Friday, August 8, 2014

Circular economy, II

Progress and big data

At the end of the last posting the question was posed “can the “internet of things” be part of the circular economy? Can this connectedness push consumers to consider more sustainable behavior, or create products that provide increased value with lower impact, or allow effective recovery of resources at end of life?” The answer proposed was the very definitive “it depends”! Which is true - depends on reaction (or pro-action) of consumers, depends on reaction (or pro-action) of companies, and depends on reaction (or pro-action) of governments and non-governmental organizations (NGO’s).

In attempting to insure products and services in the manufacturing sector that reduce impact per unit of value created we’ll need to be careful in accounting for all the impacts generated and environmental return on  investment.

That means data … and metrics. Good data (not just streams of “information”) and real metrics that relate the engineering and manufacturing efforts with machine, system, enterprise and product performance.

This starts at how we measure growth in the economy. If we do not consider the impact of growth, broadly speaking, then the growth is pushed without consideration of the collateral issues - energy, water, materials consumption and the relevant impacts as well as the important social impacts across the supply chain.

A recent article posted on the Aljazeera America site, written by Sean McElwee, makes the point well. The article, titled “Gross Domestic Problem” (after GDP more traditionally meaning gross domestic product), states that “GDP is a fine measure of the goods and services produced within a country’s borders. However, it does not tell us how sustainable that growth is or at what cost it comes.” The sustainable part here refers to the business sense … will it keep going. It is the last bit “… at what cost it comes” that should interest us. They author refers to a paper in the January issue of Nature by a group of social scientists who argue that “If a business used GDP-style accounting, it would aim to maximize gross revenue — even at the expense of profitability, efficiency, sustainability or flexibility.” And this time they mean the real sustainability!

The Nature article states that the gross domestic product is a misleading measure of national success! They cite Robert F. Kennedy’s observation that the country’s GDP “measures “everything except that which makes life worthwhile.”  And the result is … while world GDP has made impressive gains since it was introduced around 1950 “progress” defined broadly may not be so impressive.

The problem is seen in the graph below, showing growth in GDP over the last 5 decades and the comparable growth in GPI (so-called genuine progress indicator). The Nature article explains that the the GPI is calculated by “starting with personal consumption expenditures, a measure of all spending by individuals and a major component of GDP, and making more than 20 additions and subtractions to account for factors such as the value of volunteer work and the costs of divorce, crime and pollution.” Meaning, it can include the impacts of “progress” such as destroying wetlands or depleted water resources.)

Figure: GPI and GDP over time (source: Kubiszewski, I. et al. Ecol. Econ. 93, 57–68 (2013).)

If you believe the GPI metric - one can see that sustainable progress is not progressing!

And corporations that follow the piper of growth without accounting for well-being because it is what the accounting systems and shareholders expect are just doing good business.

And countries that try to increase GDP/capita because that is associated with affluence (recall the IPAT equation?) and everyone wants to be more affluent.

That’s why Patagonia founder Yvon Chouinard cited in the last posting was so upset with corporations and “business as usual” … no one wants to restrict growth.

The Aljazeera article sums it up nicely. “GDP doesn’t even include the price of everything. For instance, the International Monetary Fund found that our failure to price the effects of carbon dioxide amounts to a $1 trillion annual subsidy for fossil fuel corporations. Conversely, the Clean Air Act produced $22 trillion in economic benefits from 1970 to 1990, according to an EPA retrospective study — much more than the estimated $523 billion it cost. In each case, GDP ignores crucial public benefits and the externalities of economic growth.”

As a result, Aljazeera notes from a landmark study titled “Mismeasuring our Lives”, “what we measure affects what we do, and if our measurements are flawed, decisions may be distorted.” So, making a choice between promoting growth as measured by GDP and protecting the environment may be false choices if the environmental degradation can be calculated and appropriately included in measurements of economic performance. 

I hope Mr. Chouinard read this! Actually, he would hope more corporate CEO’s read this!

But, this posting is not just ranting about the inequities created by a GDP centric view of the economy … what’s the solution and how does manufacturing fit in .. or, at least, big data, help.

Interestingly, this problem (coming up with the right way to measure things so the true impact or benefit or cost can be determined) is something engineers, specially manufacturing engineers, have been dealing with for a long time. In the field of manufacturing we often quote Lord Kelvin (aka Sir William Thomson) who stated “To measure is to know" and following on “If you can not measure it, you can not improve it." In lay terms, if you can’t measure what you made you don’t know whether or not you made it! Seems time to extend to this to measuring real growth on the way to sustainable development.

And that is where big data (or any data!) comes in! The circular economy, using resources effectively and efficiently - let’s say productively - will rely on the linking of a host of consumers all along the supply chain (from material sources to converters to manufacturers to distributers to consumers and back - recall the Ricoh comet circle).

According to McKinsey (the “Wikipedia of the Fortune 500 set”), in manufacturing big data can be useful for identifying ways to increase yield in a number of processing operations by identifying “insights” into production that were overlooked due to complexity of the process, large numbers of variables, many differing process stages, etc. If this same ability to uncover “insights” could extend to the broader impacts of manufacturing across the supply chain that would give both a sound technical basis as well as a reliable economic measure of the value of improvements.

This gets us back to the one element of the IPAT equation we can actually influence - Impact/GDP. That is, increasing the value created to the consumer or the market with reduced impact measured however you think is important (recall we indicated this would have to be on the order of 10X reduction to offset increased population and demand).

Maybe the real ratio we should be concerned with is GDI/GDP! Genuine progress per unit of GDP growth. If we have (or can get) the data for our manufacturing enterprises to determine with sufficient accuracy the impact on GDI of our production and our products this might give us a basis for making decisions.

Then, we could move beyond eco-charts plotting reduced environmental damage vs economic benefit where we assume a 1:1 relationship is sufficient to a plot of GDI vs GDP (on a local scale of course) to evaluate our decisions from design to production.

This will be challenging. It will have to be “circular” as we cannot gain the resource productivity that drives this any other way.

We’ll need to work on more details in future postings!