Voice of the Planet

We accept it almost without question--prognostications about the future which begin with the phrase: "if present trends continue..."  Extrapolating present trends into the future has become a stock technique for both those on the political left (e.g. "if present trends continue, the gap between rich and poor will continue to widen") and on the right (e.g. if present trends continue, GDP will double again within the decade").

Consider the following trend:  China consumed more energy in the past ten years than it did in its entire history, spanning thousands of years.  The vast majority of this energy was in the form of fossil fuels.  If this trend in energy consumption continues, then by 2020, China would consume virtually all of the oil currently produced for export in the world today.  And, by 2030, China's oil consumption would exceed today's total global production of petroleum.  What is the likelihood that this trend continues? 

Even if we set aside the obvious implications of this trend for climate change and assume that the world embarks on the all-out development of unconventional oil reserves (in the form of shale oil and tight oil), to compensate for the now declining world production of conventional oil, it is not clear that production could be ramped up at a sufficient pace to meet this exponentially rising demand.

It is important to note that similar projections of current trends into the future are commonplace in virtually every domain, including the production of food, consumption of water, and emission of greenhouse gases into the atmosphere.  The reality, however, is this:  it is highly unlikely that any of the current trends in the world can or will continue into the future for very long.

Nor should we expect them to.  History is filled with game-changing discoveries and events that fundamentally alter the trajectory of society and civilization.  Consider for a moment how future projections for energy and food production appeared in the 1890s, just prior to the explosive growth of the oil industry, automobile industry, and the rise of mechanized agriculture.  No one could have anticipated how radically the world would change in a relatively short period of time.

So expect a very bumpy and exciting ride over the next decade or two.  Nothing will stay the same.  We are approaching a time of unprecedented turbulence, change...and opportunity. 

Schumpetarian creative destruction will reign supreme.  Many incumbents will fall, and entirely new industries will be born.  An age of entrepreneurship on a scale that we cannot yet imagine is about to be unleased.

There is only one trend that we can really count on:  Present trends will not continue.

The 1930s are best known as the time of the Great Depression, brought on by the Wall Street crash of 1929.  Most point to speculation, excessive debt, and an ensuing stock market bubble as the "cause" of the depression.  The Great Depression was accompanied by the Dust Bowl--a time when much of America's agricultural "Heartland" dried up and blew away, leading to massive unemployment, homelessness, and social upheaval (remember the John Steinbeck classic, The Grapes of Wrath?).

Few remember, however, that the so-called "Roaring 20's" were the time when the agricultural economy in the US actually began its steep descent.  In fact, the period immediately following World War I, represented the first large-scale application of mechanized farming practices in the World.  This was uncharted territory:  Never before had farmers used tractors and fossil fuels to cultivate increasingly large tracts of land to grow commodity crops for a burgeoning urban population.  Not surprisingly, there were unintended consequences.   In the free-for-all that ensued, farmers plowed and over-cultivated their way to oblivion, causing widespread soil erosion, loss of fertility, and ultimately, the Dust Bowl.

Some would say that the collapse of the farm economy was what made the Great Depression the decade long debacle that it became.  Only with the advent of the Soil Conservation Service and a whole set of other institutions aimed at regulating and improving industrial agricultural practice, did the situation turn around after the Second World War.

Fast  forward to the 2000s.  In 2008, the financial crisis, and the Great Recession struck.  Most point to speculation, excessive debt, and an ensuing housing bubble as the "cause" of the recession.  Few remember, however, that the 1990s were the time when academic finance and the financial services industry really took off.  Driven by deregulation and the rapid develop of distributed computational power, exotic financial products such as CDOs and derivatives became possible for the first time.

Just like mechanized farming in the 1920s, these new tools got out of hand.  In the free-for-all that ensued, financiers securitized and arbitraged their way to oblivion, causing widespread misery and wealth destruction. 

The question is:  where is the financial equivalent of the Soil Conservation Service? 

When will we create the global institutions required to regulate and improve the functioning of this new force of nature?  Until this happens, expect the New Dust Bowl to continue.

Since the dawn of the Industrial Revolution, economies of scale have ruled the day, with massive investments in power plants, pipelines, factories, transmission lines, dams, and highways to more efficiently serve the burgeoning consumption needs of the rising consumer classes. Industrial-era technologies (such as electricity, petrochemicals, and automobiles) were also closely associated with mass production, the assembly line, and centralized, bureaucratic organization, resulting in the rise of organized labor, worker alienation, and growing social stratification.

As we enter the second decade of the new century, however, the "dark satanic mills" of the Industrial Revolution are giving way to a new generation of technologies that promise to change dramatically the societal, economic, and environmental landscape. The information economy powered by the microchip has already begun to revolutionize society by democratizing access to information and empowering the repressed. Indeed, You-Tube, Twitter, and the rapid emergence of the "blogosphere" have spawned a bottom-up revolution in user-generated content.



Increasingly, the technologies of tomorrow will be decentralized, distributed in character and disruptive to incumbent firms and institutions. It is much cheaper and more energy efficient, for example, to treat drinking water at the point of use, rather than transporting massive quantities of clean water through pipes from treatment plants only to have much of it leak out or be re-contaminated before it reaches its final destination.

Indeed, we are witnessing a dramatic reversal of the logic of scale--the new diseconomies of scale.

Think about it: Over the past decade or so, we have witnessed the rise of: distributed generation of energy, point of use water treatment, community supported agriculture, microbreweries, point of care healthcare, microfinance, and sustainable construction, to name just a few. Indeed, the term "nano" has become de rigeur.

Because existing players in the utility, energy, transport, food, water, and material sectors have so much to lose, however, it is enormously difficult for the entrepreneurs developing such distributed solutions to gain traction in established markets. Yet given their small scale and distributed nature, such clean technologies hold the potential to creatively destroy existing hierarchies, bypass corrupt governments and regimes, and usher in an entirely new age of capitalism that brings widely distributed benefits to the entire human community.

And rather than depending on national governments or paternalistic social engineers to design the future for the aspiring masses, these disruptive new technologies may be best brought forward through the power of capitalism--not the capitalism of the Industrial Revolution, which enriched a few at the expense of many, but rather a new, more dynamic form of global capitalism that will uproot established elites and unseat incumbents by creating opportunity at the base of the economic pyramid on a previously unimagined scale.

When Thomas Newcomen pumped water out of an English Coal Mine with a makeshift steam engine for the first time in 1722, little did he know that he was giving birth to the defining characteristic of industrial capitalism for the next two centuries--the relentless quest for greater labor productivity.  By substituting coal for manpower, the English textile industry drove the industrial revolution and established the template--and "rules of the game"-- for all industrial enterprises to come.  From cars to chemicals to computer chips, the very concept of "productivity" came to mean producing more product with fewer person-hours of work.

This metric made sense in the 19th century, when coal (and other raw materials) were plentiful and people were relatively scarce.  Now, however, exactly the reverse logic applies--fossil fuels and other raw materials are increasingly scarce and people are relatively plentiful.  We now live with the paradox that increasing business productivity means fewer jobs (especially when economic growth slows), precisely at the time that we need productive employment the most.

Occupy Wall Street, the Arab Spring, the corruption crisis in India, the rural revolt in China--all of these growing social protest movements originate from the same source--a growing "opportunity crisis" driven by unemployment, underemployment, alienation, and humiliation.  The time has come, therefore, to overthrow the tyranny of labor productivity and graduate to a new definition for what it means to be "productive" in business.

In the emerging economies of the world, this revolution has already begun.  ITC in India, for example, prides itself on creating livelihoods for the poor in the rural areas as part of its strategy for wasteland reforestation and agricultural productivity improvement.  Indeed, as commodity costs rise, it may make sense to redefine productivity--from capital intensity and labor efficiency to labor intensity and capital efficiency.  In the 21st century, "sustainable" enterprise must define success by the extent to which they create productive and fulfilling employment for the people of the world. 

Is business up the challenge?

How does business move beyond greening? TOP - “Create needs in existing markets” vs BOP - “Create markets from existing needs.”

I join Tamara Abed of Bangladesh Rural Advance Committee (BRAC) in conversation with Tehelka’s Shoma Chaudhury at Tehelka-Newsweek’s THiNK 2011.

WATCH: The End of Poverty - Third World Solutions for a First World Recession

The financial crisis has produced a growing disgust with companies and financial institutions motivated only by greed and short term profits.  Talk of sustainability is in the air and everywhere there are references to a "new" capitalism--a more inclusive, green, stakeholder-focus approach to business. Clean technology venturing is de rigeur.  Social investing has also burst on to the scene, with the promise of capital for those businesses dedicated to the cause of poverty alleviation and social inclusion. 

As someone who has been working in this space for better than twenty years, this is indeed exciting to finally see.  But wait a minute.  Houston, we have a problem:  Despite all the hand-waving and rhetoric, we are still not at the tipping point.  Why?  Because for many entrepreneurs dedicated to incubating new sustainable technologies and business models serving the base of the pyramid, there is still a dearth of investment capital.  In short, there is a "doughnut hole" in the field of sustainable finance.

On one side of the hole in the doughnut, there is the emerging domain of Impact Investing.  This new space is made up of a hodge-podge of social investors, micro-financiers, and community reinvestment specialists. What they tend to have in common is a focus on "doing well by doing good."  Think Acumen Fund, E + Co, and IGNIA.  Not that this is a bad thing.  On the contrary, it is an exceedingly important development. But the central tendency for the Impact Investor is to place social impact over financial return. 

Many impact investors are focused on providing finance to the "social entrepreneur"--the bootstrapping player from the developing world who is looking to grow a local enterprise, creating new opportunities for livelihoods and service to the underserved. Think Grassroots Business Fund, Ashoka, Root Capital and New Ventures.  Most expect, as a matter of course, a longer payback and below-market returns.

Others, like Muhammad Yunus, have advocated a form of enterprise called "social business" where investors simply get their money back, with no capital gain at all.  Few, if any, in the impact investing space are interested in investing in "Western" (or Northern) technologists or entrepreneurs seeking market returns from new, clean technologies or business models in the developing world.

On the other side of the hole in the doughnut, there is the emerging Clean Tech Venturing space.  Billions of dollars have flowed into these emerging technologies over the past decade.  Think Kleiner Perkins, Technology Partners, and Clean Edge.  Most investors in this new space are venture capitalists seeking market returns from deals that follow the same rules as conventional VC investments, such as Big Wind projects, battery technology, and large scale solar applications.  Most want to see contracts with large OEMs, or at least $1 million in revenue, prior to investing and want to cash out within 3-5 years.  Few in this space are interested in the developing world as a potential early market since it probably takes longer to develop, delaying the ultimate "liquidity event." 

And now for the doughnut hole:  For Western (or Northern) entrepreneurs focused on incubating next-generation clean technologies, starting in the developing world at the base of the income pyramid, there is still a dearth of capital. You are caught between a rock and a hard place.  I know, because I have some first-hand experience with this.  For the past four years, I've been involved with a start-up company, The Water Initiative (TWI).  TWI is focused on creating commercially viable, household scale (point-of-use) solutions to drinking water challenges in the developing world, starting in Mexico. 

We had little problem securing first round financing from Angels to launch the business development process in Mexico starting 2008.  After two years of hard work in co-creating a viable business concept, along with extensive new technology development in point-of-use water treatment, we were ready to begin scaling the business in 2010.  However, the doughnut hole prevented us from securing critical second round financing until well into 2011.

Founder Kevin McGovern pitched our case to dozens of Impact Investors and Venture Capitalists in the 2009-2011 time frame.  The story that emerged was clear:  We did not fit the "social investing" pattern for Impact Investors nor did we fit the time frame or payout expectations for the traditional VCs.  We fell between the cracks.  In the end, we secured second round financing from an off-shore financier.

So despite the recent upsurge in attention to "social," "impact," and "clean tech" investing, there is still a structural gap--a doughnut hole-- in sustainable finance. But this also means that there is a huge opportunity for visionary financiers to invent the new investment categories and asset classes needed to fill this gap.  There is also an opportunity for corporate leaders to "plant the flag" by investing in the technologies and business models of tomorrow.

So far, emerging market financiers and corporations (e.g. the Indians and Chinese) seem more inclined to innovate the financing mechanisms needed to fund the sustainable enterprises of tomorrow--those that take a bit longer to incubate, but have the potential to transform the world and produce incalculable growth and profits in the long run.

The question is:  Will the US, Western Europe, and Japan cede this emerging space to financiers and corporate leaders from the emerging economies thereby missing out on the opportunity of the century:  the chance to participate in the creation of a truly sustainable future?

My colleagues Amory and Hunter Lovins tell a wonderful parable:  In the early 1950s, the Dayak people in Borneo experienced an outbreak of malaria. To combat this terrible problem, The World Health Organization sprayed large amounts of DDT to kill the mosquitoes carrying the disease.  As expected, the mosquitoes died and the malaria declined.  Problem solved.

But wait--there were unexpected side effects:  The roofs on peoples' houses began to cave in.  It seems that the DDT was killing the parasitic wasp that previously controlled the thatch-eating caterpillars.  Even worse, these DDT-poisoned insects were eaten by geckoes, which were then eaten by cats.  The cats died, allowing the rat population to explode, exposing the local people to even more vicious outbreaks of plague and typhus.  To cope with these new problems, which were the result of the original solution, the WHO was obliged to parachute 14,000 live cats into Borneo...

This parable illustrates one of the most difficult challenges facing the initiators of any purposeful human action:  That any new solution or innovation will always create new problems.  Sociologist Robert K. Merton identified this phenomenon in the 1930s as the "Law of Unintended Consequences." While unintended consequences can be positive (e.g. taking aspirin for pain also appears to reduce the risk of heart attack), it is the negative ones that necessarily concern us the most--precisely because they are unforeseen!

Thus, a key criterion for determining if a given human endeavor is "sustainable" (or not) is whether or not the problems it solves are more significant than the new problems it creates.  Tragically, many of our most notable technological and industrial innovations of the past century do not appear to have passed this test.  

Take, for example, Fritz Haber's invention of synthetic nitrogen in 1909.  Until Haber figured out how to "fix" nitrogen from the atmosphere into a form useful to living things (i.e. plants), all the useable nitrogen on earth was fixed by soil bacteria living on the roots of leguminous plants.  Before Haber's invention of synthetic fertilizer, the amount of life earth could support--crops and humans, for example--was limited by the amount of nitrogen fixed by natural processes.  


Today, it takes more than a calorie of fossil fuel energy to produce a calorie of food. 

In fact, industrial agriculture accounts for nearly one-quarter of all greenhouse gas emissions to the atmosphere.  In addition, most of the synthetic fertilizer applied to crops is wasted--it either evaporates into the atmosphere (acidifying the rain, and further contributing to climate change), or it runs off into streams, ultimately ending up in estuaries like the Gulf of Mexico, where it stimulates wild growth of algae that then dies and smothers marine life, creating "dead zones," and adversely impacting coral reefs and other fragile life forms critical to marine fisheries and ecosystems.



Haber's process for manufacturing synthetic nitrogen is also what enabled less humanitarian industrialists to create the industrial munitions for modern warfare and terrorism--high explosives, defoliants, and poison gases.  Might it be that the new problems created turn out to be bigger than the problems solved?

Or take the case of nuclear power.  In the years following the Second World War (which was ended with the use of nuclear weapons), nuclear power was hailed as the solution to our future energy problems.  "Electricity too cheap to meter" was the slogan in those days.  Throughout the 1960s and 70s, the world pursued nuclear power with great vigor.  Until the accidents at Three Mile Island and Chernobyl put the brakes on.  

But these accidents only exposed part of the "new" problem--the potentially devastating consequences of a nuclear meltdown.  With the increased scrutiny these accidents brought, it also became clear that there really was no long-term, permanent, or safe way to manage the waste from spent fuel rods.  So, today we continue to store the material above ground in growing numbers of radioactive pools, which are potentially vulnerable to terrorist attack.  Even worse, the failure to secure all existing nuclear weapons presents the real danger that "loose nukes" will fall into the wrong hands, with potentially horrific consequences.

In recent years, the growing specter of climate change has brought nuclear power back to the forefront, since it produces no greenhouse gas emissions.  And then came the earthquake and tsunami in Japan and the Fukushima disaster.  In June, at the Tokyo Power Board Meeting, livid shareholders told the executives at the utility to "jump into the reactor and die."  

Might it be that the new problems created turn out to be bigger than the problems solved?

In the years ahead, we will face unprecedented challenges to design and develop "sustainable" solutions to our growing food, energy, water, and other problems. Of necessity, we will be forced to take action before we completely understand all of the unintended consequences.  The "precautionary principal" dictates that we pursue only those solutions that minimize the potential for massive negative unanticipated consequences.  

Experience over the past century teaches us that large-scale, centralized solutions typically fail the test for unanticipated consequences--most end up creating bigger problems than they solve.  Better instead to pursue the emerging wave of small-scale, distributed, point-of-use solutions such as distributed generation of renewable energy, point-of-use water treatment, and multi-crop agriculture.  Such solutions can "fail small and learn big," enabling technologists and entrepreneurs to fine-tune and perfect the model on a small scale before seeking wider application. In so doing, we can finally begin to create smaller problems...and begin the transformation to a sustainable world.

We often hear that the reason the so-called clean technology revolution has so far only amounted to a genteel protest is because new clean technologies are simply too expensive. 

Only rich Germans and Californians can afford such luxuries.

We must wait, so the story goes, for major "breakthroughs" to occur in renewable energy, biofuels, biomaterials, potable water, etc., before they can be cost competitive with conventional technologies and infrastructures.  To convince us of this point, we are given graphs showing costs declining and volumes increasing for these emerging clean technologies, but the take-off point is always about a decade away. 

Unfortunately, I can still remember seeing such graphs back in the late 1970s! 

Well, I'm here to tell you that this story is really a fantasy.  It provides a convenient excuse for not moving more aggressively on the clean technology front.  The truth is that we are drowning in perfectly good clean technologies. What is lacking is not breakthrough technology but rather breakthroughs in how we bring these technologies to market. 

Many corporations and universities today possess substantial stocks of unused (or at least uncommercialized) green technology literally "sitting on the shelf."  Frequently, these technologies are disruptive to current core businesses or at least do not fit easily into existing business models.

GE, for example, has dozens of small, distributed solar and water technologies on the shelf, in part because the company's core business for the last half-century has been focused on large-scale infrastructural technologies (such as power plants) sold to governments or other large players.  Even today, the company's "Ecomagination" initiative focuses on large-scale applications like Big Wind rather than small, distributed, point-of-use technologies which are outside of their commercial comfort zone.

My own institution, Cornell University, provides another vivid example.  A few years back, my colleague Mark Milstein and I ran a little experiment.  We wondered if some of the literally hundreds of technologies and intellectual properties just sitting on the shelf at the University might be commercially viable if viewed through a different lens.

Most Universities seek primarily to license the intellectual property produced by their faculty to existing corporations.  A few try to encourage faculty to participate in the formation of new ventures, but most of these focus on the existing, served market in the developed world.  My colleague Mark and I wondered, "what if we looked at some of these technologies through the lens of new enterprise creation focused on the vast underserved space at the base of the income pyramid?"

We structured a course around this question and selected a sample of shelf technologies that seemed to have the characteristics we were interested in (i.e. renewable, bio-based, small-scale, distributed applications).  We assigned student teams to look at these technologies from this perspective.  Sure enough, when viewed through the emerging lens of "disruptive" or "reverse" innovation, the majority of these technologies appeared to have real commercial potential.  To be appropriate, however, these green technologies need to be optimized in new and unexpected ways, based on experience on the ground in actual underserved communities. The technology and the business model must co-evolve as the process of commercialization unfolds.  This requires a new capability in business co-creation, which I have discussed elsewhere (see my blog on "Writing the Unfinished Symphony").

For aspiring Clean Tech entrepreneurs, therefore, expensive R&D and new invention are probably unnecessary; instead, the first step is to take a careful stock of  what relevant clean technologies already exist on the shelf--either in existing large corporations, or at Universities. Many large corporations are "donating" these patents to Universities because they do not know what to do with them.  So many perfectly good new clean technologies are available for a "song."

By gaining low-cost access to these technologies, it may be possible to engage in a form of modern-day green "alchemy."  Indeed, there is a rare opportunity here to turn "lead" into "gold" by repurposing the thousands of clean "shelf" technologies extant in the World to first serve the needs of the underserved at the base of the pyramid.  This unexploited opportunity will not last forever, however, since nature abhors a vacuum!  It is clearly time to take the "Green Leap" to the base of the pyramid.  For it is there that the Clean Tech Revolution will begin.