Compression

Description

Robert W. “Doc” Hall:

"Five hundred years of global expansion are nearing an end. The physical resources to support it are limited, and we must closely heed the global environment that supports us. However, the financial and business systems developed during expansion goad us to continue physical expansion. These old legacies to which we are attached will not shut themselves off. We must do that. Questioning them is emotional, but we have to squelch our emotion to find a path to new systems of thought and work. This will not be easy.

The author did not reach this conclusion quickly. Expecting others to instantly concur is unreasonable. But we cannot afford to wait much longer to start on this new path.

Compression has many physical analogies: mechanical compression as with springs or air, or compressing information as in an e-mailed “zipped” attachment. Compression is Moore’s Law in computer processing, doing much more using less energy in smaller and smaller packages. It also implies psychological stress from changes occurring so quickly that we can’t absorb them, and respond in a daze, if at all.

Compression implies that we must get out of this dazed state by learning how to learn faster. The goal of Compression is to learn how to continue improving human quality of life while greatly reducing our consumption of energy and virgin raw material, and releasing no toxic chemicals into either air or water. Compressing our physical economy while expanding our quality of life, having our cake and eating it too, is a supreme challenge to human intellect, technology, organization, and emotions. This implies a revolution in how we define and organize work – even how we think. Are we going to go for a higher state of civilization or relapse into a version of the dark ages?

Compression, the opposite of economic expansion, turns old economic and business assumptions upside down. Most business thinking; indeed most daily thinking, presumes an expanding economy. We expect money invested in a bank or corporate stock to grow. We expect companies and cities to grow. So we solve most problems by finding and using more resources – energy, materials, land. But in Compression, more is not better. Instead we must think “quality over quantity, always.” An arbitrary global objective is: Globally create at least the same quality of life as in industrial societies today, while using less than half the energy and virgin raw materials as in the year 2000, while cutting known toxic releases to nearly zero."

(Source:Compression. Document written by Do Hall in Sept 2009)

Discussion

Overcoming Expansionary Dynamics

Robert Hall:

"Producing and consuming less runs against received economic wisdom.

Expansionary thinking is normal to humans when they can muster the resources to expand. All ancient empires were expansionary -- European, Asian, African or Native American. Agricultural civilizations built empires by opening virgin land for human use, or by capturing it from others. Since working the ground was labor intensive, somebody had to be coerced into doing it – de facto slavery in some form. Then they had to build and protect roads and waterways to bring produce to their centers of civilization – cities. When the amount of energy extracted from this system was no longer sufficient to keep it going, empires declined – if a stronger empire did not defeat them first.

Human habitation appears to have expanded slowly around the globe until European colonization began about 500 years ago. As this physical global expansion accelerated, the expansionary economic institutions that we know today grew with it. Many European colonies were business ventures chartered as limited-liability companies, the forerunners of today’s corporations. At least one, The Hudson Bay Company, is still going.

While colonizers had mixed motives, economically they developed the resources of the land. Those colonized usually viewed it as exploitation. Colonial capitalists staked claims and developed them more on sweat equity than capital, but by using a claim as collateral, they could borrow money to develop it. As the need for capital grew, the financial system expanded to supply it. Governments stabilized shaky private banks by regulating them, and by chartering them to draw reserve money for expansion; then supporting them if they ran short. (This became the Federal Reserve System in the United States). Stripping away the complications, capitalism essentially created money for physical expansion out of nothing by defining something measureable as an asset, then collateralizing it. Real estate development still works about the same way.

As long as the money thus generated is honored as markers of transactional value, it induces organization of work to “do something” with property and other resources. After appropriating resources that no one appeared to own, colonials began transforming them to increase their value as they saw it. With the industrial revolution, ingenuity devising fuel-powered equipment accelerated expansion. The need for capital with which to do it greatly increased. As this system matured into transactional market societies, it had to make credit routine, so it shed medieval customs like prohibiting charging of interest. The system’s emphasis on return on money invested and returns to stockholders is a legacy from 19th century railroads. The United States and Britain were the only two economies whose private capital markets could finance railroads’ demand for capital that dwarfed all other demands for it at the time. Elsewhere governments had to finance railroads. But even more than today, early stock markets were volatile, speculative, fraud-ridden, and plagued by periodic boom-bust cycles all the way back to the 1630s Dutch Tulip bubble.

To defend rail operations from capital market predators, railroad boards organized to make “strategic finance” decisions, leaving operations to professional managers. They set up hierarchies easy for boards to understand, and pioneered many ideas we take for granted today. Centrally-coordinated national time zones are only one. Rail tycoons founded engineering colleges. Rail managers helped found professional societies.

“Running like a railroad” came to describe a well-run business, and because of the huge capital investment, the chief criterion of railroad performance became return on investment with a system of control to assure it, so other industries copied that too. In the 20th century the financial system became more-and-more global to support physical expansion on an ever-bigger scale. Over the century, world population expanded from 1.6 billion to 6 billion. The world population of registered vehicles expanded from nearly zero to about 750 million. Housing units in the United States expanded from 37 million in 1940 to 115 million in 2000. The size of housing units also increased. This is obvious without using statistics: just compare old photographs with new ones of built up areas with their traffic. Burgeoning physical expansion required more and more energy. To power this expansion in the United States alone between 1950 and 2000, energy production doubled from 35 billion quads to 71 billion quads.

To enable this consumption, the financial system ballooned credit capacity. From $226 billion in 1970, American consumer credit zoomed to $1.7 trillion in 2000 (real dollars, not constant). By 2006 it had lofted to $2.4 trillion. Mortgage debt zipped from $92 billion in 1952 to $7.5 trillion by 2000; and on up to $13.3 trillion by 2006.

Plenty of evidence suggests that the expansion party is coming to an end."

(Source:Compression. Document written by Do Hall in Sept 2009)