Entrepreneur and adventurer Dick Smith is no stranger to controversy.
Over the years he has threatened to run against Tony Abbott, as well as starting a range of ventures that can only be described as profit for a purpose. Dick Smith foods for example was set up with the sole purpose of keeping Australian food processors in Australian hands.
In this interview with Geoff Ebbs, Dick Smith discusses the end of growth and the challenges inherent for capitalism in that concept.
The interview was first aired on The Generator, a weekly radio show on Byron Bay’s Bay FM that ran from 2005 until 2009.
Questions from students and millennials went unanswered last night at the first of the Climate Week Speakers Series held by CitySmart at the State Library in South Brisbane last night (Tuesday).
Questions from students and millennials went unanswered last night at the first of the Climate Week Speakers Series held by CitySmart at the State Library in South Brisbane last night (Tuesday).
“How can you maintain hope in the face of the Climate Emergency when it is clear that the general public really does not care?” came the earnest plea from a young woman after articulately the outlining the causes for despair.
“What is the intersection between recycling and climate change?” asked one twelve year-old, whose primary education obviously extends includes an understanding of the issues beyond the majority of panellists on the stage. Certainly they failed to come close to interpreting the question, let alone answering it. “Embedded energy,” would have been a good start, as long as it was followed by a sensible and straightforward explanation.
It was a far cry from what we got, however. Angela Heck of CitySmart did a good job of introducing the guests and managing the panel but she had her work cut out.
Farmer Gregie from 4 Real Milk has made a name for himself on breakfast television with his colloquial language, his upside down milk bottle trick (in which the cream on the unhomogenised milk keeps the milk in the bottle) and his heartfelt pleas for consumers to consider the plight of farmers. His rhetoric is not up to the job of considering the difficult issues at hand, though, and he manages to terribly mangle the facts on regenerative farming and carbon sequestration, which is a pity as he is making a valid point. The underlying current of climate denial does not help, though it probably explains his popularity on free-to-air TV.
Professor Roy Tasker from Planet Ark presented an overview of DrawDown, Paul Hawken’s roadmap for energy descent aimed at governments and community leaders. He crossed horns with farmer Gregie by pointing to the facts on global meat production and climate change, while conceding that industrial harming produces most pollution as well as harming animals and the local environment. That he did not acknowledge the important role of animals in regenerative farming is partly due to the complexity of the issue and partly due to the mess that Farmer Gregie had already made of the topic.
Tasker also forgot to stress the importance of getting the plans in DrawDown into the hands of our rulers, simply asserting that it is time to act and telling the assembled and experienced activists to write letters and use social media to enhance their activism. That promotion of clicktivism grated on the many climate activists in the room who have been on the barricades for decades and are looking for real messages of hope in what is a frightening and truly dire situation. When two women in their twenties seriously question the value of procreation due to failure to act on this major challenge we need stronger action than facebook is able to provide.
Unfortunately, he presented an over-simplistic view of smart electricity meters and completely failed to explain their role in building a more flexible electricity network. He also struggled to answer the most basic questions about the energy balance in a domestic home, the role of biogas, and the embedded energy in a solar panel.
Sabrina Chakori more than made up for the lack of brain power in her male companions and presented a lightning walk through the research she has done toward her PhD. She is studying and running a volunteer not for profit Tool Library at the Queensland State Library because she has drawn the conclusion that we need to reconsider the role of growth if we are going to solve the problem of living on a planet with finite resources and a growing population.
She reminded the panel more than once that recycling consumes resources and corrupts materials (see our piece Recycling is just rubbish) and that we cannot consume our way out of the climate crisis and social injustice. Unfortunately, her questioning of the role of economic growth is not going to get her a seat opposite David Koch and so breakfast viewers will continue to see the likes of farmer Gregie assert that volcanoes produce more greenhouse gas than humans instead of an anything approaching reasonable analysis.
Despite my bitching and moaning, CitySmart has done a great job of crafting a panel and thus an event that has both public appeal and generates real discussion. It is just that, like the un-named millennial with whom I opened the article, I cannot help but despair at what appeals to the public.
Over fifty delegates kicked off a lively discussion about the role of the Circular Economy for small business at Griffith University, Southbank, yesterday, Thursday, 30th May.
The Queensland Small Business Week Event #QSBW had businesses grilling government, academics and practitioners about tools to implement the strategies discussed, government support for innovation and long term impacts on the economy.
Geoff Ebbs of Great Notion hosted a panel with Dr Robert Hales, Director of Griffith’s Centre for Sustainable Enterprise and Marjon Wind, of CE Labs and BMI. Speakers inlcuded Syliva Garner from Queensland Department of Environment and Science, Petra Perolini of the Queensland College of Art and Liesl Hull from waste conglomerate Suez.
Griffith University will launch a course for business leaders in July, in the same timeline CE Labs will announce the outcome of the 3 month process they launched in February and Great Notion will begin a roadshow through business networks and chambers of commerce.
Wages growth, inflation, interest rates and unemployment are at all-time lows. Traditional economic models are not working. How can small business thrive in a low-growth economy?
Many small business owners find it unhelpful to engage with macro-economic policy. It seems largely irrelevant to our frame of operation. Throughout the rise and fall of empire, fashions in economic theory and the fickle passions of rulers, taverns and cafes, bakers and tailors, butchers and milliners have flourished. Small businesses dominated the main thoroughfares and side streets of the capitals of every civilisation.
People need to eat, to dress, to trade regardless of the forces shaping the geopolitics of the day. Every army has its camp followers; providing the services soldiers demand, at a price.
Of course, retail markets flourish in wealthy, successful empires and struggle when an empire is on its knees. The recent economic crisis in Greece was marked by the absence of advertising in the streets and the threadbare nature of famous retail strips. Similarly, the depression years in Australia and the US showed a dramatic shrinkage in retail activity. Nevertheless, some businesses survived the tough times, building their brands and brand loyalty or simply eking out an existence in their community.
We face an era where globalisation and online trading have undermined many of the roles filled traditionally by small business. Trade is booming, but many small businesses are not. On top of that, we now face challenges to the geopolitical framework, the availability and price of resources and the natural environment that supports and nourishes us.
How best to prepare for this apparently perfect storm?
Is zero-waste enough?
The notion of the Circular Economy is that we can no longer continue the extractive practices of the linear economy; harvesting resources, extracting the most profitable elements and throwing the remainder away. We need to emulate ecosystems, ensuring that what we don’t use ourselves is taken advantage of by another member of the eco-system. A rainforest throws nothing away, clean water flows down its rivers, to be returned by the water cycle. It is a net producer of oxygen and consumes only sunshine. Everything else cycles around within the closed ecosystem.
Implicit in our adoption of this model is the twin notions that the planetary systems that support us can only provide a finite amount of resources and survive a certain level of contamination. To preserve the supportive capacity of those systems, we must limit the extraction of raw materials and the production of waste.
Therefore, the primary focus of the current wave of Circular Economy practitioners is, justifiably, the elimination of waste through re-use, reduction and recycling.
There is an underlying problem, though, that this focus does not capture. That problem is our addiction to growth.
The challenge of growth
Put simply, the challenge of continuous growth is that we live on a finite planet and, at some point, we reach the limit of the planet to support us and so must stop population and consumption growth. This was succinctly framed by Malthus in the eighteenth century when he compared human populations to rabbits on a desert island, and the cycles of population boom and bust that characterise them. His concluding observation was that only some moral imperative could prevent humans from facing the same fate.
David Suzuki recently reframed the problem using a test-tube of nutrients and a population of bacteria that is analysed further under the mathematics of growth. “Eventually, the bacteria will consume 100% of the resources in the test-tube” he notes.
The ability of technology to solve any shortages that arose over the intervening centuries discredited Malthus so completely, that scientists (such as the Club of Rome, writing in the sixties that humanity faced major challenges by the mid-twenty first century) have been largely ignored as alarmist. Indeed, it is a defining characteristic of many contemporary, populist movements around the world that they accuse globalist governments of threatening the rights of ordinary people to consume whatever they want in the name of fictional crises that have been produced simply to scare us into submission. The rhetoric pits personal freedoms against a mythical global good.
At the heart of this hubris is our conviction that we have conquered nature; we confront global collapse as interplanetary gods waving our magical trident to perform geo-engineering on Earth or providing an escape to Mars. This is the type of desperation that led the Easter Islanders to construct huge stone statues in a vain attempt to survive without fresh water.
As a civilisation we can only survive if those of us who can see the big picture, can provide a clear portrait of a radically changed economic system with a complete understanding of what this change means for ordinary people.
The development of tools for small business to thrive in a circular economy is one step in that larger process.
Our dependence on growth
In 2008 I interviewed Dick Smith about his attempts to run Australian Geographic as a non-growth company and Dick Smith Foods as a bulwark against the damage globalisation might be doing to Australia’s food sovereignty.
Among the difficulties he faced at Australian Geographic were rising costs of both overheads and supplies, staff expectations for advancement and the ongoing need for capital investment. Ultimately he sold Australian Geographic as a going concern and the business model reverted to a traditional membership publishing one.
He also conceded defeat of the mission for Dick Smith Foods when the Green family sold their quite sizable food processing business to American interests.
“I remain a capitalist,” he told me, “No other system has provided so much advantage for so many people, but I am not sure how we can avoid its cycles of boom and bust.”
Given such a long period of economic growth, the scale of an imminent downturn is somewhat frightening.
To date, we have assumed an underlying growth in the economy to meet many of our expectations that life will improve over time. It is important to analyse those expectations so that we can better prepare to deal with the changes we face.
The mathematics of growth
Earlier I asserted that the traditional 25 year mortgage is based on a three percent inflation rate. That is because an annual three percent increase results in a doubling of the value of your asset every 25 years. A ten percent increase doubles the value every seven years. This is the basis of exponential growth. A small increase in the rate of growth, reduces the time it takes to double the value of the asset.
David Suzuki uses this to demonstrate the impact of exponential growth in his famous test tube example. You take a test tube full of a nutrient solution and you add a bacteria that reproduces every second, consuming some nutrients to do so. The population of bacteria doubles each second. At the beginning the test tube is full of nutrients and has one bacterium. At some point, the end of growth (E), the test tube is empty of nutrients and so the population of bacteria cannot grow and will collapse. One second before that (E-1), the test tube will be half full of nutrients and will have half the possible maximum number of bacteria (E-1=50%). Five seconds before the end of growth (E-5) the number of bacteria will be 3% of the theoretical maximum. Do the maths: 50, 25, 12.5, 6.25, 3.125. (E-5=3%)
He puts it this way, “At 3% of the theoretical maximum, most of the bacteria will be blissfully unaware that they are about to go extinct. There is 97% of room for growth and plenty of nutrients. Nothing’s wrong, they will say.”
He makes the point that with the human population doubling every 25 years and many resources already in short supply, most scientists concur that we are in the final moments of a major collapse. “We are currently much closer than the five second point of the test tube example.”
He extends the analogy. “Let us say that a few brilliant bacteria in the test tube have explored the world around them and found three more nutrient laden test tubes nearby. Imagine that they decide to use some of the diminishing resources to go to Mars. Those three test tubes could expand the life of the colony by two seconds! This is not a new beginning, it is just a slight delay of the end.”
The point is that despite our individual and systemic dependence on continous growth, it is not sustainable. We cannot afford it because it leads directly to a collapse of the systems on which we depend.
As a result, we cannot assume a background of growth as the basis of our future planning.
The instinctive mantra of political parties that their role is to nurture and manage economic growth is a convenient fiction in the face of a radical and unpalatable truth. It is one of the reasons we no longer trust them. We know the premise rings hollow.
The role of debt
There is a very simple reason that governments and opposition parties continually talk about economic growth as the central plank in a capitalist democracy. That is, the financial system depends on it.
It is impossible to make a profit by lending money to someone unless they pay you interest. For the borrower to justify those interest payments they must be making more money from their commercial activity than the money costs them.
If you borrow a million dollars to buy a home in Sydney you will pay, over 25 years, another million in interest. If the house has not doubled in value by the time you have paid it off, you have lost money on the deal.
This simple arithmetic is the basis of our housing market, the 25 year loan and the preferred CPI increase of 3%. If inflation sits at 3% then home owners can afford to buy houses, rents are about half the cost of having a mortgage but someone paying off a mortgage pulls in front after 25 years, because they can now live in their property rent free.
That model has been seriously disrupted over the last two decades.
The same logic applies to commercial lending, the share market and international currency exchanges. Without continuous growth, the debt model collapses and so does our current financial system.
In the light of this it is interesting to consider that charging interest on loans was once illegal in Christian Europe (it was known as the crime of Ursury) and remains banned in Islam. The rise of commerce and the collapse of the Church in the face of the industrial revolution has radically changed our thinking about the role of debt.
Is degrowth possible?
There are plenty of organisations promoting the virtues of reducing our footprint: Fly less, buy less, use less, apply thrift, declutter, destress, spend nothing …. All of this is a retailer’s nightmare.
The driving logic of these campaigns is compelling. Consumption is not happiness, the ecosystem that nurtures us is overloaded, we have to reduce our footprint to survive. It is not a question of whether we can implement degrowth, it is a matter of how we survive in the face of a collapse in growth. Degrowth now, is simply an insurance policy against future systemic failure.
How on earth is this view compatible with Thriving in a Circular Economy?
The simple answer is to look at a natural ecosystem like a rainforest.
Overall the forest only consumes sunlight, it captures rainwater and releases clean fresh water into the streams that run out of it. It produces oxygen and consumes carbon from the atmosphere. Other than that, it is a closed system.
But it grows.
It teems with life.
See the article Unpacking the Circular Economy for a detailed analysis about how linear systems within an ecosystem contribute to a circular economy. Ultimately, each of us can grow as we need to, but somehow we have to particpate in the overall ecosystem.
We cannot grow exponentially. We cannot grow at the expense of future generations. But we can grow vigorously, as long as we are part of an ecosystem and ensure that our waste is someone else’s food.
The limits of growth are simply that we cannot grow by exploiting the major resources and throwing the rest away – unless we have an army of parasites, camp followers and dung beetles. Most importantly, those dung beetles, camp followers and parasites must thrive as well. There cannot be a pile of poison at the end of the line which no-one can touch, be accountable for or live with.
That is the condition of entry into the circular economy.
So, the tools of survival?
Small business has a head start.
It is a member of its community. Its stakeholders are generally its staff and customers. If remote financial markets are stakeholders then it is not, for the purposes of this treatise, a small business. Using those stakeholders to build a community network allows the business owner to go beyond profit. Instead of measuring success by how much money you can siphon from the business, start measuring how much good will you have built in your community. It is that good will that will see you through the next depression.
The Koch brothers built a fossil fuel empire that has funded the conservative political movement in the US on the basis that Good Profit is generated by harnessing the goodwill of stakeholders, not by extracting money from them. While I have differences of opinion with them on what constitutes the moral good, I have no disagreement on the application of a moral framework to business. It is essential.
Building a community network is the way to amplify the influence and reach of your business and the perceived value of your brand. Build your community and they will help you build the business, regardless what happens in the macro-economic and geo-political climate.
Secondly, there are a range of very simple management tools that allow you to differentiate between building a sustainable business and participating in the illusion of continuous economic growth.
Some of them are simple, ancient adages. Cash is king, neither a lender nor a borrower be, a stitch in time saves nine.
Behind each of these straightforward observations are centuries of wisdom. By applying the management tools that flow from these simple pearls, you can avoid the crippling bondage of debt, disposable income, built in obsolescence and churn.
You can build a sustainable business that embeds your contribution to the community in the value that you provide to the community. This is the ultimate contribution to the world you live in, and unlike your bank balance, you can take it with you.
Think about it.
It is a truly great notion.
Globalisation, online competition, energy prices, low economic growth: we are all aware of the challenges.
Small business has a natural advantage, however. We are embedded in our community and have the opportunity to build and reinforce our networks of stake holders.
Great Notion, Griffith University and the Circular Economy Labs have put together a networking opportunity and lunch at Soutbank during Small Business Week to discuss the role of small business in the circular economy.
Come to the Executive Boardroom on the 7th floor of QCA at 226 Grey St for a two hour session starting at 10am on Thursday 30th May. Thrive in the circular economy will give small business the chance to discuss the opportunities with the Queensland Government, the Circular Economy Labs and local practitioners.
Hosted by Great Notion and Griffith University, this is a unique opportunity to talk to the practitioners and the people who are testing the business models and training the practitioners.
#circulareconomy #stablestate #neweconomy
Great Notion, Griffith University and CE Labs thank you for attending the event at Griffith Southbank on Thursday 30th May.
Many of you have expressed an interest in the presentations of our speakers.
You can download them by clicking the link below.
The notion of values being core to business success is not restricted to the profit-for-purpose sector, impact investing or philanthropic work.
Brand strategy approaches like Simon Senik’s Why, the Business Model Canvas, or the currently fashionable disrupt to succeed approach are all based on identifying the value that you offer to your customer and placing that value at the core of your business. All refer to Apple as a leading example of this thinking.
Even traditional sales and branding approaches, though, depended on the identification of your Unique Value Proposition (UVP)
We do not have to assert any new world view to assign an important role to your values as a business owner or director of an organization.
The importance of value to a brand is that it overcomes price, convenience and other considerations that undermine profit. If we appeal to the values that we have in common with our customers they will reward us with their dollars.
Values, then are the core of a brand and the basis of your message, raison d’etre and brand.
But wait, there’s more.
At the heart of the logic about brand value is the recognition that our values tie us together. It is our values that make us feel to be part of something.
In his best-selling book Good Profit, Charles G Koch – yes he is one of those Koch brothers – writes “What I consider to be good profit comes from creating superior value for our customers while consuming fewer resources and acting lawfully and with integrity. Good profit comes from making a contribution in society.”
We can complement our drive for profit, then, with a drive for values. In fact, we can release our profit to harness our values to create that network of stakeholders with common values that in turn will future proof our business by creating a community of values that supports our business.
It seems like heresy to put something other than profit at the heart of our business strategy.
After all, business cannot survive without profit. If you are running an organization that is not balancing its books, that is losing money, then you will have to close the doors and you will lose everything you have built.
Profit is absolutely essential to success in business.
The key, though, is that profit is necessary, but it is not sufficient.
I can make a profit by bullying people to give me money, I can make a profit by stealing, I can make a profit by selling the river running through my city, the clouds above or the trees in the local park, but none of these business models are sustainable. Eventually, the stakeholders whose resources I am appropriating will find some-way to stop me from profiting from taking their stuff.
It is only when we contribute value to our stakeholders that they support us.
By overtly declaring that value, and working with our stakeholders to build and protect that value we can future proof our businesses.
The advantage that nearly all small business has over its larger competitors is that it is already part of a community. The fact that you work in an area where your customers know you is your secret weapon, a starting point that cannot be replicated by the world’s biggest corporations, by global trade agreements or by unsympathetic governments.
You can release your profits to invest in nurturing secret advantages like that and build the stakeholder community that will future proof your business, simply by identifying the values that you have in common.
Values and identity politics.
There is one potential danger in the focus on values and building communities with like values and that is the sense of tribal belonging that it creates.
It is this tribal urge at the heart of values that has made religion and other belief systems such a powerful tool in imperial conquest. You do not need such a huge army to force distant populations to pay taxes if they believe in the values that you offer them.
I am an unlikely person to be quoting Charles G Koch, because the values that drive the Koch brothers enormous coal business, their funding of climate denial media and the support of conservative politicians and their politics of fear are the same values that he considers to be the basis of Good Profit. I have been selective in my use of his quotes to show that the application of values to business is not a partisan view. He is selective of the philosophers that he quotes in his identification that Economic Freedom is the most important freedom of all and the moral duty of government.
We promote our values, then, at the risk of fanning the flames of tribalism. Identifying our values identifies groups of people who will support us come hell or high water. If we work together to support each other, we weave a community that is self-reinforcing and resists outside attempts to break it up.
The relationship between values and the circular economy is that those communities will then find ways to close the loop, keep value in the community and reduce the wastage of energy, resources and value from the community. But that is the topic of the next article.
Read earlier articles in this series
Attendees to Small Business Week on Southbank are invited to discover the opportunities presented by the Circular Economy at Griffith University, Southbank at 10am on May 30.
Circular Economy opportunities in Australia alone represent billions of dollars of dormant value that can be released by Small and Medium Enterprises focused on the sector. “Many companies assume that the Circular Economy is specifically focused on waste,” said lead strategist for Great Notion, Geoff Ebbs, “The truth is that it is focused on wasted value.”
Business owners and managers attending the workshop at QCA Grey St South Bank will be brought up to speed on strategies, tools and opportunities to engage with the Circular Economy.
Dr Rob Hales, Director of Griffith Sustainability will launch a short course in the Circular Economy aimed directly at small business.
The course has been developed in conjunction with CELabs, a Circular Economy laboratory funded by the Qld Government to engage 65 corporates in building a template for the Circular Economy that will be presented at the inaugural Circular Economy Conference in Finland in June.
Marjon Wind of the CELab will outline the project in detail.
Free tickets are available to attend the event, information packs and vouchers to hands-on workshops are available for $125.
The circular economy differs from a linear economy because the output of one process is the input of another.
The available outputs of the food production are uneaten vegetable matter and sewage from which we can harvest nutrients, energy, water and solid waste. Natural ecosystems are circular in that plants and animals accumulate nutrients and grow during their life, and then release those nutrients back to the environment as they excrete, or when they die.
An ecosystem is a circular economy built of component linear processes. An ant nest organizes and concentrates nutrients that form a valuable supply for nearby trees or scavenging beetles. A tree accumulates resources and stores them in the form of timber.
A specific ecology may also rely on external cycles. A rainforest, for example, relies on a larger circular system for its water. The water cycle injects water into the rainforest which releases it to the sea. The rainforest is also a net user of energy. Sunlight powers the growth of the forest, and is the primary source of energy for all other life forms.
Of course, sunlight also powers the water cycle, evaporating water and driving the winds that move clouds around the earth. Our fossil fuels come from ancient forests. The only sources of energy on earth that are not derived from sunlight are the gravitational pull of the tides and the geothermal energy from our molten core.
When planning a circular economy, it is critical that we take note of this net use of energy, and the reliance on larger cycles, so that we do not cripple each component of the ecosystem with artificial constraints. Linear processes can participate in a circular economy if their waste provides valuable inputs to other areas of the economy.
Read earlier articles in this series