Measuring Value During A Linear To Circular Transformation

By Russ Freeman, PE Retired
Special to The Digest

This discussion begins with a vision of a desired future where governance, finance and public opinion promote people:

Realizing and sharing value created or derived through utilization of public assets; Becoming financially independent and free from unrewarding work as computers and machines perform mundane or repetitive tasks – allowing them to pursue more satisfying lifestyles; Enjoy governance “of, by and for them”; and Each is recognized as being equal and is treated as an equal by others as well as by social and commercial systems.

As pointed out in a recent article, the first step toward such a vision is realization of the need for change (Jim Lane, 5D: the transition to renewables and the human dimension, Biofuels Digest, March 14, 2023) . That realization is presently being driven by global warming and the climate crisis associated with it. The main focus of that initiative is on carbon-based resources. Reform emphasizes using carbon already in the natural cycle to displace fossil sources. With realization comes pressure to entice financial investment away from resource mining and toward repurposing.

That brings us quickly to the theme of this paper. We measure economic-success by increases in Gross National Product (GNP), a measure of the rate of resource flow through the socioeconomic system. Under those metrics, stimulating production is a way to increase GNP and adding jobs to the economy. But as early as the mid 1960’s the viability of this metric was beginning to be questioned. See, for example:  (Kenneth Ewart Boulding at the Sixth Resources for the Future Forum on Environmental Quality in a Growing Economy in Washington, D.C. on March 8, 1966).

The United Nations has proposed an approach they call Ecosystem Accounting. (https://seea.un.org/Introduction-to-Ecosystem-Accounting). It utilizes capital accounts for things like clean air and drinking water as one component useful for measuring the health of an economy. This is a step in the right direction, but defining valued assets is not sufficient. A workable approach must quantify the broad suite of attributes and outcomes society wishes to understand and encourage. How does society value freedom, opportunity, equal access to such opportunity, wealth, wealth distribution (value not being accumulated primarily by the rich), or the status minorities or females have among the general population. Such things are important, and the question raised in this paper is:

“How we measure satisfaction of such important values, what data do we gather, how do we use that data to measure results, and how do we evaluate results in order to understand our progress and determine needs for improvement?”

In a follow-up to the paper previously cited, Boulding provided some insight.

(Kenneth E. Boulding, The Economics of the Coming Spaceship Earth, The University of Texas at Austin

http://arachnid.biosci.utexas.edu). Excerpts summarized from that presentation are:

• There are problems with metrics which the economics profession has neglected with astonishing single-mindedness.
• Essential measures of success are not just production and consumption, but the nature, extent, quality, and complexity of the total capital stock, including in this the state of the human bodies and minds included in the system.
• But, for instance, would we prefer to restore all our bodily tissues by intravenous feeding while we slept? Is there not a certain virtue activity such as raising food, preparing and in eating it? It would certainly be rash to exclude this possibility.
• Further interesting problems are raised by the demand for variety. We — demand variety in food, in scene, travel, social contact, and so on.
• But the demand for variety can, of course, sometimes seem intolerable. An example is with marriage partners, where family stability is usually regarded as much more desirable than partner variety.

Add to the above, the author’s criticism of GNP where inflation is an imbedded component in the data, is included as if it were a real increase in value. An obvious result is that gasoline, which historically sold for less than thirty-five cents per gallon, is now priced at over one-hundred-times that for the same amount of the same substance. Homes which once sold for thirty-five thousand dollars are now priced at over ten that price. Such inflation impacts result in outcomes like:

• Teachers and wage earners being unable to afford homes near their work.
• New workforce entrants living with parents.
• Those on fixed incomes face lower living standards as purchasing power erodes.

There is another insidious problem. Data and the methods of analyses can also be biased resulting in poor outcomes from well-meaning decisions. An example of failure to distinguish between male and female genders which seriously penalizes women. This case is well documented in a recent book (Caroline Criado Perez, Invisible Women: Data Bias in a World Designed for Men, Chatto Windus, March 12, 2019). Outcomes include, among others, women are:

• Not paid for much of the work society requires of them.
• In positions where they do get paid, earn less than men for the same work.
• Are discriminated against in access to employment, in securing work vs equally qualified men, and in gaining recognition or advancement when in the workforce.
• With female needs being somewhat different than male needs, women are not served well by systems such as public transportation designed and built by male dominated entities to serve male needs. This is especially true for public transportation.

One can only imagine the same situation applying to ethnic minorities and trans gender persons, with a double whammy for the females in those circumstances.

As we are adding all this up, two other issues must be considered. One is the disparity in income distribution between the wealthy and everyone else. We now live in a world where the rich get richer, and others get impacted by un-accounted-for-costs of doing business. As an example of “real inflation” it is estimated that the true cost of gasoline would be fifteen dollars per gallon if the externalities associated with its use were properly included in cost to consumers (EMBARQ Network@WRIcities. The True Cost of Gasoline: $15 Per Gallon). Some of that cost is imposed on people who suffer impacts of global warming, which include health impacts from pollution, loss of homes and income from disasters such as floods, windstorms, and out-of-control fires. Others see costs in the form of rising insurance rates, taxes which go toward disaster response and recovery and added inflation as governments and individuals borrow to replace lost assets and income.

Let us not forget the fact that pollution impacts the poor and disadvantaged communities more severely than elsewhere. Such communities are also more likely to have inadequate water, sewer and flood control works, less access to quality food and clothing, public services, and police protection.

Minority communities can also face grater violence and even fear of authorities having the mission of protecting them.

All of the foregoing are serious issues which need to be addressed. A facts-based understanding of such issues must then become the foundation for initiatives to achieve goals outlined in the vision. With that basis, create a step-by-step process for achieving each outcome. Each process must include tracking and corrective action protocols with periodic six-sigma based evaluation. Protocols must also include mandatory corrective action should evaluation indicate failure to achieve planned progress or the occurrence of unintended, adverse consequences. In other words, hold those we put in control accountable for the outcomes they achieve.

What is suggested above implies a complex process which should evolve from bottom-up participation by those most impacted by issues to be addressed. They will know the impacts and have a good understanding of steps to alleviate them. Engagement of those impacted in understanding impacts, conceptualizing initiatives to address them, participating in implementation and also monitoring evaluation will help keep programs relevant and acceptable to intended beneficiaries.

The substantial cost of implementing suggested initiatives can be paced to recovery of costs from existing socioeconomic activity. Early targets should be capturing value of public assets, eliminating subsidies for production of fossil resources, and recovering the cost of externalities associated with production and use such fossil resources. Projection of the schedule for implementing such reforms could also help parties legitimately involved in fossil production and use to plan and execute transformation of their enterprise to one compatible with socioeconomic transformation as it takes place. This will also permit time for orderly recapitalization of assets required for production, delivery, and management of assets in a capital market.

In addition to the above, the overall effort to address a shared vision should address governance. For example, management of the nation’s forests should include maintenance of forest health and productivity as well as addressing broader goals. To continue the example, forests are important players in transforming atmospheric carbon into usable hydrocarbons. Salvaging and utilizing some woody mass would contribute to growth of healthy trees and ecology while also cutting down on decay-released bio-gas. Burning forests eliminate this beneficial contribution to climate health while adding tons of carbon-containing gas to the atmosphere. Addressing such considerations should be an essential component of national forest management plans. Similar reform is important for air quality and water quality management as well. In short, the environmental assets should be an integral part of the national socio-economic health assessment, while government should find it mandatory to optimize their contribution to attainment of outcomes envisioned.

About the Author:

About the author: L. Russell Freeman is an 85-year-old retired engineer and strategic planner, who has also been a registered investment advisor. He was raised in a family salvage business, and graduated from the University of Colorado with degrees in business and engineering and later earned a master’s in engineering from Johns Hopkins University. He completed 15 years of federal service beginning with a commission in U. S. Public health service. He briefly served, as a result of government reorganization, at HEW, now Health and Human Services, Interior and EPA. He retired after serving as Deputy Regional Administrator in EPA region 9. That was followed by 15 years of service in Engineering and Project Management for firms in the private sector. Career accomplishments include conceptualization of programs for sponsors, including; ( 1) The Colorado River Salinity Control Program for the Bureau of Reclamation; (2), A strategic initiative for cleanup and public reopening of Pearl Harbor; for the Navy); (3) An observational method for expedited cleanup of the Weldon Spring Quarry, number one site on EPA’s federal superfund cleanup priority – for the Energy Department; (4) conceptualization of the emissions offset program, which has evolved into the California Cap and Trade Program – for EPA and California; and (5) Strategy for transformation of Kelly AFB into what is now Port of San Antonio – for the City of San Antonio and the Air Force. In his twenty-five years after retirement, Russ has continued advising, and in some cases helping entities engaged the transformation from linear to circular.

Measuring Value

during

A Linear to Circular Transformation