Andres Bucio
Intellectual property rights, disruptive technologies and Sustainability
- School of Environmental Sciences
- University of East Anglia
- Norwich
- NR4 7TJ
- UK
- + 44 (0) 1603 591346
Email a.bucio“at“uea.ac.uk
PhD Thesis: “EVIDENCE-BASED SCENARIOS 2050: CARS, FOOD AND HOMES. PROOF OF CONCEPT IN CAPITAL SUBSTITUTION, INNOVATION AND GREEN EMPLOYMENT REGIMES” (2010)
ABSTRACT
To understand how economic activities are compatible with a transition to sustainability, people often talk about ‘decoupling’ the economy from environmental impacts and about ‘capital substitution’: the degree to which man-made and natural capital are believed to be substitutes or complements. The idea of substitution is a potent one indeed: it shapes institutional perceptions about what the interplay between intangible value and the material world could be, or should be. It provides the ethics and ideals upon which people create their own views about the future. This study sets out to explain how deceptive we should expect our current ‘top down’ models of substitution to be, and looks at sustainability economics ‘from the bottom up’. It brings forward several hypotheses: that a relevant unit of positive analysis of capital substitution potential is to be found at the level of the ‘green worker’ not the macro economy. That innovation rather than whole industry sectors is the relevant unit of analysis of ‘decoupling’. Furthermore, it is argued that the current capital theory approach to sustainability economics would benefit from a substantial and vigorous update if it is to reflect the cultural and technological convergences of the twenty-first century; in particular those between biotechnology (the ability to substitute plants functions), nanotechnology (the ability to substitute matter) and artificial intelligence (the ability to substitute our brains). To be sure, the whole notion of capital needs to be recast in terms that are inclusive of two broad proprietary categories viz., critical capital and runaway capital; and three specific ones of each: intellectual (brain power), man-made (artefacts) and natural capital (including muscle power). Because substitution potential can only be understood empirically and in relation to things that will only happen in the always receding future, substitution discussions have come to a conceptual standstill. So one additional hypothesis is that future scenarios can be used to make the appraisal of substitution potential empirically tractable and theoretically useful. Extensive evidence gathering of ‘early indicators’ was conducted on three case study areas in the UK: 1-passenger cars, 2-food production and 3-green homes. Scenarios to the year 2050 were generated and used as proof of concept to test our hypotheses. The study concludes with a chapter on the implications for the ‘governance of knowledge’ and with an assessment of the implications for methodology and research.
PREFACE
What does a country look like after cutting its greenhouse gas emissions by 80%? More practically and clearly, how does a country maintain jobs —let alone create them even in the so-called ‘low-carbon industries’— while phasing out the high-energy-density contents of oil resources? An important part of the (rhetorical) answer to these questions lies in that country’s future plans to ‘substitute’, often by trading, its various stocks and flows of capital so long as they are kept constant or increasing over time, that is to say, ‘sustainable’. This is why the development of carbon markets is expected to be crucial in the future . The central interest investigated in this study was whether we could modestly contribute to reduce some of the rhetorical uncertainty —specifically about so called ‘substitution elasticities’ and ‘substitution potential’— by using future scenarios, by focusing on ‘ground level’ units of analysis, and by looking at substitution as an multifaceted cross-disciplinary theme rather than an obscure problem inside a black box in macro (environmental) economics. Some analysts have focused on the engineering intricacies of substitution, such as raw materials and efficiencies (Ayres, 2007). Important as it is, such an approach will soon be dwarfed by the formidable tangible-to-intangible substitution potential posed by converging NBIC technologies: Nanotechnology, Biotechnology, Information technology and Cognitive sciences (ETC-Group, 2004, Schmidt, 2008, The-Royal-Society, 2004). Society is not quite grasping yet how, for instance, nano-agricultural materials and GM crops can now be annexed to a ‘portfolio of capital’ protected by IP rights or by TPM/TPS , in which case they could soon no longer be considered part of a country’s natural capital or as something belonging to a natural landscape where people can still walk around with dirty fingernails (and it’s OK). To be sure, farmland in the UK is not far from becoming Farmland™. Flipping through the pages of Farmer’s Weekly, Britain’s top seller farmers magazine, it is easy to see some early indicators of this. Dedicated forms of energy supply and storage could soon be annexed as part of IP portfolios too. Let us put it this way, the goalposts of the capital substitution game are being messed upon at the level of bits, atoms, neurons and genes. Now, after decades of academic reluctance, economists have just began to accept that such things as modern economic growth, technological progress and labour productivity are almost nothing but parts of a system that has been fuelled with cheap fossil fuels (Ayres, 1998). This merits asking, what sort of technological future do we need to prepare for? Clearly the challenge is to either reduce the uncertainty of what sustainable means, or devise ways to deal with uncertainty, or both. Proprietary technologies tend to command premium monopoly prices. Will it be possible in the future to scale up ‘game-changing’ proprietary micro-energy systems so as to match the consumption and growth requirements of a cowboy economy as some well-known MIT scientists have been suggesting? (Nocera, 2009). Such questions were actually quite rare only five years ago. So we may need to start capturing the essence of the problem like this: ‘knowledge intensive’ assets, products and services commanding premium value are claimed to be the backbone of so-called creative knowledge economies (HM-Treasury, 2000). Such trend is being encouraged at a time when high-energy-density economies (HEDEs) need to switch over to lower-density-fuels and storage systems, indeed becoming lower-energy-density economies (LEDEs). Will people living in these hypothetical LEDEs be able to afford premium priced goods and services or will some sort of reality check befall the knowledge economy and its implied substitution elasticities? No one knows the answer. Because gathering empirical evidence about the future is difficult without a time machine, we used future scenarios as proof of concept to imagine what may plausibly happen in terms of substitution possibilities by the year 2050. Only in this way can we hope to be in a position to start answering some of the aforementioned questions. In our framework, levels of green employment in our case studies would in principle be affected by substitution, should for instance, certain innovation regimes and technologies happen to receive more institutional attention than others, or if certain values and behaviours proved to be more popular and influential in society than others. That, in a nutshell, fed the curiosity behind this study. None of the chapters of this theses has been published, Chapter 5 however, ‘The knowledge ecology we need’ had some resonance at the conference Sustainable Development: a challenge for European research (26–28 May 2009, Brussels). This thesis is also about what was left out, I hope I made all the right mistakes. I am grateful to have had the freedom and support, above all from my brave principal supervisor and my research council, to address this issue in this way.
A.B.
Norwich,
October 2010
INTRODUCTION: THE ‘SUBSTITUTION’ BLACK BOX
Perhaps the most important, hence debated, concept defining what sustainability means in economics is that of ‘substitution elasticities’ or ‘substitutability’ or ‘substitution potential’. It refers to the extent to which man-made and natural capital are believed to be substitutes or complements in a sustainable economic scenario . Depending on the answer, an economy is considered to be —or not— sustainable (Victor, 1991). What has not yet emerged from the literature on substitution are agreed parameters of substitution elasticities that are consistent with an agreed type of sustainability. Most stances about substitution elasticities fall somewhere between so called ‘weak’ and ‘strong’ sustainability positions and between various claims in regards to what is considered critical thresholds or critical natural capital (Neumayer, 2003, Turner, 2002). A popularised form of the debate is often described more or less like this: the world is no longer divided by ideologies of the right or left but by those who believe that there are biophysical limits to economic activity and those who don’t (Sachs et al., 1998). Typically, those who think there might not be physical limits to economic activity are also inclined to think technology will provide an answer to such things as tackling resource scarcity or Climate Change (Atkinson et al., 2008, Solow, 1993) . An implied division within this debate is between those who think it is OK to segregate what happens in one part of the planet, say a region or country, from the rest of the world; what economists associate with ‘partial equilibrium analysis’. Those who think instead, that a more holistic and comprehensive view is vital, consider that sustainability should be defined taking the planet and its regions as an interdependent whole. In other words, countries should aim for something like self-sufficiency and they should not be able to ‘substitute their capital stocks’ or export their resource problems —their ecological footprints for example— to other parts of the world while importing carrying capacity (Rees, 1992). To increase the amplitude and scope of this study we have assumed the extremes of this debate as irrelevant in fact. That is to say, taking heed of some authors (e.g. Kerry Turner, 1997; Pearce, 1997), we have considered the polarised strands of the debate, —including total substitution or total complementarity between man-made and natural capital— as outdated, unhelpful positions. Instead we have taken an empirical ‘bottom up’ approach to address the substitution elasticities problem.
In such a context, this study sough to address two concerns, one theoretical and the other practical. On the one hand, there was the question of, what would happen if we started looking systematically at ‘substitution elasticities’ as an interdisciplinary problem. On the other, there was the practical question of, what would a country possibly look like in 2050 after cutting its greenhouse gas emissions by 80%? These two issues would belong to two different studies if it was not for the fact that, the way the UK will look like after cutting its emissions is likely to depend on the ‘gap’ between how much capital people believe the country can substitute in the short run and how much capital can be substituted in a sustainable way in the long run. It seems useful to refer to this difference as the substitution gap problem, in some cases a matter of national security. To address this gap we argue in this study, substitution potential is a concept that must be taken outside the black box of theoretical abstraction and placed in the context of real life situations (Ayres et al., 1998, Pearce, 1997). Substitution potential needs to be reframed from outside the standard economics toolkit. How?
People eating chips on the street rarely look at their everyday concerns as if they would soon be published in a scientific journal. Yet, we are constantly exposed to conversations ‘in plain English’ or messages in the media containing lay insights and descriptions which —one has to admit— often challenge established scientific observation and methods: ‘household dogs are substituting the need for children’, ‘for some people club-cards and brand loyalty are like having friends and family’, ‘online relationships have replaced real face-to-face interaction’, ‘shopping has defeated politics’, ‘cars and screens have made people fat and lazy’, ‘mobiles have made people less punctual and less formal’, ‘I am no longer going out with her but with her and her mobile’. The list goes on and on. Surely, some of these claims might seem a bit far fetched or misplaced —they are not scientific statements— however if we pretend for a moment that we are an economist and try to think of some of the issues involved outside the black box and yet as capital asset exchanges, would they then start telling us something important about substitution elasticities at a ‘ground level’? Could we then think of a different framework from which to address these ‘ground level’ type of ‘substitutions’. Not looking at substitution as an empirical issue has apparently generated three important problems which cannot be solved from within the black box. The first problem with not looking at substitution as an empirical issue is that some seemingly crucial aspects of substitution become invisible, such as the increasingly blurred line which divides different categories of capital. It is at least arguable that ‘borderline’ forms of capital are beginning to emerge in much more enigmatic ways than current categories of man-made or natural capital allow us to see. Are GM organisms natural capital or intellectual capital? To contextualise this problem, we need to move on to a second one. The second problem with not looking at substitution as an empirical issue is that we often stop paying adequate attention to how the material and immaterial worlds interact to deliver —or ruin— our chances to achieve sustainable development. Consider two trade and security issues: food and energy. The UK currently imports around 40% of its food (UK-Cabinet-Office, 2008). It does so by substituting the income gained from services of some sort for natural capital (in the form of food). Similarly, some scientists speculate that a transition to a low carbon economy will very likely entail living on other countries’ renewables (MacKay, 2009). Considering the various impacts in revenue rising for government implied by a reduction in fossil fuel dependence, the obvious question would be, where will the money to stabilize the future balance of trade is supposed to come from, should the country had to import, say, half its food and energy? Irrespective of the answer (e.g. selling submarines, financial services or whatever) these are the type of questions that are currently addressed, and sometimes ignored, by implicitly assuming the interactions between the material and immaterial worlds as irrelevant to sustainability analysis. This is, we would argue, a mistake. Most analysts would assume, in a rough figurative example, that it is OK in a sustainable economy to trade aerostatic balloons in exchange for flowers. Yet, at the moment no one seems to be granting much importance to such things as how compatible are the pricing mechanisms being used to value balloons on the one hand, with those pricing mechanisms used to value flowers on the other and the various implications for each side supplying them. Much less aware are we about the environmental impacts that might result from such type of transactions should these pricing mechanisms happen to be incompatible or destructive. Let us make it more interesting and suppose that our flowers happen to be genetically modified organisms (GMOs), they might no longer be priced as agricultural natural capital, but as intellectual capital, in which case GM flowers may command monopoly prices in a marketplace of ideas. A market of ideas is situated at the border between the material and the immaterial worlds, which is presumably where the more challenging aspects of the substitution problem are. Chapter 1 contends in fact, that the substitution debate should no longer focus attention on critical natural capital at the expense of paying little or no attention at all to the commercial, often destructive way in which our knowledge world and the natural worlds are forced to interact by markets, particularly intellectual monopoly markets (Boldrin & Levine, 2008). The key point here is this: there appears to be a problem with defining and protecting critical natural capital (Ekins, 2003, Neumayer, 2000, Turner, 1992) as if it had some sort of isolation status from the terms of trade between the market place of ideas and the market place of natural goods and services, in a so called ‘knowledge based economic system’ (Romer, 1986, Romer, 1990). Safe minimum standards, or even precautionary policy, seem somehow inadequate to tackle pricing distortions and destructive terms of trade between the material and immaterial worlds. Today the knowledge monopoly value (not to be confounded with the social value) of a patent or popular song, can greatly exceed the value of say, the material value of a house or a piece of woodland. Is that because there is no ‘knowledge’, say ‘embedded’ or ‘embodied’ in the house or in the woodland? Today even peer reviewers in academic journals (to whom some material from this thesis was submitted) appear reluctant to even consider knowledge as something which could be ‘embedded in the natural world’. We are quick to marvel ourselves at how enigmatic and unique are the workings of the natural world but apparently we refuse to see any ‘knowledge’ in it. Such ‘knowledge anthropocentrism’ might be one of the reasons why we rarely notice in our calculations about sustainability that intellectual assets are often hugely overvalued while environmental assets are hugely undervalued. We label this phenomenon as Runaway Pricing Distortions (Chapter 2) This leads us to yet another problem. The third problem with not looking at substitution as an empirical problem is that we begin to (wrongly) assume that man-made capital (including man-made intellectual capital) is the same as man-controlled capital. The analysis and evidence reviewed for this thesis suggests this is no longer a realistic or useful simplification of reality.
Our guess is that, as we move away from oil, the confusion about the three aforementioned issues is likely to increase if we don’t do anything to understand them better. It is possible that a transition to a low carbon economy will reveal how much of a black-box the economics of substitution truly is and how necessary it is to come up with more realistic ways to reframe it. Consider what a recent scenario for 2050 in a top level governmental report says
“In this world [2050], fossil fuel depletion and climate change are serious concerns. Novel technologies and systems are regarded as the way to deal with them. There is an emphasis on decoupling economic growth from carbon emissions […] Most energy comes from renewable sources, offshore wind farms, and solar energy farms in Africa.” (Foresight, 2008. p. 13)
It is true that speculating is partly what scenarios are for, however it is also true that having this report involved ‘over 200 experts and a wide range of stakeholders’ (page 9 of the report) one cannot help but notice the incongruous association between ‘emphasis is given to decoupling economic growth’ and ‘most energy coming from renewable sources’. This might be one example of the sort of gratuitous optimism about substitution possibilities and economic growth that results from trying to solve a problem by putting a large chunk of it inside a black box. Such an optimism appears to be the result also of ignoring some brutal facts about the energy storage ‘earthquake’ that would await any society attempting a full shift to renewables in a short period of time (such as four decades) . Agriculture, or the water system as we know it, deprived from high density fossil fuels, would gravely disrupt the whole economic system apparently, in a hypothetical shift to renewables (Smil, 2006). The possibility that the country could keep importing 40% of its food while maintaining current dietary habits would be quite dim indeed (Jones & Crane, 2009). How different slices of a country’s capital stock substitute for others has been the economic history of modern societies for the last two hundred years or so. What is different about the transition underway is our very dependence on the high energy density of fossil fuels to run the whole economic system (Ayres, 1998) as well as the projected migration to wholly new energy generation and storage infrastructures (Cleveland, 2007, MacKay, 2009, Reynolds, 2007). What a remarkable number of analysts such as those responsible for the above report seem to be either too disingenuous or too dangerously optimistic about, is the extent to which they believe a technological breakthrough of almost magical proportions is bound to happen in the foreseeable future; particularly in energy storage systems. There are good reasons to expect that if such a breakthrough does not come about quite soon, the modern society model is indeed heading towards a transition from what we might as well start calling high-energy-density economies (HEDEs) to low-energy-density economies (LEDEs) . With these examples, we have tried to transmit some of the flavour of this study, as well as the need to look at substitution elasticities in a more flexible, perhaps creative way. It is also needed that we look at the issue into real life situations rather than via assumptions underpinned by abstract thought framed inside black boxes. Against this backdrop, Chapter 1 lays out the theoretical ground for the work by singling out four ‘standard problems’ in sustainability economics, the underlying argument being that sustainability economics could greatly benefit from a switch of perspectives from top-down to bottom-up. Elaborating on the ‘bottom up’ theme several hypotheses are put forward.
1. That a relevant unit of analysis of capital substitution potential is to be found at the level of the ‘green worker’ not at the level of the macro economy
2. That innovation rather than whole industry sectors is the relevant unit of analysis of ‘decoupling’
3. That because substitution potential can only be understood empirically and in relation to things that will only happen in the always receding future, future scenarios can be used to make the appraisal of substitution potential empirically tractable and theoretically useful.
4. A fourth hypothesis derived from the previous one is that the capital theory approach to sustainability economics would benefit from an update in terms that are inclusive of two broad proprietary categories viz., critical capital and runaway capital; and three specific ones (relative to the green worker). Viz., intellectual (brain power), man-made (artefacts) and natural capital (muscle power).
5. As a general hypothesis, we suggest innovation regimes and green employment influence one another horizontally—as opposed to being mediated by the economy vertically. This influence can be appraised empirically via future scenarios with potentially useful applications for policy.
While future scenarios are not a substitute for empirical data collected in the present regarding capital substitution possibilities in the future, they nevertheless enable us to move away from overly simplified and abstract descriptions about what capital substitution means ‘on the ground’ and in a wider human perspective. Future scenarios enable us to identify critical uncertainties about the implications of substitution in the wider social and environmental context of a sustainability transition. Such scenarios help us address the need for consistency across policies and in the case of economic analyses, consistency across sciences while addressing sustainability issues. Additionally it might helps us understand what consistency across policies means in practice. Finally it is argued that future scenarios can also help us explore different logically consistent pathways of governance between critical capital and ‘runaway’ capital asset exchanges. Chapter 2 describes our methodology in four steps. Step 1 is a characterisation of driver-indicators of green employment ‘from the bottom up’. Step 2 explains our case study selection, Step 3 explains how evidence was gathered in a way that was amenable to our future scenario framework. Step 4 is a description of the future scenario framework as a proof of concept to test our hypotheses. Chapter 3 describes selected key trends and ‘mythconceptions’ affecting all our future scenarios. Chapter 4 contains our four scenario storylines to the year 2050 as they relate to passenger cars, food supply and green homes. Chapter 5 discusses our findings as they relate to the governance of knowledge for sustainability, it discusses ‘the knowledge ecology we need’. A concluding chapter on ‘scientific story telling’ discusses the lessons learnt and sets out a number of practical and conceptual implications for methodology and research, outlining the emergence of a new research agenda.
If you would like to read the whole thesis contact me on
a.bucio@uea.ac.uk or
andresbucio@hotmail.com