Tag Archives: sustainability

Valuing the future

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Discounting the Future: The Ascendancy of a Political Technology by Liliana Doganova is an interesting read. I don’t entirely agree with its perspective, which is that the concept of discounted cash flow or net present value is inherently damaging to the future; but I do think it’s valuable to understand that it is not a technical tool but an inherently normative one – or political, if you prefer. The book is part of a literature that criticises ‘assetization’ – generally used as a synonym for financialization – and identifies the performativity of certain economic concepts. This is a valuable and thought provoking literature, drawing attention to some dysfunctions of ‘free-market’ practices in policy and business.One of these is certainly the spread of CBA-type analyses as practiced in policy and business decisons.

As Doganova writes here, there is an inherent contradiction. On the one hand, “Discounting literallty devalues the future and gives priority to the present, inducing short-termism.” On the other hand, “discounting could also be analyzed in exactly the opposite terms, as futurism as opposed to presentism, because it posits the future as the ultimate source of rewards in the present.” She adds, “The future is a political domain.”

The first part of the book discusses theoretical debates about the selection of the discount rate and the use of discounting, including the wrangling among economists after the publication of the Stern Review. The later chapters give three historical examples, 19th century forestry, the introduction of discounted cash flow analysis in US corporations in the 1960s and 70s, and venture capital investment in biopharma recently. The interesting examples illustrate a clear shift from a focus on purpose (eg healthy woodlands, or sustained engineering success in manufacturing) to a focus on financial returns. She writes of the corporate use, “The troubling consequence of the use of discounting was that companies were turning down investments.” I’d like to think of a way to test this empirically.

However, the book conflates the practice of discounting or CBA with the inherent analytical possibilities of conceptualising the economy as a process through time involving investment in assets that subsequently provide a period-by-period return. I see this as an essential step forward from flow-based metrics of success (GDP growth or current year profits). Without a balance sheet, it is impossible to evaluate sustainability. My challenge to the contributors to this literature criticising ‘assetization’ is what alternatives there are if we are to transition to a sustainable economic model.

Thinking specifically about discounting, Doganova concentrates on the selection of a discount rate – and indeed companies select a ludicrously high hurdle rate very often. But the technique involves other normative choices. One is the discounting formula – one could use hyperbolic rather than exponential discounting, which favours the more distant future. And above all there is the question of the prices at which the benefits (and costs) are evaluated; the book assumes it has to be market prices, but shadow prices are needed for social cost benefit analysis.

So while I agree that the tool is not technocratic but embeds values, choices about consuming resources now or in the future will always involve an implicit cost benefit analysis. Better to make it explicit, recognising the specific normative decisions involved. Anyway, loads of interesting detail in the book and it made me think, always welcome!

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The beauty of infrastructure

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How Infrastructure Works by Deb Chachra is a good complement to Brett Frischmann’s now-classic Infrastructure, which has more of a focus on the economic analysis. Chachra is an engineer, which leads to her focusing more on the physical aspects and affordances of the technologies involved. Having said that, there were two aspects of the book I really appreciated. One is that she links access to infrastructure to Sen’s capabilities approach, and the fact that it gives people agency to lead their lives as they see best. It is also progressive – those with fewer private assets get more value out of public assets.

The other is the emphasis on the collective character of infrastructure assets – which is one reason my colleagues and I recently called for a Universal Basic Infrastructure (rather than income, or even services, both of which involve an individual perspective). The ability of a society or community to invest in and indeed maintain infrastructure – now very complicated and multi-layered – is a thermometer of its political and social health. Something Chris Arnade recently pointed out with regard to the US: decaying transport system, declining polity.

As Chachra points out, the lens of economic efficiency is inadequate. It leads to under-investment in systems that need redundancy, to create resilience at all, and all the more necessary now to enable the needed energy transition.

She’s optimistic about the possibility of shifting to green energy – more so than Brett Christophers in his excellent forthcoming book The Price is Wrong – perhaps because Chachra assumes the state will undertake a lot of the needed investment. Although she adds, “Stability of all sorts, including political and economic stability, is what makes it feasible to front-load large investments of resources with the expectation of continuing benefits over a long period.”

“The true value of these [infrastructure] systems is literally incalculable … because they enable systems and behaviours that wouldn’t be possible without them,” she writes. Above all, what I like about the book is its recognition that “the political and the engineering questions are inextricably linked.” I’ve been slightly obsessed with the dysfunction of applying cost-benefit analysis to major infrastructure, and the need to maintain and upgrade it to at least mitigate deep spatial inequalities. Bennett Institute colleagues have worked on social infrastructure and we have a new British Academy project on a measurement framework for social and cultural infrastructure. The term has recently been more widely used, and perhaps the definition needs revisiting. But the focus on the collective rather than the individual, on the future not just the immediate present, and on the inadequacy of the static efficiency lens when we need an “ethics of care rather than utilitarianism”, is surely correct.

The Guardian had a taster essay extracted from the book, but it is well worth a read as a whole. It’s thoughtful, informative and also very well written.

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Decarbonising travel – room for optimism?

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Our new Perspectives title, Good To Go: Decarbonising Travel After the Pandemic by David Metz is out. It looks at how the pandemic has affected pre-existing trends in travel – not as much as optimists might have hoped, is his conclusion, although recognising that it is probably too early to know whether commuting patterns will change permanently. Nevertheless, improved neighbourhood planning and flexible working could capture some of the benefits of the pandemic years even if there is a significant reversion to the old normal.

However, One of David’s points is that people relish mobility, with faster travel always having translated into travel further. That means that tackling the contribution of transport to solving the climate challenge will need technological contributions. The book holds out some hope for electric vehicles and digital tools contributing to decarbonising transport. But as David points out, the system is complex, involving economics, demography, technology, policy and human behaviour. There is a lot of wishful thinking about how easy it will be to change. Complexity means (as so often in policy) there is no easy solution. The book outlines a range of investments and policy interventions that will be needed to decarbonise travel.

Good to Go? is a terrific addition to our Perspectives roster on transport: David’s previous book, Travel Fast or Smart?; Transport for Humans: Are we nearly there yet? by Pete Dyson and Rory Sutherland; and Are Trams Socialist? Why Britain Has No Transport Policy and  Driverless Cars: On a Road to Nowhere  by Christian Wolmar. They complement each other wonderfully  – a great collection for transport nerds! As a special offer for readers of this blog, all five (£71 if bought individually) are available for £45 plus postage if you email sam@londonpublishingpartnership.co.uk.

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Talking about the future

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One of the things I like about Brett Christophers’ books is that they always make me think, and always provide an immensely well-informed critique of aspects of economics that economists don’t interrogate enough themselves. His new book, Rentier Capitalism: Who Owns the Economy and Who Pays for it?, is no exception. It’s an essential read for anyone thinking about what UK governments might need to do differently as the pandemic upends the economy, and people’s jobs, without doubt feeding an appetite for some significant change in the philosophy of public policy.

The new one is a natural follow-up to the author’s previous book, The New Enclosure: The Appropriation of Public Land in Neoliberal Britain, on the inequalities and inequities of land ownership in the UK. Landowners are one form of rentier. The new book argues that rentiership has, however, spread to many parts of the economy, and particularly so in the UK. At one level, the argument is a compelling attack on the way successive governments have taxed (or rather failed to tax), regulated (or failed to regulate), and generally favoured big companies and their ever-wealthier executives at the expense of the public good – in other words, the rest of us. We pay more for shoddier goods and services, either directly or as taxpayers, than we should.

It’s hard to argue with any of the targets skewered in the book: extractors of mineral wealth, the financial sector, the big outsourcers – whose incompetence is getting another outing in the test, track’n’trace fiasco – the gatekeeper digital platforms, the private equity firms running so much infrastructure, the exploiters of patents and ludicrously long copyright periods. Indeed, the book kindly quotes things I’ve written myself on some of these outrages.

Having said that, I have one small issue and one bigger issue with the analysis. The small issue is about the way he defines rentiership – as the earning of income from an asset whose ownership confers monopoly power. Assets can be intangible as well as tangible of course, but I’m not entirely convinced that everything presented as an asset in the book is one. To my mind, an asset is something with a stock, which can be depleted or augmented, providing a flow of services over time. Land, or oil, or physical infrastructure, for sure. Digital platform markets – probably. Outsourcing contracts – not so sure, it depends. Perhaps as a competition economist I see everything as a competition problem, but I think the common issue in all these examples is monopoly power and the artificial scarcity it creates, and we should be analysing monopoly rents, and their regulation.

The bigger issue is about the way the concept of an asset is becoming more or less demonised in some areas of social science, as an effective synonym for the use of money in inappropriate domains. Debate about the limits of markets is time-honoured and I have no problem with it. But if it is now inappropriate to regard anything as an asset, how on earth can we think about sustainability? To give a specific example, I can understand why some people think it is morally wrong to put a market price on clean air or biodiversity, even while making the economist’s counter-argument that refusing to do so imposes an implicit price of zero, which is even wronger. However, if we don’t think about nature as an asset, whose stocks we should steward, I find it hard to see how to embed concern for the future in policy choices. In my work thinking about how to get beyond the policy short-termism of a focus on GDP growth, measuring and understanding the whole range of assets available to people has been key.

There have been a number of books recently criticising ‘assetization’ so Brett is not alone. My questions to the various authors, all I think people inclined to the left of politics, is a serious one. How does ‘assetization’ differ from ‘monetization’? Are the arguments about it really distinct from those about monopoly power, as made for example by Thomas Phillipon? And above all how are we to think about, and name, those things in which we should be investing, or at least not depleting, to have regard for the future?

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Assetization, economists and others

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Assetization edited by Kean Birch and Fabian Muniesa (a geographer and a sociologist) is an intriguing book. Given that we have the Wealth Economy project at the Bennett Institute, I wanted to understand why they and the authors included in the collection see assetization of the economy – distinct from marketization, financialization and commodification  – as a Bad Thing.
I must confess that I still don’t really understand these distinctions made between different aspects of the neoliberal capitalism being critiqued. There are some differences among the authors in the volume in how they understand assetization. The introduction sets out seven features of assetization: the creation of property rights; new kinds of property rights for intangibles; ability to extract rents; uniqueness of the asset making for monopoly power; valuations that depend on the actions of the owners; and that depend too on institutions and politics. While this is fine as a definition of an asset, albeit slightly different from the focus in economics on investment in something that exists as a stock and can give a flow return in the future, it isn’t obvious why assetization is inherently bad.
So I think the objection boils down to the classic one of putting a monetary value at all on things with intrinsic value, plus the dimension of power of the asset owner over those renting it. The time dimension of assets, and potential for better stewardship, doesn’t really feature in the book, or only as a way for the economic advantage of asset owners to be sustained rather than one-off; yet our project is interested in thinking about the economy in terms of assets or wealth because it will help embed sustainability, a concern for the future, more effectively in business and policy decisions.
The book has some very interesting chapters. My favourite was the one on the market for seeds in Germany, which is packed with institutional detail about how it operates, and the tensions between the interests of seed breeders and farmers – seeds with distinctive features enabling the breeder to charge a higher price get turned into corn which has to be a standardised commodity to trade on the market. It reminded me of one of my favourite books, John McMillan’s Reinventing the Bazaar. The chapter on natural capital seemed to consider the debate about natural capital accounting in the measurement and environmental economics communities as being concerned with assigning property rights to nature, which is not the case. The chapters in the first section concern intangible property rights, a very interesting area. It was a bit surprising not to see reference to cases like John Deere, whose tractors farmers think they are buying, but John Deere’s claims of IP over the software has turned these transactions into rentals rather than transfers of ownership.
So on balance, having found it a very interesting read, I conclude that we are speaking different disciplinary languages. However, the language choices we economists make are delicate if we want to engage in a good debate with those who see economics simply as the handmaiden of actually-existing capitalism: I’ve been mulling over the standard economists’ use of ‘human capital’ in the light of BLM: Jacob Mincer, an originator of the concept, was apparently uneasy about the term and many people, reasonably, find it offensive. But is there a neutral (shorthand) way of talking about putting resources now into people’s future opportunities?
The concept of an asset whose value inheres over time, and depends now on what kind of future we create, is fundamental to building a sustainable economy. But are there other words for things you can invest (either time or money) in for both the present and the future? If there were, it would help economists have a better conversation with other disciplines and the public about what we value (not just money!), how and why.
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