by Suju M.T. Mukkatira
This post is provided by SIFF Capital Management L.L.C. (“SIFF”) strictly for information and discussion purposes. It is intended for dissemination by institutional and accredited investors. This post is based on information and analysis that SIFF believes to be accurate but which SIFF has not independently verified and the accuracy or completeness of which is not assured by SIFF. Forward looking statements made below are inherently uncertain and may differ from actual future events. Nothing contained in this post should be relied upon alone or together as the principal basis for any decision making by any person or entity. This post does not constitute investment advice or any form of offer or solicitation by any party in any jurisdiction.
This post represents the first in a Series of four posts (“Series“) that explores the topic of “Growth versus Sustainability” and how human civilization evolved to the point where the potential for continued coexistence of growth and sustainability is openly questioned. The second post will focus more deeply on Growth, Sustainability and Progress in both a historical and forward-looking context. The third post will focus more deeply on the history of human evolution through the lends of Evolutionary Game Theory and the experiences and achievements of various civilizations, communities and cultural groups throughout history. The final of four posts in the Series will consider the types of circumstances and strategies that might enable the Growth and Sustainability to productively coexist for an extended period going forward. This Series is intended primarily for discussion within the Epsilon Theory Forum and with SIFF’s partners and close associates.
“The problem is all inside your head, she said to me.
The answer is easy if you take it logically.
I’d like to help you in your struggle to be free …
She said it’s really not by habit to intrude,
Furthermore, I hope my meaning won’t be lost or misconstrued,
But I’ll repeat myself, at the risk of being crude,
There must be fifty ways to leave your lover.”
Paul Simon, Fifty Ways to Leave your Lover
If you are among those who believe that success and progress means having more money and consuming more stuff than others, or if you don’t realize that your existence is inexorably and timelessly intertwined with everything around you, then you may be in a toxic relationship with your ego.
“The wisdom and courage that come from compassion are real wisdom and courage. When one pushes or strives with the heart of compassion, what he does will be limitless in strength and correctness. Doing something for one’s own sake is shallow and mean and turns into evil.”
Yamamoto Tsunetomo, Book of the Samurai
Fear and greed are natural throughout the animal kingdom and have driven human behavior for tens of thousands of years. In modern humans our egos accentuate these characteristics.
As with all things manifested in nature, ego serves a useful purpose, ensuring the balanced and cyclical rise and fall of people, empires and social phenomena. Ego causes destructive behavior among powerful and influential people, and on the opposing side, it manifests adversity that in turn fosters strength in those people and phenomena that are meant to rise. In effect the human ego supports both destruction and progress in a never ending natural cycle.
Throughout history, human ego has precipitated the downfall of great empires, institutions, families and individuals. Never let down your guard against ego. It infects those that are destined to fall.
“There also where the winged Ships were seen,
In liquid Waves to cut their foamy way,
And thousand Fishers numbred to have been
In that wide Lake, looking for plenteous Prey
Of Fish, which they with Baits us’d to betray;
Is now no Lake, nor any Fisher’s Store,
Nor ever Ship shall sail there any more.
They are all gone, and all with them is gone,
Ne ought to me remains, but to lament
My long Decay, which no Man else doth mone,
And mourn my Fall with doleful Dreriment.
Yet is it Comfort in great Languishment,
To be bemoned with Compassion kind,
And mitigates the Anguish of the Mind.”
Edmund Spenser, Ruines of Time
Ruines of Time, a poem by Edmund Spenser published in 1591, forms the common thread throughout this series of four posts (the “Series”). Spenser penned this poem following the death of Sir Philip Sydney and dedicated it to Lady the Countess of Pembroke, sister of Sir Sydney. One of the poem’s aspects that I find most striking is its cognizance regarding the rise and fall of all things in time, and the recognition even in 1591, that the British empire, like all others before, would eventually fall as so many others had before. This is recognized not only of empires but also of people, who perceive themselves to be so important during their lives, but whom in the end will meld into the flow of events and become dissolved into time. I find, in general, that accounts of history seem to always be somewhat scripted and engineered to suit the authors’ preferences, whereas poetry from different eras provides more raw and genuine insight into sentiments and circumstances of the past.
“O trustless State of miserable Men,
That build your Bliss on hope of earthly Thing,
And vainly think your selves half happy then,
When painted Faces with smooth flattering
Do fawn on you, and your wide Praises sing;
And when the courting Masker louteth low,
Him true in Heart and trusty to you trow!”
Edmund Spenser, Ruines of Time
Neither time nor life should be passed in self-absorption but embraced heartily and enthusiastically with the knowledge that we are all part of a connected natural process into which we are born and destined to contribute one way or another during our brief period of life within the process.
“The intuitive mind is a sacred gift, and the rational mind is a faithful servant. We have created a society that honors the servant and has forgotten the gift.“
The quality of thought depends significantly on depth of knowledge underlying thoughts strung together to form logic, and building deep knowledge requires time. For most of us life is so busy and demanding that maintaining awareness of what’s really going on in society and on our planet can only be achieved if many of us as individuals contribute some of our time to develop knowledge and share knowledge with others.
This Series contains thoughts and insights resulting from significant time invested by many who were also busy people, but who still saw worthiness in sharing and collaboratively building awareness and knowledge. Hopefully it will be interest the right people – those genuinely interested in helping to chart a better course for the future of humanity.
Major sections of this post are as follows
1. Economic Growth
2. The Great Reset
4. The Concentration of Power and Institutional Capture
5. The History of Money
6. The Control of Capital
7. The ESG Problem and Potential Solutions
1. Economic Growth
Economic growth is an increase in the monetary value of goods and services produced using resources (natural and human) and skill or technology (i.e., tools, production processes, transportation, information technology, etc.).
Economic growth can be described as an expansion of the Production Possibilities Curve, and is typically measured and expressed as the percentage increase of the Gross Domestic Product (“GDP”) of a country or region. It requires either the new discovery or new access to resources or an increase in productivity (value realization of resources) from improved skill or technology or greater production capacity (larger workforce, more or larger production facilities) for economically viable production. The export sale of Services, such as engineering and design, software development or business process services, constitute the value realization of human resources and can also generate economic growth.
Economic growth is often correlated with increased standard of living. Per capita GDP is often viewed as a proxy measure for standard of living comparisons between countries. Alternative measures of growth are often tabled for discussion, particularly approaches that factor in Natural Capital and Social Capital and recognize value (or loss of value) depending on how they are affected by conventional economic growth under the widely adopted system of global mercantilism. These alternative (or additional) measures of growth are not explicitly examined in detail in this post but will be in the next (second) post in this Series. The discussion on ESG in this post’s final section does implicitly discuss these elements in the context of multi-stakeholder accountability for how economic growth can potentially be achieved.
“If you realize you have enough, you are truly rich.“
Global economic growth increased immensely during the period following the Peace of Westphalia in 1648, which ended Europe’s Thirty Years War, brought peace to the Holy Roman Empire, and marked the beginning of an expansive colonization program by major European powers.
In human evolution, precolonial European societies achieved greater technology development (or more effective application of technologies) compared with human populations and societies elsewhere. By applying broad synthesized knowledge, technology and ruthlessness, they conquered people and lands across the entire world with a degree of totality unprecedented in history. While examples of notable sophistication, ingenuity and engineering accomplishments exist among many ancient civilizations (Egyptians, Babylonians, Assyrians, Phoenicians, Incas, Indus Valley, Persians, Greeks, Romans, etc.) whose knowledge and systems the Europeans could learn from and build upon, no group or society achieved the same totality in integrating and applying knowledge and technologies as the forefathers of present-day Europe. This would result in implementation of the mercantilist system throughout the world, and exploitation of the earth’s natural and human resources on a scale and degree of totality unprecedented in human history.
With unencumbered access to abundant unspoiled natural capital in Asia, Africa, the two Americas, and numerous island states, colonial powers and settlers achieved phenomenal gains in both personal and sovereign wealth, science, technology and standard of living during this period. By the 1960s when global resources first became noticeably strained, a stark level of inequality had developed between rich and poor countries – regions that were termed, respectively, the First World (a.k.a. Western World) and the Third World.
Entrepreneurship – Notably, the post WWII period also saw an unprecedented wave of entrepreneurship and entrepreneur-led innovation and growth spanning ~five decades (up to the dot com bust), enabling unprecedented social mobility and middle-class prosperity. While entrepreneurial culture in the U.S. had in earnest begun to take shape and blossom following the Civil War, and was further boosted significantly by the waves of immigration and migration of the early 20th century, the post WWII decades (particularly the 60’s – 80’s) brought truly remarkable prosperity and upward social mobility within the ranks of the middle class. Entrepreneurship enabled entire communities to overcome marginalization by combining cohesiveness and business savvy. By doing so they could establish levels of dominance in sectors where they could specialize and build competitive moats and protect their commercial domains to pass on knowledge, wisdom and wealth across successive generations. While entrepreneurial opportunities still exist today, the increasing dominance of large corporations means far less entrepreneurial opportunity than in earlier periods and far fewer of the entrepreneurial success stories that America witnessed throughout the 20th century. e.g., Jefferson Cleaners: Seven Locations … One Near You.
While as recently as the 90’s governments actively sought to promote entrepreneurship in society, such language and policies have today been replaced with the promotion of “innovation”, and funding of business accelerators that serve more as screening, filtering and feeder systems for the human resource and innovation pipelines of large corporations. The promotion of entrepreneurship within government policies relate solely to the social engineering objectives of governments, aligning with diversity and inclusion programs to promote entrepreneurship among women and certain minority groups. In general, youth and the general population are no longer encourages to pursue entrepreneurship as was the case throughout earlier decades.
Social Engineering – Also, beginning in the 70’s, global resources and the capacity for conventional growth became strained, and the capacity for leapfrog innovation gains that had characterized most of the 20th century declined. First World countries and large global corporations, which by then had gained strong global dominance, then began seeking new ways to shift the Production Possibilities Curve outward. The measured employed for doing so included growing the Active Working Population, primarily through greater inclusion of women in the workforce, welcoming technically skilled non-European immigrants to the Western World, shifting production to the Third World and relaxing monetary policy to enable the more liberal printing of U.S. dollars. Still, very little slowdown of resource depletion occurred until well into the 21st century, which brings us to the present time where the feasibility of the continued pursuit of growth is openly questioned by an emerging “anti-growth” movement.
Evolving Terminology: At some point in the ~90’s, Third World countries came to be called “Underdeveloped Countries” in politically correct nomenclature. Around the early 00’s they were again recategorized as either “Emerging Market” or “Developing World” countries, alternatively as “Developing Nations”. Western World countries are now increasingly referred to as “Wealthy Nations” to better suit the emerging global agenda.
2. The Great Reset
The Great Reset is a globally scaled socioeconomically transformative approach for dealing with the present circumstance where conventional avenues for growth are in essence exhausted. This is the end of the long story arc that began following the Peace of Westphalia, and The Great Reset is now proposed (imposed) and fervently promoted by Professor Klaus Schwab (Chairman of the World Economic Forum) and many prominent nation leaders, business heads and social icons associated with the World Economic Forum.
“When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
Frédéric Bastiat, The Law
In broad strokes, since multinational corporations and governments under their influence have largely tapped dry the use of simple workforce expansion, geographic shifting of production, and expansive monetary policy for creating economic growth, new approaches are required to sustain the growth the neomercantilism requires. Because unabated utilization of resources is not presently an option, significant sacrifices are demanded from Developing Nations to avoid irreparably destructive outcomes to the earth’s biodiversity and natural ecosystems. At the same time, corporations require Developing Nations’ residents to join the Active Working Population serving their needs, and with a greater productivity rate than previously. Since their natural resources cannot be utilized at the same rate, their human resources are expected to pick up the slack to avoid abatement of corporate profits and growth. This requires that the economic and social inequality developed over the centuries must be also addressed, hence The Great Reset.
As Developing Nation citizens must now be put to more economically productive use, training and education is required. But the multinational corporations and Developing Nation governments who will benefit from this (through higher tax revenue and higher corporate profits) will not actually pay for it. Instead, the middle- and lower-income classes of Wealthy Nations will pay for it, without having any choice in the matter as their governments have already decided for them. The social costs to Wealthy Nations will be steep, but it’s all for a good cause – preserving the profits of large multinational corporations.
Facilitating mass human migration is also an aim of The Great Reset. Certain regions throughout the world, often as a result of economic, sociocultural or political intrusion or intervention by multinational corporations facilitated by the “foreign aid” or “liberation” campaigns of Wealthy Nations, are now beset by chronic wars, exhaustion of natural resources, droughts, famines, corruption and political instability. As a result, a need to move people to places where they can be more productive in driving economic growth has emerged as a desire of the global elite. This desire often clashes with popular desires in Wealthy Nations but by framing the issue as a human rights matter the elites easily overcome any obstacles from popular opinion. Additionally, a debt jubilee or sovereign debt forgiveness for Developing Nations under The Great Reset is now openly suggested by Wealthy Nation leaders.
It’s a classic “privatize the gains and socialize losses” maneuver on a multinational scale. Those parties that have and will continue to benefit most richly from global economic growth will see to it that public funds of Western Nations will be diverted for this purpose. This means that the middle and lower classes from Wealthy Nations will pay the most while the largest multinational corporations closely tied to the UN and WEF will gain the most. Some small and medium size companies will also benefit from emerging opportunities, as will certain segments of the middle class in Wealthy Nations, particularly those in the non-profit sector or in sectors considered socially responsible, low carbon, ecosystem friendly, etc.
The introduction of Universal Basic Income (“UBI”) should serve to reduce the potential for public opposition to The Great Reset among lower income earners in Wealthy Nations. In this sense UBI is a mechanism for pacifying lower-income earners’ and buying their support.
UBI is in a sense emblematic of The Great Reset, in that it can improve the quality of life for many of the world’s most disadvantaged, but the true motives behind its implementation deliver much greater reward to those that already enjoy the greatest advantage and privilege. The fourth and final post in this Series will elaborate on this point and suggest alternatives to The Great Reset that can more effectively deliver on its purported priorities of poverty alleviation, reduced social inequality, the preservation of natural capital and the upliftment of marginalized people and communities.
The concept of sustainability refers to practices that can continue infinitely without depleting resources to a point where future generations’ needs can no longer be met. If you click on the above hyperlink you can read various other definitions on Wikipedia.
Popular terminology regarding sustainable resource utilization, such as “circular economy” and “systems thinking”, first emerged in academic literature during the 60’s and increasingly through the 80’s and early 90’s before gaining popular prominence at the start of this century. But when discussing sustainability, it’s important to note and acknowledge the impossibility of knowing today what will prove sustainable in the future. By definition this would require knowledge of the needs and circumstances of future generations, and these cannot be known in advance. They can be predicted, and predictive modelling is typically used for such purpose, but their predictions are increasingly uncertain and of increasingly limited informational value the further out in time we attempt to predict.
We can’t know today what new discoveries will be made or new technologies developed that can affect things like resource productivity, economic value capture, nutritional value capture, availability of substitute products, etc. in the future. Further, we don’t know how human reproductive rates will be affected by environmental and social changes, or how things like war, famine, disease, etc. will impact the makeup and circumstances of countries and societies in the future. Based on our history, and the present state of our science and technology development, we can foresee significant innovation and progress, and also that natural disasters, human-induced catastrophes and other setbacks will occur, but we still have no reliable way of predicting the circumstances in which all of that will place future generations. We can only infer and imagine these things using the imperfect tools, incomplete knowledge and limited information available to us today.
The following quotes taken from Nasim Nicholas Taleb’s Antifragility, Things that Gain from Disorder are apposite.
“… the modern world may be increasing in technological knowledge, but, paradoxically, it is making things a lot more unpredictable.”
“… tail events are unpredictable, and their probabilities are not scientifically measurable.”
Understanding and Acknowledging Volatility and Uncertainty
While reading a recently published paper entitled Protecting the Global Ocean for Biodiversity, Food and Climate featured in the scientific journal Nature, I appreciated that the word “sustainability” does not appear anywhere within it, and that the authors explicitly acknowledged their inability to predict future circumstances for which assumptions were made in their analyses. If all scientific publications applied the same level integrity as the authors did, a lot of sensationalism and inaccurate/baseless public opinions could be avoided.
The second post in this Series will explore this point in much greater detail using the example of population dynamics modelling employed by fisheries scientists attempting to define sustainable levels and methods of fish harvesting based on modelled population projections. Such models, as with all predictive models, include estimated parameters that are based on unobtainable information, and parameter estimates whose variability is estimated based on normal distribution (central limit theorem) which itself cannot be relied upon to reflect reality.
My co-founder at SIFF, Dan Lane, is a Ph.D. in Mathematics (with a master’s degree in Physics) and a decision science specialist involved with fisheries science his entire career, so this is squarely in Dan’s wheelhouse rather than mine, but we discuss the topic frequently together. Three things that Dan repeats often – i) All models are imperfect, and Bayesian approaches should always be employed to improve them, particularly when the same or highly similar models and methods are used in successive time periods, ii) modelled predictions carry greater uncertainty the further into the future they try to predict, and, iii) models carry uncertainty couched within uncertainty, and truly understanding their level of overall uncertainty requires examining below the surface to understand their parameters, variability of parameter estimates, how variability was estimated, etc.
Dan recently commented to me that, as a professional mathematician, he’s acutely aware of limits on what we can or cannot understand and conclude using models, but that some biologists seem to misunderstand and often underestimate the limitations of the tools they employ.
In fact, the true level of uncertainty is not reflected in the confidence intervals attached to modelled projections of fish populations. Further, basic Bayesian systems approaches to improving models are rarely applied from one stock assessment period to another. Nearly all fisheries scientists acknowledge that having more data and higher quality data would result in better predictive modelling, which implicitly acknowledges that the existing models cannot be treated as conveying certainty. When fisheries scientists, third-party seafood certification agencies, ENGOs or other groups represent certain fisheries as being “sustainable”, or fish stocks as being “under-exploited” or “over-exploited”, they make such statements based on models that use subjective judgement and carry substantial uncertainty. Such statements should not be taken literally or treated as certain fact.
Population projections and fisheries assessments are informed best guesses based on limited information, and the more well-informed science can become by obtaining more and better-quality data, the less uncertainty will exist. Perfect certainty is a practical impossibility. Misrepresenting the level of certainty achievable through current scientific practices in effect undermines the innovative work and the emerging technologies designed to improve the quality and effectiveness of predictive modeling. This applies across many fields of scientific study.
The notion of foreswearing economic growth in the name of sustainability is illogical.
Rather than “sustainable development” our focus should be on economic growth and development that is ecologically and socially responsible in its execution and predictable effects, designed with a goal of remaining so over a multigenerational time horizon. This approach, if continually refined using Bayesian approaches and the full use of analytics technologies should become increasingly meaningful in planning for sustainability. Leaders from Government, Science and Industry should all be engaged in the process and should all be accountable through strong governance mechanisms.
This approach could aptly be described as “*the pursuit of* sustainable economic growth and social development”.
4. The Concentration of Power and Institutional Capture
History shows a repeating cycle where the most aggressive exploitation of natural and human resources occurs during periods when power is most concentrated in the hands of a few dominant players able to capture and dominate key social institutions.
Political Capture – Mercantilism naturally facilitates the concentration of power by astute oligarchs and profit seeking corporations used by them as tools to build increasing strength and control over resources and the processes for realizing their economic value. Having accumulated and concentrated financial strength and industrial control, their best strategy is to capture and exert increasing control over the political and regulatory environments of governments, sometimes gaining almost free reign over industries, markets and society. Once this occurs, conventional checks and balances on the powers of government are ineffective and easily gamed by the dominating parties. Elected leaders, political appointees, and government agencies then become tools for advancing their agendas. Institutions such as labor unions, consumer protection and human rights advocates, or environmental protection advocates may form as part of a reactionary response to the misuse of power under heavily captured political and/or regulatory regimes, but those groups are also susceptible to corruption. Left unchecked, powerful interests forage on the people and resources without any concern or regard for the repercussions and will overcome nearly any obstacle placed in their way.
During times of strong political capture government tools including both monetary and fiscal policy are essentially hijacked by corporate oligarchical interests and employed to achieve their desired ends, particularly regarding the exploitation of natural and human resources and wealth accumulation. Most problematic is that governments are forced to make decisions against their own interests as described below.
The Objectives of Functional Governments – Fundamentally, uncaptured governments aim to seek full employment and high value job creation, and to maximize revenue through taxes and excise duties, which should enable them to provide more and better services to people and businesses. This should lead to a content and prosperous society and allow governments to comfortably remain in power (their ultimate aim). Doing so effectively over an extended time horizon requires supporting competition and implementing a merit-based system for resource allocation so that maximum economic value (from government’s perspective, meaning maximum jobs, tax revenue and export sales to help drive demand for domestic currency) is captured from resources.
The Reality of Captured Governments – However, captured governments must subordinate their interests (and public interests) to favor the interests of corporations and oligarchs. Captured governments are pressured to impede or restrict competition, suppress meritocracy in the resource access and allocation process, and maintain legislation that reduces tax revenue from the large corporations and oligarchs who profit the most from the entire system. To make matters worse, in order to remain in power governments must continue to provide costly services to people and businesses, and the exploited and shortchanged rank and file citizens must then foot the bill for this either directly through taxes, or indirectly as the government takes on increasingly high debt and/or debases the value of domestic currency by printing money.
Media Capture – The media journalism business model, today more than ever, relies on advertising revenue to remain viable and generate its needed financial returns. The two largest revenue sources for public relations and advertising firms are governments and large corporate clients, while PR firms and media buyers (advertising firms) are the principal sources of revenue for media outlets. It then stands to reason that governments and large corporations are well-positioned to significantly influence all the decisions of media outlets.
Science Capture – Perhaps the most well-known example of how big business can influence science and the scientific community is seen in how large sugar industry interests quietly paid scientists to point the finger at fats during the 1960’s, however, from big food and big pharma to big oil and big tobacco, corporations have had significant influence within the scientific community for at least the past century. The traditional mechanism for achieving this has been a combination of influencing government scientists through political capture, influencing academia through research funding and lucrative consulting assignments, and employing their own in-house scientists. Additionally, the strategic formation of non-profit organizations that may pose as public interest groups can be used to influence government agencies, the scientific community and the general public’s perceptions, while media capture also enhances their ability to achieve science capture. Academic tribalism and publication bias at scientific journals can both be engineered by corporate oligarchical interests using the interventions and mechanisms described above.
Social Capture – Other types of institutional capture enable strong influence over cultural evolution and cultural identity, and as power concentration increases this tends toward an increasingly high degree of social capture. Historically across diverse regions and cultures, even uncaptured governments tend to exercise high levels of control over cultural trends and social norms. This has been the normal mode of human existence for many thousands of years in societies ranging from tribal hunter-gatherers and early organized agrarian societies to monarchies and modern democracies.
As technology evolved, the tools enabling wealthy elites and the government to effect social influence became more powerful, but the basic tools and techniques have been around for eons. Tools used range from education systems and spiritual doctrines to the media/entertainment sectors and celebrity culture. All institutions that impact social views and beliefs are potential tools for social influence and social capture, which is invariably directed toward supporting the goals and interests of the ruling elite. This should not be viewed as either good or bad because it isn’t clear that free anarchy would be better, but it should be recognized as the way that it has always been in human societies.
Humans have a natural desire for the affirmation of others and seek the comfort and security perceived in belonging (fitting in) to a group. This instinct relates to what Ben Hunt calls “the crowd watching the crowd”, and it represents a human tendency used to shape the way people (and collectively society) think, make decisions and act. These natural human traits enable high degrees of social influence by diverse influential parties such as governments and large corporations seeking to achieve high levels of social capture.
Some good examples are rooted in colonial history from the 16th century onward as colonized societies were converted to align with global mercantilism, and today we live in a socially engineered environment that is partly the product of cause and effect from the colonial era.
This topic is covered in the third post of this Series, which looks at human social evolution using Evolutionary Game Theory principles and the natural tendency of all populations (including human) to evolve toward their Evolutionarily Stable Strategies (“ESS”). A detrimental but frequent occurrence to this process is intervention by central governments (nearly always captured) that move populations away from their ESS and toward alignment with the ESS of the ruling elite. In post three in this Series I will provide examples of this from periods throughout history and in the modern era.
One topical example that the entire world should relate to is the doctrine and social phenomenon of “white supremacy”. The original Portuguese traders who sold black slaves from Africa for export to the Americas don’t seem to have been white supremacists, evidenced by their common choice to marry black women over Portuguese women, and lived happy and harmonious lives with their black wives. Also, they did not hold in lower esteem the black populations of West Africa, but rather seem to have admired their physical strengths and personal resilience in what they found to be a harsh and physically draining climate. These early Portuguese settlers in West Africa were traders satisfying a mercantilist demand for slaves by tapping into the supply of slaves provided by local (black) tribes who had captured prisoners of war and enslaved them. Later on, the Portuguese Crown and other colonial monarchs would issue permits for the capture of black slaves in Africa, where various categories of permits carried specific terms for export, sale and tax remittance to the Crown in relation to the utilization or sale of captured slaves.
Some traders of the time were uncomfortable with the humanity of this practice, as expressed by Florentine mercantilist Francesco Carletti in his chronicles My Voyage Around the World delivered orally in the court of Ferdinando de Medici, Grand Duke of Tuscany in 1594 and later transcribed for historical record. Carletti had the following to say in open court to Grand Duke Ferdinando concerning the slave trade.
“Most Serene Lord, it seems to me an inhuman traffic unworthy of a professed and pious Christian. No doubt it is possible that it comes to making a profit out of men or, to say it more properly, out of human flesh and blood. And it is the more shameful if they have been baptized, for then, even if they are different in color and in the matter of worldly fortune, nevertheless, they have the same souls formed by the same maker who formed ours. I beg forgiveness from His Divine Majesty, though I know that He is aware of my intentions and my will as always feeling that business to be repugnant, such forgiveness is not required. But be it known to everybody and sworn to Your Most Serene Highness that this business never pleases me.”
As colonialism and the slave trade expanded and evolved, the need arose to engineer and instill a social mindset of white supremacism among the masses to smooth over colonial practices, which even at the time many citizens of higher social standing in Britain and elsewhere could see through, but then as always, speaking out against indoctrinated popular opinion was futile.
Over generations and centuries, a true and firm belief in white supremacy evolved in the populace and to some extent became a self-fulfilling prophecy as non-whites were consistently disadvantaged and denied access to education and opportunities. Future generations held no real understanding of the full sentiments and circumstances of their ancestors and were working off what the indoctrinations they received had led them to imagine these to be. Social mindsets are easily transformed over generations.
Today, rather than admit to the social engineering of the past, governments endeavor to correct the unintended (or no longer desired) consequences of social interventions with more social interventions such as diversity and inclusion campaigns, which are socially divisive and would not be required if governments had not intervened through social engineering in the first place. This interventionist approach is unnatural and does not serve the best interest of human populations but does serve the ruling elite’s near-term interests.
Nature and the Nature of Human – To further underscore this point … political capture and oligarchical dominance are described in detail in The Republic, by Plato, and predicted by Socrates (~2500 years ago) to recur continuously in human societies. The phenomena of political and institutional capture are fully consistent with nature and are simply the products of human nature. It’s circular problem because the nature of most humans is to be fearful, trusting, passive and gullible, while the nature of some humans is to be bold, deceptive, opportunistic, controlling and dominant over others. This leads to one naturally formed group systematically gaining the trust of the other through clever deception and then systematically exploiting them through constantly increasing power and influence. Despite the well-intended efforts of many throughout history, breaking this cycle has always proved impossible and will likely remain so for centuries to come.
Similarly, for centuries under mercantilism we have seen the repeated deception of investors through false product claims, accounting chicaneries, outrageous financial projections, etc. leading to the formation of investment bubbles and Ponzi effects in capital markets, always tacitly enabled by lax or even complicit regulators and permitted to recur cyclically. Many people decry the absurd valuation of Tesla, and rightly so without a doubt, but at the same time we should all recognize that Elon Musk is among the world’s richest men for a reason – just as many more before him he succeeded by gaming the system and exploiting human fear, greed and gullibility. Throughout history many people like Elon Musk have been richly rewarded and often made off like bandits in the end. This will almost certainly remain the case for centuries to come.
5. The History of Money
The history and evolution of money and monetary policies is relevant to the topic of natural resource depletion, and worth pondering in terms of the global currency endgame we may now be witnessing, and The Global Reset in terms of what monetary and currency implications it may bring. Central Bank Digital Currencies will be part of how The Global Reset is executed and it should be interesting to watch.
This vast topic cannot be done justice here, but I want to raise a few points for discussion.
From Francesco Carletti’s account of his travels to Ferdinando de Medici (Grand Duke of Tusanny), the following is interesting.
“… our way is to carry our fortune in gold doubloons and part in credits made out by Lisbon merchants, for which they give us letters of exchange upon them, the men of the island give slaves instead.”
Francesco Carletti, My Voyage Around the World
Carletti could procure black slaves (and diverse resources found in West Africa) from Portuguese traders in the Cape Verde islands and elsewhere in West Africa during the 1500’s by providing Letters of Credit written by merchants from Lisbon. Now that the world’s resources have become so scarce and The Great Reset is upon us, I wonder what regulatory mechanisms existed regarding the issuance of “credit letters” that Lisbon merchants. It seems they could produce the equivalent of gold doubloons at the mere stroke of a pen.
If a Portuguese slave dealer showed up in Lisbon and found the issuing merchant could not honor the Letter of Credit, what would happen? Was there an association of “merchant bankers” that would honor each other’s Letters of Credit in order to maintain the credibility of their guild? What I find more interesting to ponder is how [hard asset] natural resources could be drawn from colonized countries in exchange for such merchant credit, or for that matter with any type of fiat currency, and it leads me to further ponder what is taking place today – freshly created U.S. dollars (or other fiat, including Canadian dollars) can be used to secure or purchase scarce resources all over the world. When Indigenous groups in Canada negotiate land claim settlements with the Crown and accept Canadian dollars as compensation, is that a wise or suitable settlement for them to accept?
To what extent, historically, have natural resources been purchased from the developing world using fiat currency or non-regulated negotiable instruments? It would be interesting to see an analysis and estimation of wealth accumulation through “money printing”.
A Look Further Back
Sir John Lubbock, 1st Barron of Avebury, was a 19th century English banker and Oligarch who lived and wrote about some very interesting things during his lifetime, including having chronicled the history of civilizations and money. He invented the terms “Palaeolithic” and “Neolithic” to denote the Old and New Stone Ages, respectively. According to Lubbock, ancient Assyrians in the 5th or 6th century B.C. produced Letters of Credit on clay tablets with the name of the payee left blank, creating what may have been the first form of general “paper” currency.
Early Rabbinical law and custom that the Semitic peoples exercised in regard to the laws of the East in ancient times, and particularly to the laws of Babylonia, shows the creation of negotiable instruments, and later on in the Book of Tobias (written in either Persia, Egypt or Palestine in the 3rd or 4th century B.C.) we find unequivocal reference to a credit instrument.
The Babylonians were great traders and bankers who used of complex contracts for credit and monetary instruments were well developed among them by 2100 B.C., including secured lending against assets and what we know today as mortgages.
The systems of money, contracts and trade credit, employed by European colonists were based on an evolution from the above ancient systems. The doctrine of negotiability (of instruments) and the principle of representation (of wealth and credibility) took root in Europe in the 6th or 7th century B.C. and were introduced in England by the Florentines in the 13th century B.C. The evolution of specific promissory notes, to transferability of promissory notes, to general redeemability of notes by the holder seems to have led to the advent of fiat currency in its Western European form at that time, and this became the system and set of instruments through which the world’s resources were colonized and eventually exhausted to the point where we are today.
Over the last ~10 centuries, we have seen great empires rise and fall. Fiat currencies have at times held great value and then collapsed. Trade has taken place by barter and well as based on gold and silver, gold and silver coins bearing sovereign stamps, metals-backed currencies and finally fiat currencies, with various credit systems always in use. Given the technology and level of awareness that exists today, and today’s set of international laws, trade rules, etc., it is more difficult than ever to get away with currency-related deception, and yet it still occurs. In part, this is what has led to the crypto currency phenomenon and global calls for decentralization of monetary systems. The extent to which currency-related deception and fraud has historically occurred at the expense of colonized nations will undoubtedly become a topic of The Great Reset, and of how central bank digital currencies are integrated into the global economy.
Personally, I can only speculate about what any of this means, but I feel like it means something important. I table the topic here hoping that the ET Pack will have some insight to share regarding what exactly happened historically, what it means today, and where it is all headed for the future. Both blockchain and crypto strike me as particularly relevant.
6. The Control of Capital
Before discussing the topic of ESG, I want to point out the consolidation of capital in the retail wealth management industry that occurred over the last three decades. This began in the 90’s with a wave of bank-led consolidations of investment advisory firms coupled with a massive effort to steer conventional stock and bond market retail accounts into mutual funds, while retail banks established wealth management divisions to also promote mutual funds. As this progressed, banks established wealth management platforms that provided “exclusive access to the best asset managers” for private clients, leading to individual wealth and related investment decisions increasingly made by someone other than the holder of said wealth or their personal broker/advisor. This was all very lucrative for banks as well as a new wave of financial advisors who were paid extremely well for successfully pushing mutual funds and managed money products to wealthy retail clients.
This also resulted in nearly all mutual funds and other pooled fund products holding most of the equity they managed in the same top 3 or 4 stocks as all their peers. This effect became more accentuated as index funds rose in popularity among retail investors, billed as a lower-fee mechanism for earning market returns that active fund managers typically failed to outperform. All of this helped set the stage for the effects of QE that would benefit the largest companies the most, and in totality. This led us to the present point where the world’s largest multinational behemoth companies are positioned as both the greatest influencers of government policies and sociopolitical direction as well as the greatest beneficiaries of ESG.
This systematic capture and control of retail investment capital over a period of decades set the stage for the implementation misguided of ESG with total impunity.
7. The ESG Problem and Potential Solutions
The main problem regarding ESG as it’s currently being implemented is that it appears ideally designed to serve as a greenwashing mechanism, or at least in a way that can easily allow greenwashing to occur. This may prove be among the greatest crime ever perpetrated on humanity and the fact is that it could be done with far greater effectiveness. The current approach will allow environmental damage to may lead to a massive human die-off due to resource scarcity as earth’s ecosystem reverts to its equilibrium. It is possible that technology and innovation in the future will offset the ecological damage and resource depletion set to continue under ESG as planned, but this cannot be assured and it’s arguably irresponsible to gamble human lives on it.
The fourth and final post in this Series will propose a set of approaches and better framework for addressing the Economic Growth versus Sustainability problem, including improved approaches to ESG. The points below are intended more to table issues for discussion.
The ESG Shell Game – I think the greatest shortcoming of ESG is that it focuses all of the accountability on corporations and none on government, science or the non-profit sector, each of which constitutes an influential stakeholder with independent control of its actions. If commercially activity that is environmentally or ecologically harmful is taking place, it cannot take place without the consent of government. So then which party should be held primarily accountable, government or the company? Government will often point to the work of its scientists and say that plans have passed environmental assessments by scientists or through evaluation frameworks approved by scientists, so it must be okay. This is the shell game that occurs – companies influence governments, governments and companies influence scientists, and NGOs (dependent on grant funding from governments, government-funded institutions or private foundations controlled by wealthy families) influence government and companies while also participating in science. Each can point the finger at the other when necessary.
NGOs, including the UN which is the mother of all NGOs, chiefly provide the “E” and “S” frameworks and oversight for ESG standards and adherence to those standards. The “G” frameworks for ESG are largely designed by banks and large asset managers that are chiefly supposed to implement ESG, but also earn profits by providing credit and financial services to all types of stakeholders. It makes it difficult to build confidence in knowing who is holding whom accountable for what, and where their incentives lie for doing so. Meanwhile, resource depletion, ecosystem degradation and biodiversity loss remain actual real problems.
In order for ESG to be effective, it must hold accountable all stakeholders – Government, Science, Corporations and the non-profit sector, and a level of process transparency and oversight should exist that enables visibility regarding where the failures to uphold standards occur. There could also be a system for scoring, ranking and penalizing all stakeholders in each category for failing to honor their stated commitments or meet their stated obligations. As it stands today, each of these stakeholder types are implicitly incentivized to engage in mutually beneficial cooperative behavior that sees lax standards applied to ESG implementation. This occurs presently.
Use of Sanctions – When a nation does things that other nations deem undesirable, such as committing genocide or other human rights violations, supporting terrorism, violating international treaties, etc., the use of international sanctions is an increasingly common response. Such sanctions have shown mixed results and sometimes yield unintended consequences including eroded environmental policies in the sanctioned nations.
In order to be effective, the sanctioned nation must be dependent on the sanctioning nations (export trade, input materials supply, energy, etc.) and such relationships should be deep and well-established with no alternatives readily available to the sanctioned country.
In essence, the ESG movement is a call for sanctions, imposed not by governments but by the financial community, on corporations identified as environmental or social “bad actors”. Viewed in this context, some key issues include the following.
(i) Who to Sanction – Do such “bad actors” rely on key enablers (governments) or accessories (science) that allow or help them to carry out the undesirable actions? Which parties can be held accountable and through what types of sanctions?
Another obvious “Who” question is who would constitute the group of institutions imposing sanctions? Could numerous groups end up forming within the global financial community with competing ESG platforms? Should institutions opting not to participate in the sanctioning process become subject to adverse treatment (i.e., sanctions of sort) within the financial community itself? Could financial regulators play a role in this? Could a new decentralized regulatory body evolve naturally as institutions hold each other accountable for how ESG is implemented?
(ii) What to Sanction – How can we define bad actors? How can we define the metrics by which their actions are judged and the thresholds at which they should be sanctioned?
(iii) Where to Sanction – Should a universal set of standards be applied and upheld in all countries and regions? Does justification exist for allowing underdeveloped nations to operate based on a less stringent set of standards? Could this result in the unintended consequence of “bad actors” shifting their investment and production activity to countries where governments and regulations are more amenable to such practices?
(iv) When to Sanction – Should “bad actors” be afforded time for corrective actions or alternative process implementation? If so, could a reliable and effective system of checks and balances exist to assess the suitability and reasonability of corrective plans? Can we assess with effectiveness the timing and significance of milestones and the realistic probability that plans will eventually be fully implemented? Should defined sanctions or other penalties be defined in advance for failure to achieve milestones or other interim commitments within plans?
(v) Why Sanction – Should priority goals be set such that “bad actors” performing poorly in one category (i.e., social responsibility) are permitted to continue without sanctions if they are outperforming in another category (i.e., carbon emissions reduction)? What sorts of offsets would make sense and at what levels? Should minimum thresholds and levels of non-compliance be defined for each category and sanctions lifted (or imposed) as thresholds are crossed? Should transparency standards be established for potential violators and failure to report or submit to transparency audits be treated as violations? Can blockchain technology and smart contracts or other database and event analytics technologies help to keep track of all this in a way that establishes transparency and accountability?
It can be convincingly argued that capital markets constitute the most powerful force of influence in the world, and that the second most powerful force is represented by national governments (acknowledging that some would argue it’s the other way around). It then follows that Governments, which control the policies and enforcement rights that can enable or disable corporate “bad actors” engaged in errant activity, can be influenced by capital markets, particularly bond markets. If true, this power dynamic underscores the fact that governments could and should be the primary focus of ESG-related efforts rather than corporations. Governments could then be held accountable for their policies, regulations and enforcement mechanisms with respect to the effective and responsible utilization of resources (natural and human) by corporations, , and the integrity of activities occurring in public sector science, academia, the non-profit sector.
Given that the key objectives of ESG include control of biodiversity and natural capital preservation and the reduction of atmospheric carbon, both of which fall under public sector purview, it is illogical that the greatest scrutiny and burden be placed primarily on corporations, which also fall under government purview.
“Nature is relentless and unchangeable, and it is indifferent to whether its hidden reasons and actions are understandable to man or not.“
In the reality of how things work, the following points are true.
(i) Governments that enact stricter environmental or labor regulations will be disadvantaged in the competition of capital attraction, leading to fewer employment opportunities, lower tax revenue and a diminished ability to provide basic services to their citizenry. They are in essence sanctioned by capital markets.
(ii) Governments that enact less restrictive laws and regulations, are laxer in their regulatory enforcement and less punitive in holding violators responsible will be advantaged in capital attraction, creating more jobs and tax revenue. Such governments are often more corrupt and less inclined to apply revenues toward services for their citizenry, leading to more accentuated inequality in both wealth distribution and social structure. Effectively this amounts to capital markets rewarding governments with more business-friendly policies and practices regardless of the environmental or social protection features of their legislation. The State of California may serve as an example close to home for many readers.
(iii) The net effect of this is further depletion of resources and greater social and wealth inequality effectively supported by capital markets, all occurring while global financial institutions conspicuously commit to ESG in the form they chose to define it.
(iv) The logical implication of the above, observable in the actions of all major companies, is that the smart move is to continue depleting resources as aggressively as possible while building and maintaining a façade under the banner of ESG.
“Loss is not as bad as wanting more.“
Lao Tzu, Tao Te Ching
The real problem and real consequences of destroying natural ecosystems and permanently eroding biodiversity are today being ignored and paid lip service by the global establishment. The human race is once again gambling that technological advancements will allow us to get away with more destruction of nature and human exploitation on an ever-increasing scale.
UN Sustainable Development Goals – Following tireless promotion and leveraging the trusted UN brand by the WEF, UN, national governments and large corporations, the UN Sustainable Development Goals are widely cited by governments, corporations, non-profit organizations and even scientists as the stamp of approval for their plans and programs. Google search “sustainable development goals” and find extensive examples of this. It is psychologically comforting to check boxes, and that’s what the UN SDGs are all about.
Even the most cursory look under the hood reveals that the goals are unreasonable and unattainable. For example, the first two of 17 goals call for the total eradication of poverty and hunger in all countries and regions by 2030. There is zero chance of this materializing. All 17 SDGs contain similarly unrealistic and unattainable goals, making them little more than hollow banners employable for greenwashing and hollow virtue signaling.
The SDG objectives are vague and general enough that almost any party that chooses to can claim alignment with them, and with the comfort of knowing that in the end nobody will achieve the objectives and that the general failure will become excusable due for all. A commitment to “do better” will surely follow. It’s almost as though they identified the most harmful and undesirable activities possible and framed unreasonably demanding targets that could serve as both a feel-good justification and a preemptive excuse for eventual failure.
Political Will – In the end, all of the work by genuine, sincere, deeply committed and hard-working people to achieve high standards of accountability in resource utilization and economic development is undermined by the absence of political will to truly pursue sustainability. Political, government, science and NGO leaders are the people in whom the world’s most vulnerable and exploited people place their trust and confidence. If such leaders cannot be relied upon to think and act with integrity then there is little incentive for any other party, including financial institutions and corporations, to genuinely pursue true sustainability, as they will only become disadvantaged by doing so.
“The best way to predict the future is to create it.“
No transformational change toward sustainability in the world’s economic processes will occur unless leaders across all spheres of influence can find within themselves the courage and the integrity to lead the world by example. Until that time, the world will be offered only hollow placeholder solutions and false representations concerning the massively critical goal of concurrent economic growth and sustainability.
“O vain World’s Glory, and unstedfast State
Of all that lives on face of sinful Earth!
Which from their first until their utmost Date,
Taste no one hour of Happiness or Mirth;
But like as at the Ingate of their Birth,
They crying creep out of their Mother’s Womb;
So wailing, back go to their woeful Tomb.
Why then doth Flesh, a Bubble-glass of Breath,
Hunt after Honour and Advauncement vain,
And rear a Trophee for devouring Death,
With so great Labour and long-lasting Pain,
As if his Days for ever should remain?
Sith all that in this World is great or gay,
Doth as a Vapour vanish and decay.”
Edmund Spenser, Ruines of Time