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)

Characteristics

Overview of the Coming Material Shortages

Robert Hall:

"Comprehending the systemic nature of shortages requires thinking through the interactions of physical systems on scales from global to micro. Cost models do not automatically suggest this. They often assume that if a change is made, everything else will stay the same or adjust favorably to it. In expansion we could ignore these mistakes, pay for them, and keep going. In Compression, we can’t. We have to think differently and “get a lot smarter.”

Three kinds of shortages will be discussed: energy, water, and food. They are interrelated. Some kinds of virgin material will be in short supply too, but fortunately few of them completely disappear once they have been extracted and refined, but re-using them depends on energy and a system to enable re-use. For example, re-melting aluminum takes about 5% of the energy required to mine and smelt bauxite.

Energy:

Everything requires energy, even computers. We became so used to cheap energy that we regarded it as virtually free. It’s not.

The deposits of fossil fuels first depleted were usually concentrated and easy to obtain. That is, they had a very high energy return from the energy expended to get them and use them. The original Texas oil gushers had a return of better than 100 to 1. No wonder they called it black gold.

Oil and gas became the preferred fossil fuels, clean burning, easy to handle, and with high heat content. Without them, mass-produced motor vehicles might never have been viable. All fossil fuels are finite in supply. Oil just happens to have attracted attention. “Hubbert’s Peak” is a term barely entering public awareness. It refers to the time at which an oil field, or a group of them, reaches maximum output and thereafter declines.

Peak does not imply suddenly running out, but that ever-growing demand cannot be supplied. This limitation is serious because petroleum is not only burnt for energy, it is chemical feedstock for fertilizer, plastics, and other materials that we take for granted, and once extracted, nature cannot replace it quickly. Near the global “Hubbert’s Peak” petroleum production will likely be fairly flat for several years before decline.

Neither higher market demand nor higher prices can put more fossil fuel in the ground. Data to predict the global “Hubbert’s Peak” for petroleum are imprecise. Not only market demand, but the size of oil reserves and projected extraction rates are fuzzy. Ceasing price subsidies or adding taxes would obviously decrease the demand rate and stretch the supply. Satellite images of oil deposits are sufficiently advanced to make it unlikely that any land-based fields to be found are the size Saudi Arabia’s Ghawar.

Pessimists think peak oil is here; optimists put it at 2020 or beyond, but close enough for serious preparation. The most immanent threat is political disruption of existing supplies. Oil markets are mostly the noise from short-term supply-demand flaps.

No short-term source of alternative energy promises a high energy yield. Nuclear fusion is decades away. Biofuels depend on photosynthesis of plants covering large swaths of land – or intense water “aquaculture.” No matter what technology is used, the more dispersed a source of energy, including uranium ore, the more energy is required to collect it and concentrate it. Technology can improve energy yield by improving the efficiency of concentrating energy, but it can’t compensate for depletion of high-yield sources. Energy yield from Canadian tar sands, for instance, is no more than 3/1; probably closer to 2/1. To grasp how nature thus puts its own “high tax” on low-yield sources of energy, the public needs basic education in thermodynamics.

Water:

We use water is for irrigation, sewage treatment, making paper, cooking, cooling, ad infinitum – and where it is plentiful we use it wastefully. About 70 percent of all fresh water is used for agricultural irrigation, including lawn grass. Humans regard fresh water as a basic “right,” but we have too much of it where we don’t need it, and often, none where we do. Only 3 percent of global water is fresh; 1 percent of it is underground; and only a puny 0.009 percent is surface water, the main human source. Some people spend hours carrying water daily, while many of us have water pumped to us, which consumes energy about 2-3 percent of all fuel energy, and roughly 20 percent of all generated electricity. Ninety percent of the lifetime cost of a pump is energy (at “cheap” prices). Water is a more critical shortage than fuel energy. Nothing lives without it.

Many important rivers are “tapped out:” the Colorado, Nile, Yellow, Yangtze, and a lengthy list of lesser known ones. We can gain more benefit from water by using it wisely, but doing so is no mere matter of bidding up the price. Wiser use implies more collaboration, better technology, and improved methods. Water is as big a factor as oil in human conflicts in Africa and the Middle East. That is not a new situation, just a direr one. Where water is scarce, humans have had customs for sharing it for centuries. Industry plus population growth multiplied the toxins and microbes that can contaminate fresh water. Assuring water quality may take new technology, some investment, and social learning of public health and conservation. Privatization of water services isn’t magic; controversies depend on prior public experience and customs for sharing water.

Water organizations must be more than technically competent to earn public confidence.

Food:

Globally, serious hunger appears to be increasing. Global food supplies greatly expanded using industrial agriculture – machinery, hybrid seed, and water for irrigation.

The “green revolution” depends on fuel energy. Most nitrogen fertilizers today come from natural gas. Excess nitrate run-off causes “dead zones” in waterways and river mouths. “Organic” alternatives better conserve the soil. Whether it can match the output of industrial agriculture is unknown, but agriculture has to decrease energy use and rebalance with the global ecology. One option is to eat less meat. Growing a chicken now takes about a third the grain as 75 years ago, but feeding animals still uses more grain than if humans ate it directly. Global food waste is “huge” but rarely estimated. A 1997 study estimated that 27 percent of all US edible foodstuffs entered a post-farm waste stream. Obviously, food shortages interrelate with all the other issues in Figure 1. "

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)

Organizational Learning

Doc Hall:

'In Compression, the primary purpose of all work organizations essential for human

welfare has to shift from “making money” to a social mission serving society. The goal has to be excellent performance of that mission while minimizing the use of resources to do it (socially subsidized if necessary, like with fire departments, in return for excellent performance). In order to meet the challenges of Compression, they have to transform into learning organizations much faster than human organizations ordinarily transform themselves.

Some key points:

• Establish a social mission for the organization, including some shorter-term goals for better performing it. As leaders, involve people in developing mission and goals so that they also think through the “why;” they don’t just blindly comply.

• Start with an internal learning system, building rigorous learning structures and practices into the work itself, starting from whatever exists. Introduce a scientific framework of thought like PDCA, if it’s not already in place. If one is, stimulate everyone to use it rigorously, practicing problem solving regularly – by a schedule – and documenting solutions in a standard format until it becomes a “language” at work. Identify common “tools” that everyone uses. For broader, mushier issues, extend this framework so that people reach logical conclusions. (Something like a forward-looking After Action Review can do this.)

• Develop the behavioral side of this new working environment – rules of behavior for dialog that suppress “politics” and concentrate everyone’s energy on needs to be served and processes for serving them. Regard learning processes like any other work processes; strive to improve them, including the behavioral rules, so that people are conscious of this aspect of work. Lead by asking questions. Expect everyone to think and to become professional, both in attitude and in skill.

• Develop the visibility of work and work processes everywhere (including “knowledge work”) to prompt attention to problems. Coach people and teams to manage themselves. Open up systems, so that no secrets are kept from the core workforce, including financial information.

• Extend the learning system externally to customers, suppliers, available databases, etc. Expand the context for learning with environmental and thermodynamic education and information so that people have a basis for making decisions.

• Coach people in efficient communication, in meetings, by e-mail, and by using other media. Coach them in listening – in real dialog examining facts and testing logic -- not in contending for a “win.” Regard this as an initiative to civilize normal, tribal human behavior. Accomplishing this is obviously no small feat."

Assumptions Hidden in Expansionary Business Thinking

Assumption Brief Description:

"Unlimited Growth Long-term physical growth is impossible, but linear monetary models presume no limit to growth except market acceptance.

Economy of Scale Organizations and processes that outgrow the size at which they are effective start to become dysfunctional. Bigger is not always better.

Short-Term Bias By financial logic, money sooner is worth more than money later. For anything that won’t materialize for 50 years, payoff is so near zero, why worry about consequences, environmental of otherwise?

Self-Deceptive Results Bias

Concentrate on outcomes that can be sold; they are the source of wealth. Be no more concerned than necessary about how these results come about, or any consequences they create.

Inflexibility Inflexibility is rigid specialization, able to “do only one trick.” If conditions change, you’re sunk. For flexibility, an operation should have short lead times, fast feedback, versatility in both people and equipment – and fast learning capability.

Fragmentation --Tribalism

Fragmented work organizations divided into parts are unable to communicate closely for complex, integrative work. These fragments may be independent companies or agencies, or they may be departments under one organizational name. If separate fragments “tribalize,” they form greater affinity for their fragment than with a total enterprise and its larger mission.

Unable to Deal with Complexity Unable to break organizational and systemic molds to form teams able to deal with complex issues or designs quickly.

Complacency and Panic

The feeling that if profits are high, everything must be going well; relax; enjoy it; brag. But if losing money, panic. This contrasts with meticulous attention to a mission at all times.

Self-Destructiveness In business this is the commodity trap, competing on low margin with a high breakeven. When growth reverses, companies race into mediocrity, poorly serving all stakeholders while shrinking.

Market rationality Assuming that “fragments” profitably meeting a market test is proof of effectiveness, when buy-sell decisions are obviously influenced by emotion. In addition, when supply can’t increase at any price, as with peak oil, a conventional market no longer exists.

Hyper Rational Models and Realit Temptation to depend on hyper rational models without learning how to validate how well they describe reality.

Ownership dominance Assuming that the main purpose of a work organization is to make a return on capital invested by the owner. Therefore owners should have ultimate control, with manager agents controlling operations primarily in ownership’s interest; it’s their fiduciary duty.

Lack of a Common“Problem Language”

Without a system to quickly resolve differences based on facts, human energy is wasted on emotion instead of learning."