Monday, 5 June 2017

Global Reset: A Socio-Ecological Finance System to Boost Sustainability

by Dirk Helbing (ETH Zurich/TU Delft)

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Lack of sustainability is our biggest existential threat.
Humanity is largely overusing the Earth’s resources. We are consuming more than what is renewable. Currently, we would need at least 1.5 planets to maintain our lifestyle. Would everyone have the standard of living of European countries, we would even need to have 3.5 Earths at our disposal. The USA even consumes 4.5 times as much as what the Earth can sustainably maintain. That is why they engage in a race to Mars. Getting hold of Mars’ resources, if we can accomplish this, would be the next stage of globalization. But it may come too late…

The current over-consumption of industrialized countries leads to a scarcity of resources elsewhere. This is probably the reason of many conflicts and wars today, of revolutions, mass migration, terrorism. While those problems could be kept at bay in the past, mass migration and terrorism show that the problems caused by us come ever closer.

Let’s face it: if we don’t get the lack of sustainability fixed, the world will end in disaster. If we go on as before, at least one third of the world’s population will die in the coming decades. That would be more than 2.5 billion people – more than the US, European, Russian and Chinese people taken together! That is why the danger of a World War III is popping up on the news so often. A global nuclear war, however, could make the entire Northern hemisphere uninhabitable.

In fact, predictions for the Earth don’t look good. All computer simulations of the world’s future predict an impeding economic and population collapse. This is known at least since “The Limits to Growth” study commissioned by the Club of Rome, and the “Global 2000” study issued by the former president Bill Clinton. The UN Sustainability Agenda 2030 is giving the world less than 15 years of time to solve this problem. That is, lack of sustainability has become a matter of life and death for all of us.

Is there a solution at all, beside depopulating the planet? Yes, indeed! Today, an average consumer in an industrialized country produces more than 600 kilograms of waste per year – about 50 tons in a lifetime. And this does not even include the waste produced by companies. In a lifetime, most of us throw away several cars, boards, sofas, TV sets, computers, smart phones and many more things. This would be enough for several people! So, we neither have an overpopulation problem nor a shortage of resources. We just have an organisational problem, but a serious one.

Our economy is not using and distributing available resources well. We need a circular economy rather than linear supply chains, where fresh resources are used to produce consumer goods, which are finally thrown away. Currently, some people die of obesity, others of hunger. This does not make any sense. While the world’s food production is enough for everyone – 30-40% food is thrown away. Nevertheless, millions of people die of starvation every year, and the situation is expected to deteriorate.

Therefore, what we really need to do is to change our economic system such that supply chains are closed and a circular and sharing economy results. Then, the world’s resources would be enough for everyone. The question is, how to build this circular and sharing economy? In some countries, politicians have tried hard to promote recycling by laws and regulations, but things did not get very far.

Today, millions of responsible citizens recycle glass, sort waste, bring back old batteries etc. However, even in the most advanced countries, we don’t have anything that comes even close to a circular economy. Developments look more promising for the sharing economy, but so far it is dominated by a few companies such as Uber and AirBnB. We are still far from an open and participatory information, innovation, service and product ecosystem, in which everyone can contribute with their own products, services and ideas.

Therefore, to boost the emergence of a full-fledged circular and sharing economy, we need to create new market forces. This brings us to a new socio-ecological financial system, which I sometimes call “finance 4.0” (the number does not really matter). What I have in mind is an exchange platform that combines the Internet of Things with Blockchain Technology and Complexity Science. Let me explain this in in more detail.

The Internet of Things comprises a large number of measurement sensors that are connected to the Internet. Such sensors can now be used to measure features of their environment cheaply. One could say, these sensors make it possible to give ordinary things senses and allow them to “perceive” their environment. Combined with Artificial Intelligence and actuators (i.e. active elements), one can even build things that respond to such “perceptions” in a “smart” way. This gives them something like an own, artificial “life”. At least we can give things autonomy now. For example, self-driving cars are using radar sensors, video cameras and other sensor systems to get a picture of their environment. In response, they drive the car autonomously, as decided by machine intelligence.

In particular, with Internet of Things sensors, we can now easily measure negative externalities such as noise, light, temperature, acceleration, rotation, location, and many other undesirable things. So, let us assume we would use such sensors to measure carbon dioxide (CO2), stress, all sorts of emissions, and waste of various kinds. Further assume that we would measure positive externalities such as social cooperation, health, education, or the reuse of different kinds of waste.

Then, we could build a multi-dimensional incentive system on top of these measurements that gives each negative externality a price and each positive externality a value. For the sake of illustration, imagine we would use black, red, blue, green, yellow and all sorts of differently colored eCoins to price the different kinds of externalities. These different eCoins could be implemented by means of Blockchain technology.

With this multi-dimensional incentive system, we could then implement real-time feedbacks and reward desirable externalities, while discouraging undesirable ones. This differentiated reward system would be much more suitable to manage complex systems such as our economy or society than the one-dimensional money system we have today.

Our current money system is based on a utilitarian approach which ranks the entire world on a one-dimensional scale. It is clear that such a one-dimensional approach is oversimplifying world affairs and needs. It creates a hierarchy and a power structure, which makes the world go ‘round, i.e. governs by force. However, it is not suited as a coordination system for today’s complex world.

To illustrate the issue, let us imagine the production process of a complicated chemical or medical drug. Here, it will certainly not be enough to control a single variable such as the temperature. Instead, it will be necessary to control the temperature, pressure, and concentrations of all sorts of ingredients, and perhaps even arrange for several different subsequent processes.

Similarly, our human body cannot thrive by varying just one variable such as the amount of water we drink. We rather need a variety of substances such as water, proteins, carbohydrates, vitamins, and minerals. Normally, these cannot be substituted for each other. If one of the necessary substances is lacking, our body will not perform well or even fall ill. So, why should it be possible to run our economy or society with one-dimensional money?

It is clear that a more differentiated, multi-dimensional approach promises better results, and this has a reason. Many complex systems are made up of so many autonomously (re-)acting parts that it is difficult to make them do what you want them to do. Often, strong interactions within a complex systems lead to unexpected side effects, feedback effects or cascading effects, which cannot be simply controlled in a top-down way. However, there is a way to make these systems well-behaved. Complex systems tend to self-organize, i.e. to come up with their own characteristic kinds of structures, properties, and functions. By changing the interactions, one can change the outcomes. It’s a focus of Complexity Science to study, what kinds of interactions produce particular outcomes. “Mechanism design” is the discipline that studies, how to choose, specify or change interaction mechanisms in such a way that the desired outcomes would result. The Nervousnet project my team is working on, is aiming to produce a platform that would eventually allow to create context-dependent incentives and interactions such that desirable outcomes would occur by self-organization. Boosting a circular economy is one of the goals. However, it would require a much larger-scale approach to get there by 2030. It’s possible, but governments would urgently have to take action.

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