and flows, but a more expansive view of capital includes natural stocks (for example, fish, or water) that regenerate (or recycle) flows, as well as anthropogenic (or human-made) stocks, such as human capital (knowledge, skills, etc.) or social capital (networks) – and of course the flows they create.
So, in this expansive view, the human project is to manage vital capital resources within their carrying capacities. Stated in its opposite, the normative goal is to refrain from overshooting carrying capacities of, for example, natural capitals (such as an area’s maximum permanently supportable load).
Anthropogenic (or simply “anthro” for short) capitals, on the other hand, invert the bounds of carrying capacity from maximums to minimums, as these are typically resources that require continual regeneration – think of the knowledge cycle, whereby existing knowledge is continually tested for ongoing fitness, and new knowledge is continually created. In this inverted sense, the normative goal when it comes to anthro capitals is to avoid shortfalling the minimum carrying capacity. In other words, there must be sufficient stocks to ensure ongoing flows.
British economist Barbara Ward first articulated this need to “meet the ‘inner limit’ of satisfying fundamental human needs,” while respecting “the ‘outer limits’ of the planet’s physical integrity” due to “environmental degradation and the rising pressure on resources” in the 1974 Cocoyoc Declaration (named after the Mexican town hosting the UNEP/UNCTAD Conference).
In 2012, Kate Raworth visualized these carrying capacity thresholds in a Doughnut image, with Social Foundations representing the inner limits and Ecological Ceilings representing the outer limits. Something about her graphical representation – the quirkiness of calling it a doughnut, perhaps, or the intuitive sense that our existing economics are breaching healthy boundaries – struck a chord, making it into a viral meme almost immediately: the image was literally placed on the table to help frame late-night negotiations on the United Nations Sustainable Development Goals.19 As cognitive linguist George Lakoff notes on effective framing, “simply rebutting the dominant frame will, ironically, only serve to reinforce it [so] it is absolutely essential to have a compelling alternative frame…”20 The power of the Doughnut is that it graphically reorients us to seeking abundance within the “safe and just operating space” between these ecological ceilings and social foundations.
In 2017, Raworth published a comprehensive compilation of scientific data demonstrating that humanity is in shortfall on all 12 of the Social Foundations, and in overshoot on 4 of the 9 Ecological Ceilings. In other words, humanity is outside the carrying capacities on 16 of the 21 Doughnut thresholds. Getting back into the “safe and just operating space for humanity” – as Raworth characterizes the area of the Doughnut – is vital, and clearly represents a core definition of value as it encompasses both fitness and desirability.
There are, of course, other parameters for defining value along the lines of fitness and desirability. The key question is: how universal is the definition? We believe that a thresholds-based approach arrives at the broadest scope of fitness and desirability possible, as a baseline: we must at least sustain ourselves if we are ever to move beyond this to thriving (or thriveability, as some advocate).
The assertion that this definition is universal is supported by the recent interpolation of the Doughnut into the indigenous Māori cultural context in New Zealand. This transliteration reveals that the categories and concepts embedded in the anglophone Doughnut have equivalent counterparts in Māori culture."
Bill Baue, Ralph Thurm, et al. :
"The Knowledge Life Cycle also encompasses both single- and double-loop learning, the concepts introduced by Chris Argyris and Donald Schön in the late 1970s:
• Single-loop learning occurs “whenever an error is detected and corrected without questioning or altering the governing variables.” A thermostat illustrates single-loop learning – it follows a simple set of rules (too cold: turn on; too hot: turn off) with no learning about the learning. In other words, it deals with symptoms, not root causes. “The core question is ‘Are we doing things right?’”
- Double-loop learning occurs “when errors are corrected by first examining and altering the governing variables and then the actions.” Thinking “outside-the-box” exemplifies double-loop learning, as it steps back to question underlying norms, rules, and assumptions. It thereby addresses both symptoms and root causes. “The core question is ‘Are we doing the right things?’”
Building on this foundation and integrating Gregory Bateson’s notion of Learning I (linear), Learning II (complex), and Learning III (hyper-complex), others have proposed the notion of triple-loop learning. For example, Richard Hummelbrunner proposes triple-loop learning as a means of making “the value base of evaluations more explicit”:
- Triple-loop learning can reveal critical values, that is, the values underpinning behaviour and cognition patterns in a particular situation. These are often connected with power relations or issues of expertise and legitimacy – which in turn can be explored when reflecting on boundary choices. Critical values inform evaluation criteria of equity (who benefits from an intervention and why?), as well as aspects of sustainability (are the actors that are needed for sustaining effects adequately involved?) … The core question is ‘How do we establish “rightness”? "
"Mariana Mazzucato lucidly distinguishes between value creation and value destruction by asking “whether what it is that is being created is useful: are the products and services being created increasing or decreasing the resilience of the productive system?”
For example, it might be that a new factory is produced that is valuable economically, but if it pollutes so much to destroy the system around it, it could be seen as not valuable. By ‘value creation’ I mean the ways in which different types of resources (human, physical and intangible) are established and interact to produce new goods and services. By ‘value extraction’ I mean activities focused on moving around existing resources and outputs, and gaining disproportionately from the ensuing trade.51 Many are calling for a turn away from the “value extraction” regime of shareholder primacy, including most prominently the late Cornell Law Professor Lynn Stout. In her book The Shareholder Primacy Myth, she makes the case that shareholder primacy is an abstract economic theory that lacks support from history, law, or the empirical evidence. In fact, the idea of a single shareholder value is intellectually incoherent. No wonder the shift to shareholder value thinking doesn’t seem to be turning out well — especially for shareholders…
Stout shows that the self-interest behind shareholder primacy may actually be self-defeating when extrapolated to the systemic level:
- Shareholder value-increasing strategies that are profitable for one shareholder in one period of time can be bad news for shareholders collectively over a longer period of time.
This line of reasoning demonstrates that shareholder primacy is far from being fit and desirable in any kind of universal sense. The fact that the minority for whom shareholder primacy is fit and desirable have convinced the rest of us that it is also fit and desirable for us, even though it does not benefit us (and in fact harms us), is perhaps history’s greatest sleight-of-hand." (https://www.r3-0.org/wp-content/uploads/2020/09/r3-0-Value-Cycles-Blueprint-Final.pdf?)
Ralph Thurm and Bill Baue:
"Cooperation. Circulation. Balance. This is how natural cycles – in this case, the carbon cycle – work in the earth’s biosphere. And the carbon cycle is amongst the most fundamental forms of value to the plant and animal kingdoms (including we humans), as it creates the conditions conducive to life. Carbon fixation in the ground is key to soil health and plant productivity, while atmospheric carbon concentration is a key barometer of the balance between a livable planet (such as we’ve enjoyed throughout the Holocene) on the one hand, and on the other, the planet we’re inhabiting now, with the climate emergency burning continents and threatening to hurtle us into a “hothouse earth,” and an extinction rate a thousand-fold higher than the background rate, among a host of other systemic dysfunctions. And of course, the cycle of inhaling oxygen and exhaling carbon dioxide is amongst the most valuable processes for life. Think of these valuable natural processes as metabolic cycles, but instead of metabolizing food (as our bodies do), what we’re talking about here is the broader metabolization of vital capital resources to create value – or “fitness, desirability.”
So, the thesis we advance in this Blueprint is that
lasting value for all is created cyclically and systemically.
This proposition carries several key implications for change from our current system. First, if our economy is to sustain itself (and sustain life on Earth), we must supplant the linear (take-makewaste) economy as the primary approach to value creation, as it is a self-evident dead end if practiced on its own. However, we can’t throw the baby out with the bathwater: linear processes exist within healthy systems (and healthy cycles), so we simply need to recognize the role of linear approaches and systems within the bigger picture. As Working Group member Martijn Veening of Entropometrics stated in the Virtual Dialogue:
- The metabolic cycles are not really cyclical, they are actually always ‘upward spirals’ and they actually depend on some linear value processes. Without these linear processes, the spiral will go down again (in ultimo a collapse). This principle holds at any scale (from the nano to the systemic level), and, as a real metabolism, there is fractal interdependency between rates of scales as well. Some spirals move upwards so slowly that we perceive them as cycles. They feed on linear ones. The co-dependency between these spiraling and linear processes is where the magic sits. The ratio between spiral-momentum and linear consumption is key. In nature, the efficiency is relatively very high, obviously. This proportionality has evolved over billions of years. Technological systems display much lower efficiency rates. And in our socio-economic domains we have several examples of run-away processes, which display disproportional rates (in finance, ‘consumerism’, etc..). Again, there is no a-priori ‘healthy’ proportion, only a-posteriori. I think most of us agree on current disproportional cases.
In this sense, lasting value depends on “the proportionality between its co-dependent generative ‘cyclical’ and linear processes,” states Veening.
Second, the fact that our current system falls short on complementing linear processes with cyclical (or spiral) processes means that significant “latent” (or “submerged”) value exists, which can be realized by shifting to holistic approaches that assess total System Value. The goal here is to create positive value across all elements, thereby replacing current processes of creating positive value in one area (typically in finance) by destroying value elsewhere (typically in nature or society). This would enact a shift from Monocapitalism to Multicapitalism.
Third, natural cycles create “waste,” but this waste serves as the feedstock for symbiotic cycles. So, cyclical value creation also entails identifying complementary cycles for regenerating value from “waste” streams. Think of animal manure, which in our current industrial agricultural systems is a toxin polluting the water cycle through nitrogen and phosphorous overload (as just one example), whereas in regenerative agriculture, manure feeds energy back into the system as fertilizer as well as fuel for bio-digesters. Fourth, the primary value cycles constantly regenerate value, because that’s what cycles do (within the limits of the laws of thermodynamics) – they regenerate. So, we need to understand value metabolism, in terms of materials, energy, and social equity."