Category: Economic Logic & Value

For those interested in the relationship between equity markets and unemployment, here is an interesting chart by The Economist that sums up that ‘synching feeling’.

One thing is clear, producing goods in cheap labor markets and exporting them to high valued economies only end up eroding long-term viability of these advanced economies. Therefore, even if the action is highly profitable and looks good on the balance sheet (to outsource production of some goods to cheap labor markets), this is but a short-term solution with serious long-term economic consequences.
stockmarket_and_unemployment

In other news:
WSJ: Chained CPI, stocks and unemployment, imports
CNBC: Stock market to navigate negatives of earnings and economy

One of the most common conversations in the Midwest and Northeast this summer is the number and frequency of heat waves. Already data from the U.S. National Oceanic and Atmospheric Administration shows that the first six months of this year were the hottest in over a century. “The average temperature for the contiguous U.S. during June was 71.2°F, which is 2.0°F above the 20th century average. The June temperatures contributed to a record-warm first half of the year and the warmest 12-month period the nation has experienced since record keeping began in 1895,” concluded NOAA.

The prolonged high temperatures and lack of rain especially in the Midwest has caused corn prices to rise. But for most consumers a major concern remains how to stay cool while keeping green. Modern lifestyle is built on a series of inventions that require energy, such as refrigeration, air conditioning, lighting and motor vehicles. What is well less recognized is that the process of transmitting and using energy especially in heating and cooling homes can be quite inefficient. Full article

Innovations such as the greening of supply chains and optimization of resource flow as a core business practice have been marketed as key drivers and benefits for environmental improvement. But vital questions remain: How do you market investment in the green economy as a key component for addressing energy security, green growth, climate change, and poverty reduction? How do you drive coherence and collaboration among corporations, among institutions and across disciplines in the transition to a green economy? How do you leverage global finance to fund investment in green economy? And how do you deal with externalities and supply chains?

A Green Pathway
Against the backdrop of these perplexing questions, a UN Environment Programme (UNEP) report, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, found that a transition towards a green economy future would need investment of two percent of the world’s gross domestic product (GDP)[1]. The investments should target ten key sectors, including agriculture, tourism, fisheries, forests, manufacturing, energy efficient buildings, transport, water supply and waste management, or an average of around $1.3 trillion annually, to create high-quality jobs, reduce carbon emissions and create new low-carbon industries, the report recommends.

Powering economic growth—with less fossil fuel—according to the report, offers a pragmatic assessment of how governments, communities and corporations can make a shift in the business of environment. Innovation in clean energy future, for instance, is quickly emerging as the next frontier in global economic growth. As Achim Steiner, UN Under-Secretary General and UNEP Executive Director, affirms, the green economy “aims to link the environmental imperatives for changing course to economic and social outcomes—in particular economic development, jobs and equity.”

Defined by UNEP as the result of “improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities,” the green economy is transforming how people relate to one another; interact with the environment and also within the competitive global economy.

According to the UNEP report, in the green economy investors use market-based instruments such as payments for ecosystem services (PES), trading of access rights and pollution permits, and consumer-driven accreditation schemes to realize both return on investment (ROI) and return on environment (ROE). Fisheries adopt a creative approach to restore damaged marine ecosystems and gain a better understanding of the potential benefits of sustainably managed fishing. Investors and philanthropists speculate on how much they should invest in sustainable forest enterprise and production. Besides, governments enhance collaboration with private sector in developing clear energy policy targets aimed at improving energy efficiency and increasing investments in renewable energies and technologies. And manufacturers embrace efficient energy and materials processes and technologies that simultaneously reduce negative externalities associated with waste and pollution. Sustainability is now a prerequisite for funding for many environmental projects.

Real Opportunities and Misconceptions
The green economy offers a plethora of opportunities for project managers in these varied sectors and their corresponding role in utilizing project, program and portfolio management to realize global sustainability is critical. In successive pages, the UNEP report takes a considerably positive view, detailing opportunities in emissions trading, growth of acceptance of PES, consumer-driven accreditation and certification schemes, opportunities in water sector, and in wastes management, including certified emission reductions (CERs) which is a potential source of inter-governmental funding.

In addition, the green growth blueprint counters the misconception that sustainability is limited to environmental issues alone—far from it. It also includes economic and social issues and striking a balance between the three issues—environmental, economic and social—is not only good for organizations but also national and global economies.

Clearly, several recent developments at the international policy level have steadily promoted the transition to a global green economy as advanced by the report, more so in the lead up to Rio 2012 meeting in Brazil which will mark 20th anniversary of the adoption of Agenda 21—a blueprint for rethinking economic growth and improvement of the business of environment. The Kyoto Protocol, aimed at committing industrialized countries and countries in transition to emission reduction targets, first commitment period also comes to an end next year.

As far as awareness in global sustainability issues are concerned, there has been a steady rise in sustainability practices in both economic and political fronts. Indeed since the UN Conference on Environment and Development (UNCED) in 1992 in Rio de Janeiro, sustainability issues have been on the rise in developed countries and around the world.

Race to the Top
Take China, for instance. Despite overtaking Japan as the second biggest economy, and increased investment in clean-technology market share, it still faces its biggest unknown: Which clean-technology mix will win? Like most developing countries, China grapples with challenges such as low level of energy efficiency, high share of coal in primary energy use, large volume of energy use, and need for domestic energy transportation.

Yet despite these challenges, China leads in demand for growth in renewable energy development: driven mainly by population and economic growth. On the other hand, according to a recent report by the Solar Energy Industries Association, the U.S. solar market increased by 67 percent in 2010—from $3.6 billion in 2009 to $6.0 billion—driven mainly by new photovoltaic (PV) and concentrating solar power installations, and making solar the fastest growing energy sector[2]. As the UNEP report affirms, “improving the environmental efficiency of production at the global level can occur through technology and knowledge transfer from developed economies or through technology spillovers that occur as a result of international investment and globalised supply chains”[3].

The Bottom Line
As professionals in project management, you are probably wondering how these developments might impact on future leadership in global sustainability. The point is we are entering a new age of profound transparency where the calcified, operating-as-always approach, still archetypal in some of the sectors discussed in the UNEP report, are quickly being replaced by frenetic free flow of ideas.

I believe the other key drivers of future growth in sustainability would be the supply chains that must reveal information regarding production practices, intelligent software applications that improve decision making processes in sustainable business practices, and pressure for increased transparency of government actions and policies.

It is time to connect the dots: only those who can handle this transformation well will thrive and grab a bigger market share in clean-technology and deliver on both ROI and ROE, leverage global finance to fund investment in green economy, and effectively deal with externalities and supply chains. The UNEP report is a good place to begin a discussion on when, where, and why this is necessary, and what we must all accomplish for current and future generations.

Article first published in the PM Global Sustainability Community of Practice

A recent report released by the OECD on May 11th 2011 details tax burden on employment paid by employers. The report shows that Germany and France have some of the highest employment tax regimes in OECD region. The country-specific taxing wages provides information on social security contributions levied on employees and their employers and on income tax paid by workers in OECD countries. The report also provides data for different household types and income levels. Other parts of the report include information on international comparisons, tax burden trends 2000-2010, country details in 2010, and methodology and limitations.

According to the second chart (above) from The Economist, in 15 OECD countries, the real incomes for average-wages earners fell between 2009 and 2010.

We all remember the notable story that opens Daniel H. Pink’s Drive: The Surprising Truth about What Motivates Us. Harrow, a psychology professor, and two colleagues gather eight rhesus monkeys for a two-week experiment on learning. They’re surprised to see the primates—without any urging or coercion—begin to play with their specially devised puzzle with focus, determination, and enjoyment. The shock deepens when the experimenters observe the monkeys crack a code on how to remove a pin, slide a hook, and open the cover of the mechanical puzzle, each time, even without a food reward, affection, or applause. Conversely, when the primates are rewarded with raisins for solving the puzzle they make more errors and less frequently solve the puzzle. The reason, Pink concluded, was that the monkeys solved the puzzle repeatedly because it was gratifying to do so. That is, the intrinsic benefits of solving the puzzle outweighed the extrinsic rewards.

In view of Harrow’s dilemma, I find the description of what motivates us presented in Pink’s book to be an apt description of global sustainability today. And the example that perfectly fits this description is the self-organizing aspect of sustainable initiatives. I find that many people still see sustainability as a carrot or stick dilemma; they are pretty convinced their choices are the best and it’s other people who aren’t doing the right thing. Their reasoning takes this line: “Nature has a unique way of maintaining equilibrium and regenerating itself. Our company is not a big polluter like other big companies and if it means that we have to give up our current production processes, we probably won’t do it.”

We sometimes think of sustainability practices as bootstrapping themselves into existence. We fail to connect the dots between our lifestyle choices and the resulting macrobehavior. One Wall Street Journal article documents why, despite government efforts to encourage consumers to adopt zero-emissions vehicles, electric cars are not yet creating much spark. As one researcher observed, “Until battery technology improves and people can drive further, I don’t see significant growth in electric vehicles.” Other consumers have expressed interest in electric cars, but acknowledge that it is going to take time before an effective solution to the range anxiety problem is resolved. How about if government paid new electric car owners? Try to nudge car owners to buy zero-emission cars by paying them for each unit bought—and they’ll become more diligent in the short term and lose interest in the long term.

But those who drive electric cars, or use energy saving bulbs, or incorporate ISO 14000 standards into projects, or weatherize their homes, for instance, aren’t setting out to solve global sustainability challenges; they are solving personal or business—and indeed local—problems, such as how to drive to their workplaces, or what to use in lighting their homes, or how to set a framework for continual improvement of environmental performance of their business, or how to maintain a certain in-house temperature. And yet those personal and local decisions combine—and self-organize—to form the macrobehavior of their homes, companies, businesses, states and nations. As a result of this self-organization, new pockets of successes emerge: home energy bills are reduced, corporate image among regulators, customers and the public is improved, clean air is restored, cases of chronic pulmonary diseases are reduced, and the equilibrium is restored.

“It takes a village” is a cliché. And yet I see its dynamics are at play everywhere in addressing sustainability. The correlation reinforces the notion that global sustainability requires a trade-off driven by intrinsic rewards: we all have a role to play in improving the environment and we will have to sacrifice something (e.g., our backyard for wind farms, preference for mass transit, or inexpensive transportation). And while some people are willing to make this trade-off, many others are not. As a result, the notion of global sustainability may need some nudges, including peer pressure.

The interaction is two-way: the project manager who incorporates ISO 14000 standards into the project influences other project staff in his or her team, and vice versa; the new homeowner who buys, retrofits and weatherizes his or her home next to an existing homeowner influences the behavior of that homeowner, which in turn influences the behavior of the new comer; the quality assurance specialist who applies exactitudes rather than generalities in project cost, project quality, and project time trade-offs, and educates, trains, and holds project staff responsible for sustainability, influences the behavior of those staff, who in turn influence the behavior of the project manager. In other words, the relationships are mutual: you influence your peers and your peers influence you, and a ‘flow,’ which enhances intrinsic benefits, is maintained and enhanced.

More prosaically, Pink addresses the complexity of these interactions, both in personal decisions and corporate environments, and advises those who prefer a reward-and-punishment route that: “Building our businesses in sync with these truths won’t be easy. Unlearning old ideas is difficult, undoing old habits even harder. And I’d be less sanguine about the prospects of closing the motivation gap anytime soon, if it weren’t for this: The science confirms what we already know in our hearts.” That is his swanky way of saying that decisions on global sustainability will come down to our deep-seated desire to direct own lives, expand our abilities, and to continue to live a life of purpose.

I will admit that, in that sense, Pink’s work gives us hope. And to make progress with global sustainability we will have to come to terms with the fact that real headway will only be realized when we adopt sustainability practices because it is gratifying to do so. Success will be possible when the collective action to create more profitable, healthy, and sustainable businesses, communities, and nations, is bottom-up, and enjoyable. That is, when the intrinsic benefits outweigh the extrinsic rewards.

Harrow’s primates have cracked the code and solved the puzzle without any raisins, and the ball has now been tossed to the bigger-brained, less hairy human beings. I will bet on intrinsic motivation and kaizen—continuous improvement—to get us there.

This article first appeared in the Project Management Global Sustainability Community of Practice (CoP).

An excellent article by Angelica Valeria Ospina, from the Centre for Development Informatics, University of Manchester, titled “e-Resilience: Rethinking the Potential of ICTs towards Climate Change Adaptation.” In the article the author asks, “how can vulnerable contexts that are already facing the burdens of poverty and marginalisation, build resilience?” Certainly, “The rapid diffusion of Information and Communication Technologies (ICTs), such as mobile phones and the Internet, is adding new angles to this debate. Effective access and use of ICTs could pose new opportunities for developing countries that are at the forefront of climate change impacts to build resilience and achieve adaptation.”

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