Monthly Archives: June 2014

Twenty Important Concepts I Wasn’t Taught in Business School – Part I

This post is a reblog of a post by Nate Hagens, originally on the now defunct ‘The Oil Drum’ blog, posted on | 21 Comments on his blog, ‘The Monkey Trap’. Part 2 is still in progress!


Twenty (Important) Concepts I Wasn’t Taught in Business School – Part I


Twenty-one years ago I received an MBA with Honors from the University of Chicago. The world became my oyster. Or so it seemed. For many years I achieved status in the metrics popular in our day ~ large paychecks, nice cars, travel to exotic places, girlfriend(s), novelty, and perhaps most importantly, respect for being a ‘successful’ member of society. But it turns out my financial career, shortlived as it was, occurred at the tail end of an era ~ where financial markers would increasingly decouple from the reality they were created to represent. My skill of being able to create more digits out of some digits, (or at least being able to sell that likelihood), allowed me to succeed in a “turbo” financial system that would moonshot over the next 20 years. For a short time I was in the 1% (and still am relative to ‘all humans who have ever lived’). Being in the 1% afforded me an opportunity to dig a little deeper in what was really going on (because I quit, and had time to read and think about things for 10 years). It turns out the logic underpinning the financial system, and therefore my career, was based on some core flawed assumptions that had ‘worked’ in the short run but have since become outdated, putting societies at significant risks.

Around 30% of matriculating undergraduate college students today choose a business major, yet ‘doing business’ without knowledge of biology, ecology, and physics entirely circumvents first principles of how our world really works ~ my too long but also too short summary of the important things I wasn’t taught in business school is below.


The Blind men and the Elephant, by Rudyard KiplingBusiness as usual as we know it, with economics as its guide and financial metrics as its scorecard, is in its death throes. The below essay is going to appear critical of finance and the nations (world’s) business schools. But it is too, critical, of our entire educational system. However, physicists, plumbers and plowmen do not have the same pull with respect to our cultural goals and narrative that financial folk do – as such an examination of the central assumptions driving society is long overdue. But before I point out what I didn’t learn in MBA school, I want to be fair – I did learn things of ‘value’ for the waters I would swim in the future: statistics, regression, how to professionally present and to facilitate meetings, and some useful marketing concepts. Of course, like any 20 something student, 1/2 of the value of graduate school is learning to interact with the group of people that will be your peers, and the relationships and contacts that develop. Plus the placement office was very helpful in getting us jobs as well.The culture at Salomon Brothers impressed me the most and I landed in their Private Investment Department, where we were basically stockbrokers for the uber-rich – as a trainee I wasn’t allowed to call on anyone worth less than $50 million (in 1993). After Salomon shut our department down I went to a similar job at Lehman Brothers. At Lehman I increasingly felt like a high paid car salesmen and after 2 years quit to go work for a client, develop trading algorithms on commodities and eventually started my own small fund. But increasingly, instead of trading or trying to grow my business I found myself reading about oil, history, evolution and ecological issues. It really bothered me that ‘externalities’ were not priced into our goods or profits. One day, on a hike, it struck me that what I was doing felt spiritually hollow and despite it ‘paying the bills’ I began to realize I was more interested in learning about how the world worked and maybe doing something about improving it. In 2002 I gave my clients their money back, embarked on basically a 2 year hiking trip with my dog, and a car full of books. Eventually I would obtain a PhD in Natural Resources, but like many of you my real degree was obtained on this site, interacting with the many and varied people I met and continue to call friends and mentors. I am continuing to work on making the near and long term future better, despite the tall odds, while living on a small farm in Wisconsin. More on this below.

In the years that have passed, modern society has become a crazy mélange of angst, uncertainty and worry. Many of us intuitively recognize that we’ve constructed a ginormous Rube Goldberg machine which for a number of reasons may not continue to crank out goods and services for the next 30-40 years. We blame this and that demographic for our declining prospects – the Republicans, the environmentalists, the greedy rich, the lazy poor, the immigrants, the liberals, etc. We blame this and that country or political system – evil socialists, heartless capitalists, Chinese, Syrians, Europeans, etc. We watch TV and internet about the latest ‘news’ influencing our world yet are not entirely confident of the connections. But underlying all this back and forth are some first principles, which are only taught piecemeal in our schools, if at all. Below is a short list of 20 principles underpinning today’s global ‘commerce’. I should note, if I was a 25 year old starting business school, eager to get a high paying job in two short years, I wouldn’t believe what follows below, even if I had time or interest to read it, which I probably wouldn’t.

20. Economic ‘laws’ were created during and based on a non-repeatable period of human history

I found a flaw. I was shocked because I’d been going for 40 years or more with very considerable evidence that it was working exceptionally well.” Alan Greenspan testimony to Congress, Oct 2011

Click image to enlarge.

The above graphic shows a three-tiered time history of our planet, starting with the top black line being geologic time. The tiny black sliver on the far right, is enlarged in the second line, and the sliver on its far right is again enlarged on the bottom line, where the last 12,000 years are shown. We, both our environment, and ourselves, are products of this evolutionary history. Our true wealth originates from energy, natural resources and ecosystem services, developed over geologic time. Our true behavioral drivers are a product of our brains being sculpted and honed by ‘what worked’ in all 3 eras of this graph (but mostly the top 2). The dark line on the bottom is human population, but just as well could be economic output or fossil fuel use, as they have been highly correlated over this period.The economic ‘theories’ underpinning our current society developed exclusively during the short period labeled ‘A’ on the graph, on a planet still ecologically empty of human systems and when increasing amounts of extraordinarily powerful fossil energy was applied to an expanding global economic system. For decades our human economies seemed to follow a pattern of growth interrupted by brief recession and resumption to growth. This has made it seem, for all intents and purposes, that growth of both the economy and aggregate individual wealth was something akin to a natural law –it is certainly taught that way in business schools. The reality is that our human trajectory –both past and future – is not a straight line but more like a polynomial – long straight stretches, up and down, with some wavy periods in the middle, and ultimately capped. Our present culture, our institutions, and all of our assumptions about the future were developed during a long ‘upward sloping’ stretch. Since this straight line period has gone on longer than the average human lifetime, our biological focus on the present over the future and past makes it difficult to imagine that the underlying truth is something else.

Evidence based science in fields like biology and physics has been marginalized during this long period of ‘correlation=causation’. This oversight is not only ubiquitous in finance and economics but present in much of the social sciences, which over the past 2 generations have largely conflated proximate and ultimate explanations for individuals and societies. In nature geese fly south for the winter and north in the spring. They do this based on neurotransmitter signals honed over evolutionary time that contributed to their survival, both as individuals and as a species. “Flying north in spring” is a proximate explanation. “Neuro-chemical cues to maximize food/energy intake per effort contributing to survival” is an ‘ultimate’ explanation. In business school I was taught, ‘markets go north’ because of invention, technology and profits, an explanation which seemed incomplete to me even though it has appeared to be valid for most of my life. Social sciences have made great explanations of WHAT our behavior is, but the descriptions of WHY we are what we are and HOW we have accomplished a vast and impressive industrial civilization are still on the far fringes of mainstream science. Economics (and its subset of finance) is currently the social science leading our culture and institutions forward, even if now only by inertia.

19. The economy is a subset of the environment, not vice versa

If people destroy something replaceable made by mankind, they are called vandals; if they destroy something irreplaceable made by God, they are called developers.
Joseph Wood Krutch

When you have to classify the very capacity of the Earth to support life as an “externality”, then it is time to rethink your theory. –Herman Daly–
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Love Local – How sustainable are we, really?

This post is reposted from its original location: http://bit.ly/LLSustSthlndBlog2


How sustainable are we, really?

In this, the second post for Venture Southland’s ‘Get Connected’ newsletter (subscribe here) – we look at the difference between ‘less unsustainable’ and ‘strongly sustainable’, and try to explain where the food system fits within that sphere.

In all the talk about ‘sustainability’ there’s an underlying acceptance that’s not often identified, captured by these statements:

  • Talking about the need to become sustainable implies strongly that we are currently unsustainable (agreement on the degree differs wildly).
  • Unsustainable things cannot and do not continue indefinately.
  • There are better and worse activities that we can undertake going forward, which will make us less or more ‘unsustainable’.

The best visualisation of the difference between ‘less unsustainable’ and ‘strongly sustainable’ that I’m aware of is from Phase2’s ‘beyond the threshold’ tool:

beyond-the-threshold.png

More on this visualisation here: http://bit.ly/1n8mTLc

In the above image, the activites that are more and less worthwhile (when viewed from the longer term perspective of a livable planet, given the evidence of the changes we currently effecting – http://bit.ly/1isnrJe, with continuing expansion of economic activity, to service unsustainable expansion of debt) become clearer. Before reading this next section, take a minute to reflect on where you are in relation to the graphic, and whether you’re okay with that. Also note that the next section states something that is true regardless of where you perceive we are currently in relation to the three stages described.

Searching for a concise way to sum this up, the best I’ve come across is the following 3 stages:

Period Doing With Comments:
Last 200 years More More Since the industrial revolution, rates of resource extraction could be economically increased, leading to increased material throughput in the economy and especially increased net energy use. It’s probable this has ended. Here’s why: http://bit.ly/1kS6L2o
Where we are now More Less Whilst efficiency is important, there is only so much that it can achieve, whilst we continue to grow economic activity. This just delays the inevitable crash with physical resource limits, and will continue as long as we have to grow economic activity to service money created as debt. http://bit.ly/1qDeFgB
What comes next Less Less In the future, it seems we face the need to contract economic activity to become ‘strongly sustainable’. De-coupling economic activity is a story that even Forbes magazine recognises as a myth… http://onforb.es/1pPLvuQ

 

So, within this context, why Love Local, why food? Clearly, just setting up a food hub as a ‘for benefit’ (i.e., not for profit) enterprise, distributing locally sourced (where possible) fruit and veges is not the whole answer. However, food is a really important source of CO2 and CO2e emissions and can be a really big part of the solution, particularly through increasing local resilience to enable our community to weather the coming changes.The following extract from the recently published ‘Disruptive Social Innovation for a Low Carbon World’ report gives a fuller picture:

“Transforming energy supply is perhaps the most direct path to low-carbon world, but reconstructing food systems follows closely in terms of importance. Industrial methods of food production and distribution, and wasteful or high-impact consumption practices, make food a focal point for any transition to a low-carbon world. Current practices are dominated by the use of carbon-intensive pesticides, fertilizers, oil-powered machinery, and plastic packaging, and the globalised food chain can mean that food often travels tens of thousands of kilometres to arrive on our plates. To make matters worse, it is estimated that, in Australia, more than $5 billion of food is thrown out every year (Baker, Fear, and Denniss, 2009). The result of all this is that food can be one of the most impactful aspects of modern life, with ecological footprint analyses estimating that food production and consumption accounts for around 28% percent of our ecological impact here in Victoria, Australia (EPA, 2008).

It follows that any transition to a sustainable society is going to require huge changes in our methods of food production and distribution, and our cultures of food consumption. Not only is food a critically important key to such a transition, it is often said that the way to a person’s heart is through their stomach, suggesting that food may be an important way to engage people about broader issues of social and ecological concern. In the absence of progressive government action, however, it again seems likely that the driver for change may have to come from the socio-cultural sphere.”

More: http://bit.ly/TQ5KxF

Part of the motivation to write these posts comes from my desire to “engage people about broader issues of social and ecological concern”. I’ll define the probable challenges / changes in a bit more detail in future articles, as well as how we hope Love Local will address these, but to get you thinking, have a look at the 5 general areas of risk that the ‘Wise Response’ appeal lists as being of concern:

1. Economic / Financial Security: the risk of a sudden, deepening, or prolonged financial crisis.

2. Energy and Climate Security: the risk of continuing our heavy dependence on fossil fuels.

3. Business Continuity: the risk exposure of all New Zealand business, including farming, to a lower carbon economy.

4. Ecological / Environmental Security: the risks in failing to genuinely protect both land-based and marine ecosystems and their natural processes.

5. Genuine Well-Being: the risk of persisting with a subsidised, debt-based inequitable economy, preoccupied with maximising consumption and GDP.

More info: http://bit.ly/wiseresponse

As a newcomer to Southland (I’ve been here about 3.5 years), I found it very encouraging to see the strength of community, and desire to support local business and community that exists. There is a strong identity that defines this region, which will be a huge asset to its resilience in the coming decades as change occurs to the global economy, energy supply and climate. It was pointed out to me that if my name is against these articles (not my idea!), people might like to know a little more about my background, so I offer this brief bio I wrote for another blog post (http://bit.ly/1v7eY5K) recently:

Nathan Surendran is a chartered consulting engineer, entrepreneur, ‘big picture’ thinker with a passion for social justice via social enterprise and an advocate for strong sustainability. He is a founder of ‘Love Local Charitable Trust‘ – a social enterprise focused on food affordability and security. For more info, see his LinkedIn profile.”

I hope you’ve enjoyed / been challenged by / gained something from this post… More next month!

We’re posting links to various inspirational resources on our Facebook page at in the hope that this will inspire others to either get involved with us or start a complementary business themselves. If you found this article helpful, come and join us there for more links, and help us have a conversation about building resilient communities in Southland.

Contact info: email info@lovelocal.org.nz or call 03 928 5073

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