Rules and Choices for a Sustainable Local Economy

Economies are social systems within which we make choices based on needs, wants, and means. People regulate economies through rules that set taxes, tariffs, fees, standards, licensure, certification, patents, etc. These rules reflect the priorities of the people who enact them through their governance structures be they for small local groups or large global agencies.

The intent of rules is to limit choices in favor of those that produce the desired behavioral outcomes on a consistent basis. Such rules make the economic system more effective (do the right thing) and efficient (do it the right way).

Oftentimes, rules from multiple levels of jurisdiction apply to the same set of choices. For example, cooperatives, municipalities, county, state, and federal offices and agencies, the European Union, the United Nations, professional societies, industry-wide private sector groups all have a hand in defining various regulations to monitor and manage the supply of basic needs such as food, water, energy, fuel, manufactured goods, etc.

Unfortunately, competing or unclear interests behind the rules or insufficient diplomatic moxie to enforce them results in a complex legal and financial landscape in which to make choices. From a business perspective, this dense web of rules becomes a barrier to entry for all but those that have a global market, deep pockets, and easy access to resources to sort through the alternatives, invest in the opportunities, and pay the consequences for any misstep. It also fosters a dependency by people and their communities, neighborhoods, and rural areas on global players to supply them with basic needs. This places communities at risk for survival if supply chains are disrupted whether by natural disasters, climate change, pandemics, fossil fuel shortages, political turmoil, even a down Internet, to mention some of the more obvious.

As explored in the posting, “Business Models for a Local Economy,” the primary purpose of a local economy is to meet the needs of its participants whereas the purpose of the global economy is to satisfy their wants. Such distinctly different purposes result in different rule sets. Governance structures proliferate at all levels to administer rules of the global economy. Far fewer are in place for local economies. However, several types are available. Among these are policy councils, buying clubs, and co-ops for food, family, education, housing, etc.

Governance structures for local economies establish the rules by which members of communities, neighborhoods, and rural areas have more options available so they can choose to meet their needs through local sources. In effect, such “rules management” facilitates “Business Model Development within a Local Economy”, which drives two fundamental “localization” processes:

  • Integration across all value-added steps from the point of consumption back to the points of production
  • Utilization of community assets and resources without reliance on outside funding

The combination of these two processes, under the auspices of a local governance structure, gives interdependent local businesses and support organizations the competitive edge to prevail over their global counterparts when meeting needs of community members. Furthermore, members have opportunities to minimize economic leakage, reinvest their assets, and retain vital resources in the community through an effective portfolio management effort. This collective effort, then, is the foundation for sustainable local economic development.

The diagram below offers another way to view these critical interrelationships.

The integration of value-add steps–a function of rules management–flows from the point of consumption to the points of production, whereas the utilization of community assets and resources–a function of asset management–flows from identification and location to inclusion in an infrastructure project and business case portfolio.

The center of the diagram lists a wide range of professional services required to accomplish the tasks and complete the activities associated with rules management, business ecosystem functionality, and asset management. Social networking and innovation, which characterize asset management, and entrepreneurship and commercialization, which result from rules management, form the backdrop to conduct these transactions.

As the graphic suggests, services are transactions–the lifeblood in social system behavior. Nothing gets done between and among people without transactions. However, some methods and processes require fewer transactions than others. Furthermore, a healthy local economy incurs fewer transaction costs, either internal or external, to meet the needs of its members than a global economy. This is simply because the sustainability of the community is in the hands of those who live there. It’s in their vested interest to manage it. And given the choice to do so, which a vibrant local economy does, members will act on behalf of their collective sustainability.

Community members, represented by the orange-colored background, have the rules in hand to manage the context and the choices available by which they can:

  • Meet their needs
  • Sustain their community for generations to come
  • Assure themselves of a reasonable quality of life
  • Build on a firm foundation to participate, successfully, in the global economy

These outcomes of constitute the primary purpose for a sustainable local economy and the healthy development it catalyzes and encourages.

Originally posted to Sustainable Local Economic Development on Tumblr by Steve Bosserman on Wednesday, September 8, 2010

Addicted to Oil

On 31 January, President George W. Bush delivered his 2006 State of the Union Message. In it he made a very powerful declaration:

Keeping America competitive requires affordable energy. And here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world. The best way to break this addiction is through technology. Since 2001, we have spent nearly $10 billion to develop cleaner, cheaper, and more reliable alternative energy sources — and we are on the threshold of incredible advances.

While history will be the final determinant of President Bush’s impact on history and the degree to which it was favorable or not, the statement, “America is addicted to oil,” may standout as a turning point for America. While this reality was not new news for millions who listened to or read his speech, the mere fact that he gave voice to it as the elected leader of the American people was a powerful expression of what it represents. It may very well constitute the most key assertion of his administration.

Addiction is a tough term to reconcile; it is a psychological reality that takes no prisoners, so to speak. Addiction means dependency in the most profound way. Such dependency in this instance drives three potential outcomes:

  1. Depletion: what happens if we run out of oil?
  2. Defense: what happens if government leaders from countries where we buy oil use the money to our disadvantage costing even more money to protect ourselves and our way of life
  3. Destruction:1 what happens to the environment if we persist in using oil (fossil fuels)?

It isn’t necessary to know exactly when we reach Hubbert’s peak, or to know how much money it takes to defend ourselves against foreign forces that are funded by money we pay to them for their oil, or to know how much burning fossil fuel affects the environment. It is only a matter of believing that any one or a combination of them is in play to trigger intense concern. Such is the powerful hold addiction has on those in its grasp.

The significance of President Bush’s statement is that it legitimizes conversations and commitments to seek viable alternatives. And because there are three motivating forces, each equally compelling, triggered by his statement, there is a much wider audience who buys-in to the notion that the fundamental issue of oil addiction warrants attention. Time and energy do not need to be wasted convincing people to get on board. It is proving to be an efficient way to mobilize people, resources, and investments in finding viable alternatives.

We do not have answers; at least we have questions that are moving us in a healthier and more sustainable direction. Swapping fuels derived from plant materials for fossil-fuels offers a way to ease the problem, but it is not a panacea. It will be a race to see if we can slow consumption, adopt non-fossil-fuel alternatives, and develop more efficient ways to produce and move what we make from one place to the other. This is an area of considerable interest to me as 2006 wanes and 2007 creeps closer. More later…

Originally posted to New Media Explorer by Steve Bosserman on Sunday, December 10, 2006

  1. The quoted 2005 report from the Union of Concerned Scientists is not available online, however, a later statement, Car Emissions & Global Warming, addresses the same issue:“Our personal vehicles are a major cause of global warming. Collectively, cars and trucks account for nearly one-fifth of all US emissions, emitting around 24 pounds of carbon dioxide and other global-warming gases for every gallon of gas. About five pounds comes from the extraction, production, and delivery of the fuel, while the great bulk of heat-trapping emissions—more than 19 pounds per gallon—comes right out of a car’s tailpipe.” 

Declaring Independence

Last week when I was visiting friends in a small, rural German village, my host’s eighteen year-old daughter, Lara, asked if I knew the “Declaration of Independence.” “Of course,” I quickly stated while punctuating that harrumph with the added self-assuring thought to myself, “What American doesn’t know the Declaration of Independence.” “We’re studying it in school,” she added. “Our teacher is making us memorize the introduction. Why do we have to do that? It’s two-hundred thirty years old. This is stupid!” Silence. Hmmm. She asked me if I REALLY know it, not if I knew about it! “Do you know it from heart – can you say it right now?” I inquired incredulously. Without a moment’s hesitation she blurted out the nearly 300 words in perfectly elocuted, well-delivered English. As she is reciting I am wondering, how many American kids her age can do this? My two at home are fourteen and fifteen and they don’t have a clue! I want to think they are typical middle school / high school kids, so – hypothesizing from and “n” of two – American kids get a big “F” for failure on this one. But what about the larger question she asked, “Why do we have to do that?” that is the real bugaboo. Why, indeed.

The trite answer is, “use it or lose it.” Urban legend has it that many of the signers of the “Declaration of Independence” came to a bad end due to their association with that act. While Snopes argues that many of these legends are exactly that, fabrications, checking world history, liberty does come at a price and freedom when taken for granted is lost. The common thread through the rise and fall of liberty and freedom is the ascent or descent of political and economic systems within a governmental jurisdiction. Clearly, the trajectory is an arc and what goes up must come down. Nothing stays the same; the only constant is change; and as an old “bull of the woods” boss of mine used to say, “The only thing that runs itself, runs downhill.”

In The New York Times, June 27, 2006 edition, Op-Ed Columnist, Nicholas D. Kristof wrote an editorial entitled, Chinese Medicine for American Schools. Dateline: Shanghai, Kristof writes:

But the investments in China’s modernization that are most impressive of all are in human capital. The blunt fact is that many young Chinese in cities like Shanghai or Beijing get a better elementary and high school education than Americans do. That’s a reality that should embarrass us and stir us to seek lessons from China.

And he concludes with the following:

During the Qing Dynasty that ended in 1912, China was slow to learn lessons from abroad and adjust its curriculum, and it paid the price in its inability to compete with Western powers. These days, the tables are turned, and now we Americans need to learn from China.

China, on the ascent, is blocking the Internet from its citizens…

…and the citizens are fighting it.

The U.S., on the descent, is spying on its citizens

…and we do what?

When the Declaration of Independence was enacted in 1776 Great Britain was drawing closer to the apogee of its strength as the greatest political and economic power on earth. While the hard-fought independence of the American colonies did not compromise Great Britain’s destiny as a world super power, it did send a signal that despite such greatness nothing lasts forever. Others will challenge what is taken for granted. And as was the case with the former American colonies, the United States eventually supplanted Britain as a stronger powerhouse on the world stage.

Below are the “charges” brought against King George II – deemed by the colonists who revolted, “A Prince, whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free People.”

The United States Declaration of Independence, continued:

The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.

He has refused his Assent to Laws, the most wholesome and necessary for the public good.

He has forbidden his Governors to pass Laws of immediate and pressing importance, unless suspended in their operation till his Assent should be obtained; and when so suspended, he has utterly neglected to attend to them.

He has refused to pass other Laws for the accommodation of large districts of people, unless those people would relinquish the right of Representation in the Legislature, a right inestimable to them and formidable to tyrants only.

He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their Public Records, for the sole purpose of fatiguing them into compliance with his measures.

He has dissolved Representative Houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.

He has refused for a long time, after such dissolutions, to cause others to be elected; whereby the Legislative Powers, incapable of Annihilation, have returned to the People at large for their exercise; the State remaining in the mean time exposed to all the dangers of invasion from without, and convulsions within.

He has endeavoured to prevent the population of these States; for that purpose obstructing the Laws of Naturalization of Foreigners; refusing to pass others to encourage their migration hither, and raising the conditions of new Appropriations of Lands.

He has obstructed the Administration of Justice, by refusing his Assent to Laws for establishing Judiciary Powers.

He has made judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries.

He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our People, and eat out their substance.

He has kept among us, in times of peace, Standing Armies without the Consent of our legislatures.

He has affected to render the Military independent of and superior to the Civil Power.

He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended legislation:

For quartering large bodies of armed troops among us:

For protecting them, by a mock Trial, from Punishment for any Murders which they should commit on the Inhabitants of these States:

For cutting off our Trade with all parts of the world:

For imposing taxes on us without our Consent:

For depriving us, in many cases, of the benefits of Trial by Jury:

For transporting us beyond Seas to be tried for pretended offences:

For abolishing the free System of English Laws in a neighbouring Province, establishing therein an Arbitrary government, and enlarging its Boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule into these Colonies:

For taking away our Charters, abolishing our most valuable Laws, and altering fundamentally the Forms of our Governments:

For suspending our own Legislatures, and declaring themselves invested with Power to legislate for us in all cases whatsoever.

He has abdicated Government here, by declaring us out of his Protection and waging War against us.

He has plundered our seas, ravaged our Coasts, burnt our towns, and destroyed the lives of our people.

He is at this time transporting large armies of foreign mercenaries to compleat the works of death, desolation and tyranny, already begun with circumstances of Cruelty & perfidy scarcely paralleled in the most barbarous ages, and totally unworthy of the Head of a civilized nation.

He has constrained our fellow Citizens taken Captive on the high Seas to bear Arms against their Country, to become the executioners of their friends and Brethren, or to fall themselves by their Hands.

He has excited domestic insurrections amongst us, and has endeavoured to bring on the inhabitants of our frontiers, the merciless Indian Savages, whose known rule of warfare, is an undistinguished destruction of all ages, sexes and conditions.

So, who’s going up and who’s coming down make all the difference. Based on who is affronted by such conditions and the context in which they live their lives, people choose to either accept those conditions or challenge them. It is in making this choice that the principles defining the space where liberty and freedom prevail are brought to the forefront, given true meaning, and set the stage for a just civilization to progress. The very conditions imposed by an unjust government from which the colonists declared their independence now perpetrates those same conditions on its citizens and others. What some 230 years ago was unacceptable is now relegated to the ranks of the routine. We are quickly forgetting why our forefathers took the stand they did. But it won’t take others elsewhere to pick up the banner from us. Liberty, freedom, and justice that underpin them, live on forever! And that, my friends, is why we read and memorize the Declaration of Independence!

Originally posted to New Media Explorer by Steve Bosserman on Tuesday, July 4, 2006

The Problem of Power

Since humanity began its odyssey out of Central Africa millennia ago, hierarchy is the only consistently adopted structure for distributing power within a social system. This structure holds intact the social system in which it exists. To do so, it exercises three roles:

  1. Define “boundaries” – territorial, birthright, and behavioral – that determine who’s in and who’s out
  2. Provide security that protects the boundaries, preserves the lineage, and maintains the behavioral guidelines
  3. Respond to changing circumstances so that the primary social system persists

Hierarchy is easy to install since it begins when one person assumes a dominate position relative to another. It is efficient. The dominant one sets the boundary conditions and subordinates operate within them. When coupled with fear of consequence if one does not stay within the boundaries and the promise of reward if one meets or exceeds expectations the vast majority of members comply with the dictates of the hierarchical social system.

Members of hierarchical social systems participate in governance, free enterprise, and non-governmental affiliations. The rulers set the parameters in which members operate so that government has the resources to assure security, enact rules of conduct, ownership, and commerce, and provide a system of jurisprudence in the event that members do not follow the rules or violate the rights of members. Property owners, business owners, and those who contribute their skills, time, and energy are compensated, pay some percentage of their profit and income to government so that it can function, and voluntarily give to community-based organizations that benefit the commonweal and care for those who cannot contribute. It is a system of cooperation, choice, and commitment that is simple and elegant.

Hierarchy is a structural “tool” for managing social systems. It is the integral framework upon which all institutions – governmental, business, or non-governmental / not-for-profit – are built. As such, it becomes a common denominator that cuts across society in all its endeavors. Like any tool, it is neither good nor evil. How people use hierarchical structure within their institutions and throughout their social system is what imbues it with certain characteristics of morality, ethics, and fairness and places it on a continuum of social justice ranging from barely evident on one end to being a matter of course on the other.

The driving force that shifts a social system along the scale of social justice is the use, or abuse, of power. Hierarchical social systems concentrate power in the hands of a minority number among the overall population. As Lord Acton stated, “Power tends to corrupt, and absolute power corrupts absolutely.” In other words, when holding a dominant position, some are seduced by the power they have over others. This prompts them to do the following:

  1. Stay in their positions of power
  2. Keep the hierarchical social system intact so that the positions of power they hold are preserved
  3. Curtail affiliation among those who are disenfranchised by the system so that the threat of insurrection is quelled.

Basically, people who are so affected are drawn by the possibility of extracting even more profit or garnering more control. They limit choices for subordinates and force compliance to rules and conditions that are not beneficial to members. In addition, they attempt to keep the system as it is so that their gain is consolidated and ideally, continues to grow.

As an example, approximately 50% of the world’s population earns less than $2 / day per capita through subsistence agriculture. The hope of a higher quality of life is dashed each day eking out an existence under the harshest of circumstances. Leadership in these countries is averse to mechanize and modernize agriculture because those displaced would venture to cities in an effort to find work. This would overburden the already congested and over-stressed infrastructures in these urban areas elevating discontent and unrest. Better to keep people where they are so they are contained having to care for themselves. Meanwhile, the economies grow and the top echelons gain wealth.

Another example: according to an article in The Open AIDS Journal entitled, “HIV Infection and AIDS in Sub-Saharan AfricaUNAIDS report,” Sub-Saharan Africa is home to 70% of all people afflicted with HIV in the world. This area holds some of the world’s richest natural resources, yet the population is in grave peril, health-wise, including leaders. In fact, that is the point. The world has known about AIDS / HIV in Africa for nearly 30 years and has only in the last five mobilized efforts to do something. All indications suggest it is too little, too late. Millions have died from AIDS already and millions more will do so over the next two generations as the endemic unfolds. Sub-Saharan governments are rendered ineffective due to a lack of competent, experienced leadership, citizens are not able to care or fend for themselves, economies slow their growth, and property ownership and control shifts to foreigners. Colonies once lost due to revolution are reclaimed – without firing a shot.

As yet another example, consider genocide. In his 1994 book, Death by Government: Genocide and Mass Murder since 1900, author R.J. Rummel defined and documented “democide,” e.g., atrocities committed by governments on their citizens. Of the nearly 170 million who died at the hand of their governments during the 20th Century, 130 million, over 75%, were victims of four regimes: Soviet, Communist Chinese, German, and Nationalist Chinese. This does not include Rwanda in 1994. And genocide continues as the people from Darfur have borne witness every day this year. A weakened population becomes weaker. Those who hold the most power in the world act as though they are powerless as these horrific injustices go unchecked. The reality is there is nothing to be gained by intervening and much that could be lost if circumstances go awry. The people of Darfur, like the millions before them, are collateral damage in an economic power struggle of global proportions.

In his unsettling essay, “Waiting for the Lights to Go Out ,” published in the October 16, 2005 edition of The London Times, Bryan Appleyard posits a rather grim future wherein civilization is doomed to return once again to the Dark Ages. The central theme of his essay is the meltdown of society as we know it due to our insatiable addiction to oil, the inevitable depletion of oil reserves, and our woefully inadequate and untimely response to that eventuality. At the heart of his thesis is that human nature has not progressed very far since we began our migrations throughout the world from our African origins. Appleyard states, “Our aggressive, tribal nature is hard-wired, unreformed and unreformable. Individually we are animals and, as animals, incapable of progress. The trick is to cage these animal natures in effective institutions: education, the law, government. But these can go wrong.” Not particularly encouraging!

Rulers enact laws that are increasingly restrictive, militaristic, and draconian or become arbitrary in their decisions. Owners pull more profit, become more risk averse, and offer fewer benefits. Having less voice and impact, non-governmental organizations become more fanatical and close-minded; their ratios of administrative overhead to pay-out increase, and beneficiaries receive less real assistance.

In summary, the thirst for power and the specter of losing it becomes a corruptive force that undermines the fundamental tenets of a system that is given to efficiency and effectiveness if used honorably. People suffer for lack of true justice. Is there any way institutions, no matter how well-intended, can escape the slippery slope into corruption and injustice? Or is this simply the dark underbelly of hierarchy which must be accepted until people have more distance in time from their early violent struggle for survival as Homo sapiens? What is your opinion?

Originally posted to New Media Explorer by Steve Bosserman on Monday, December 12, 2005

Pareto and the Pyramid of Power

The year 2006 marks 100 years since Vilfredo Pareto noted that 20% of the population owned 80% of the property in Italy. This conclusion combined with the analysis methods that support it led to the formulation of the “Pareto Principle.”

The tools and techniques associated with this principle have widespread application in circumstances where a small subset of one category causes a significant effect within a large subset of another category. During his work with industry, Dr. Joseph Juran coined the phrase, “the vital few and trivial many,” to describe the effect of the Pareto Principle in the business setting. For example, a company has a staff of ten sales representatives. Of the ten, the three highest performers generate 60% of the sales made during a reporting period, the five middling performers bring in 35%, and the two lowest performers contribute only 5%. Armed with this information, responses can be developed that are tailored differently for each of the three groups in an effort to increase overall sales performance for the least investment or cost. Another example is in a set of 100 manufacturing operations where the overall defect rate is .1%. There are 10 operations that cause 90% of the defects. Addressing those 10 are going to have a much more positive effect on the performance of the whole than focusing attention on combinations of the remaining 90 operations. Like most rules of thumb, the Pareto Principle can be misused; but in general it helps prioritize activities, separate the important from the pesky, and focus limited energy on the items that are going to make the most difference.

The Pareto Principle had it birth in economics, a social science. Given this background, there is another application for the Pareto Principle that covers additional ground. When this basic postulation – a small percentage of the population owns a large percentage of the property – is bracketed by two corollaries – a small percentage of the population enacts and enforces a large percentage of the rules that govern the behavior of the overall system and a small percentage of the population receives a large percentage of the compensation awarded by the total system – the resulting triad describes a fundamental truth about social systems: a small percentage of the population controls a larger percentage of the power within the whole system.

The exercise of power in a social system establishes an individual or group in a dominate role and subordinates the larger population of individuals or groups within that system. The population size can range from two – one person in relationship with another as in a marriage – to one over millions as in a country ruled by dictatorship. Regardless of population size, structure is required to maintain a requisite level of control over myriad dominate-subordinate relationships in the system so that the system persists. This structure is hierarchy.

Hierarchical social systems impact the people within them in three key ways:

  1. Each person belonging to a hierarchical social system has hierarchical relationships with all others in that system
  2. Each person has concurrent membership in multiple hierarchical social systems and can hold positions at different levels from one hierarchical social system to the other
  3. All hierarchical social systems concentrate power in the hands of a select few.

The universal symbol for a hierarchical structure is the triangle. Authority is held at the top, then distributed in varying degrees, level by level from the top to the bottom. However, a more appropriate geometric symbol for a social system is a three-sided pyramid (reference image below). One side of the pyramid is the hierarchical structure of governance. People participate in governance by making / changing the rules, enforcing the rules, and obeying the rules. Of course, there are always those who choose not to obey the rules. They are subject to some consequence levied by those who enforce the rules in the interest of what is called justice. The net result is that only a few operate at the top of the governance triangle to set and manage the rules while the clear majority obeys.

Another side of the pyramid is free enterprise. People participate by doing work that adds value for which they are compensated. They exchange that compensation for other goods and services they need and want. Wrapped up in free enterprise are concepts of property and ownership, money and capital, business and entrepreneurship, markets and customers. Wealth, in the form of assets, rests in the hands of a few.

The third side of the pyramid is affiliation. People participate by joining different groups and organizations which represent shared beliefs and ideals, customs and traditions, principles and values. These groups carry out activities that promote “causes” shaped by their worldviews. They provide forums for members to have voice and presence concerning their perspectives and interests. Those having the greatest access and influence are those who have the highest positions in the hierarchies of these organizations and represent the strength in numbers or vantage point of their memberships.

These three arenas: governance, free enterprise, and affiliation define the landscape in which organized human endeavor is conceived and carried out. The pyramid they form is a pyramid of power that develops and deploys human intelligence, energy, and skill to build, adapt, and sustain civilizations. While the three are vitally important as standalone systems, the interrelationships among them determine the effectiveness and efficiency of the whole. People vote for their leaders in governance. People make and buy based on supply and demand. People form non-governmental organizations to give body and shape to their views and interests. People derive power from the pyramid in unequal portions from the three triangles but regardless of the combination, the power they get is sufficient to stay in the system and work together so that the system persists.

Originally posted to New Media Explorer by Steve Bosserman on Saturday, December 10, 2005