Valuing Today's Circular, Services, Information Economies

Economic textbooks still teach the factors of production as: land, labor and capital.  Most humans would still agree that land and labor are the basics of human production.  But our view of capital has evolved---along with our systems of production over the past 300 years of industrial development.  The early economists missed the role of energy, the hidden ingredient behind their formula, since our entire planet runs on energy from the sun.

Humans always sought to  augment the energy of their own muscles with water wheels, windmills, whale oil and always harvesting the sun’s energy from plants. Coal, petroleum and natural gas, the fossilized sunlight trapped in dead plants and animals fueled humanity’s leap into  industrialization.

Again, the economists overlooked another factor: the key role of expanding human knowledge, creativity and ingenuity, which we now call human capital and intellectual capital.  Gradually, over the past century, intellectual, human and social capital (our ability to organize ourselves into cities, companies and civic societies) became dominant as our economies matured. Today, advanced information societies’ economies are based on about 80% intangible intellectual products and services –rather than goods you can drop on your foot.

Accountants, always more pragmatic than economists, now recognize six forms of capital: Financial; Built (facilities); Intellectual; Social, Human and Natural environmental capital.  Assessing the performance of companies becomes measuring the extent to which a firm has enhanced or degraded all six forms of capital. Followers of Adam Smith’s Wealth of Nations (1776) are surprised. They may not have read his earlier book, The Theory of Moral Sentiments (1759) where Smith described all the human aspects of social and organizational success: mutual respect, civic responsibility, empathy and cooperation.

Similarly, the performance of whole economies is no longer judged by economists’ money-based metrics in GDP, but also how the many other sectors of society are doing:  education; health; human rights; infrastructure; public services; social inclusion and environmental quality (clean air and water, oceans, biodiversity and climate).  New indicators have emerged in the past decade, the United Nations (UN) Human Development Index (HDI) and many others, including our Quality of Life Indicators launched with the Calvert group in 2000 and Bhutan’s famous Gross National Happiness adopted by the UN. These overall indicators of national performance are now codified in the UN’s Sustainable Development Goals (SDGs) ratified in 2015 by 195 member nations.

Today’s Information Age includes the rapidly growing digital economies where billions of humans now communicate, buy, sell, barter and swap ideas, build communities on ever-evolving platforms on the global internet.  This swift evolution from the telegraph, telephones, faxes to iPhone, iPad and the millions of new devices promoted as the Internet of Things (IoT) are posing many new challenges.

How will these new social media platforms, all commercially-developed, be governed going forward?  We see how “network effects” lead to aggregation, consolidation of power and influence in giant companies like Facebook, Google, Twitter, Amazon, Microsoft and others.   How can we preserve their benefits while curbing their misuse by pornographers, human traffickers, terrorist groups, hostile governments’ propaganda, information warfare, and divisive fake news and advertising, trolling, malware and cybercrime?

These are the new challenges of today’s information, service based economies.  We re-learn that our deepest values are key and cannot be reduced to economists and financiers money-based measures, investment models or social indicators.  Today’s most valuable commodities are no longer those we dig out of the Earth, but the state of human knowledge of our planet and the daily free photons from the sun which drive all living processes and provide our food supply.  Similarly beyond price are human wisdom, leadership and essentials in societies: Trust; Truth; Honesty; Courage; Commitment; Cooperation; Contractual fidelity; Social skills and Empathy. Markets cannot operate without trust and truth.  Risks go beyond financial models to reputational risk and climate risk.

We humans have evolved from roving bands of nomad gatherers to settled agriculture, villages, towns, to today’s mega-cities, nation states, the European Union and the UN.  Today, our challenges are creating democratic, pluralistic governance structures to embrace our diversity ---at all levels from individual, family and community to nations and international institutions and ethics to govern our exploration of space.

We are making progress!  Since the ratification of the UN’s seventeen Sustainable Development Goals, the Paris Accords of December 2015 produced national commitments by the UN member countries to reduce subsidies on fossil fuels, commit to developing low-carbon emitting green economies and progress further. Their next Climate Summit in Germany in 2017 faces challenges of still rising levels of carbon dioxide in Earth’s atmosphere and the still powerful incumbent fossil fuels and interest groups protecting their prior investments in these now unsustainable sectors.

The good news is that the sectors of cleaner, greener, knowledge-richer  technologies and enterprises are expanding rapidly as we track in our Green Transition Scoreboard®.  Further evidence of the arrival of humanity’ next stage: the Solar Age are in the global race for renewable energy and resource-use, biomimicry -based innovation, as well as re-use, re-manufacturing, recycling and upcycling.  Today’s circular economies are growing worldwide as our knowledge expands.  Economists and financiers are busy catching up: widening their models to embrace all these deeper values of humans and the growing movement of the wiser, longer-term, ethical investments leading the way.  Breakdowns drive breakthroughs, making way for the Solar Age! Stress is evolution’s tool, evolving all species including humans and our institutions.