Questionable Democracy – In ? We Trust

Mongolian President, the Honorable Ts. Elbegdorj addressed the Fair Mineral Development Roundtable hosted under the auspices of his office and the World Economic Forum this week. Would that more heads of state have the ability to articulate sovereign and public interest with the clarity and pragmatism evidenced in his remarks! Rarely have I seen as concise and unqualified a statement from a public servant than the remarks made by the Hon. D. Zorigt, Member of the State Great Hural and Minister of Mineral Resources and Energy when commenting on the mineral laws of Mongolia. In both instances, the refreshing clarity centered on the stated recognition that “best practice” laws drafted over the last 20 years, in consultation with foreign interests, have exposed Mongolia to significant disadvantage. Only now are Parliament members and the public and private sector realizing the full extent to which the laws were drafted to favor mineral and energy extractors to the detriment of the public interest.

For readers of InvertedAlchemy, the irony will not be lost that, during the same time as my meeting with the leaders of Mongolia, BP’s CEO was foundering in his testimony before Congress on the nature of liability and responsibility of the extractive industries when things go poorly. Further, the government of Australia is fanning populist flames to support their proposed revised tax scheme on mining companies which, according to analysts from Morgan Stanley, will jeopardize many future developments. And, I’m currently writing this entry from Papua New Guinea where the Prime Minister (yes, the same one that’s been heralded as a hero for his REDD campaign to placate CO2 polluters) pushed through an amended environmental law that greatly reduces accountability for polluting the sea. It’s almost beyond belief that the government of Papua New Guinea, under the glaring light of the BP global brand debacle, would choose such poor timing to make rules less stringent.

Four years ago, I stated that my analysis of the global markets indicated that by 2010, the U.S. dollar would be in such weak condition and the euro would be inadequate to pick up the slack so as to open the possibility of a move by China to push a commodity basket-backed reminbi. Well, the International Herald Tribune today, Friday, June 18, 2010 loudly confirmed that analysis. Chinese leaders are warning the G20 not to bring up currency at the upcoming meeting or face “serious global economic consequences”. The U.S. and Europe have finally awakened (albeit, too late) to the error in the Jack Welch era out-sourcing wave. You see, the “we’ll always be the innovator” thesis that justified the risk of outsourcing manufacturing assumed that resource scarcity would be controlled by Western markets. However, quite suddenly, the tables are turning. Beryllium, cobalt, copper, gallium, indium, germanium, gold, graphite, magnesium, platinum, tantalum, tungsten, and uranium – all minerals that were safely controlled by post-Bretton Woods arrogance are now controlled by China, Russia, Congo, Brazil, Mongolia and others who were left out of the club for the last 50 years. It would not be surprising to see China reinstate a gold or hybrid metal standard as it seeks to manage its risks on dollar and euro historical exposures. And when a key infrastructure development project to what could be the world’s largest gold / copper operation in Oyu Tolgoi in South Gobi, Mongolia is a 105km road to the Chinese border, it doesn’t take a PhD in geopolitics or economics to realize that commodity control is about to take a serious and unquantifiable turn.

It was, however, at the Ulaanbaatar roundtable this week, when I saw galvanized a series of critical information failures which led many in the roundtable to revert to basic questions about the adequacy of representational democracy in countries rich in minerals and energy resources. Questions of nationalization vs. “free-market” were met with NGO mistrust in the transparency of asset dispensation. “Trust” and gold, copper, and coal, seemed to make poor bedfellows.

I will summarize five themes where I observed situations in which the “wrong” questions and assumptions gave rise to heated debate around the “wrong” answers.

First, lack of understanding of the cost of equity. As presented in the meeting, the Mongolian government purchased equity in the Oyu Tolgoi LLC (“OT”) mining operation. The equity was purchased with debt which is running up interest well in advance of any productivity. Not unlike several of the Papua New Guinea and other national cases where we’ve seen government equity purchases debt financed by the likes of the Commonwealth Development Corporation, the European Investment Bank, and the World Bank and its sister organizations, the belief is that somehow equity means benefit sharing. Nothing could be more misleading. Few things could do more harm with respect to mal-aligning public expectations and actual outcomes. Mongolia’s interests are in the LLC operator – not in the corporations which will manage the profits and see their stocks rise on the back of the country’s extracted wealth. Ivanhoe Mines and Rio Tinto – and their shareholders – will see their stock price appreciate many times while the LLC remains an illiquid debtor / operator. Everywhere I went, I heard the public perception that Mongolia was going to start reaping the benefit for its equity far sooner than possible. And remember, if their shares ever do have value, the first beneficiary is the debt financiers, not the people.

Second, lack of understanding about “local investment”. Like many other cases around the world, the OT investment agreement called for significant employment and contracting revenue to come to the citizens and Mongolian corporations. However, if one examines how much of the billions of dollars that are being “invested in the country” are actually building wealth for Mongolia, the numbers tell a very unfortunate, tiredly predictable story. Chinese, Korean, Russian, European, Japanese, and American companies will see their revenues rise as they contract services and supplies. Further, much of the “local” attributed expenditures are actually the employment of expatriate consultants and contractors engaged in projects for community benefit. Their compensation (usually at a salary plus hardship premium) is often attributed to country benefit even though the actual compensation flows out of the country. OT made a laudable commitment of up to 90% local employment which represents a larger commitment than most. For this, they are heartily commended. Mongolia could have been better served by asking for a proportion of compensation – not body count – as the local labor force typically represents a miniscule fraction of the expat executive compensation. Body counts are one thing; actual compensation is the true economic metric.

Third, lack of visibility regarding corporate structure and accountability. In every country where we’ve worked, neither the local level nor national government seems to take sufficient time to understand how far removed their subsidiary corporate counter-party is from the actual control of profits and operating decisions. While the media and general public hear about the multi-national entity whose name is attached to the project, there is a general lack of clarity on the fact that neither the listed company’s nor the capital provider’s success in the broader market have any bearing on the direct benefit flowing to the country. Board decisions, control of disposition of assets, and allocations of revenues to generate dividends are typically made well outside the operating corporate structure in which the country has participation.

Fourth, lack of capital markets visibility. The money to be made in mining is far removed from the mine. The promise of the “largest” gold and copper mine creates wealth in public equities like Ivanhoe, BHP, Rio Tinto, and others in listed share price appreciation – not their balance sheet. Infrastructure finance benefits bond issuers and traders through fees and commissions on trades – not in-country businesses or the public. Once in production, it is commodity traders – not the suppliers – who make the most traded wealth. Yet time after time, countries are lured into believing that somehow their ownership is going to create a pathway to wealth creation. In the absence of the ability to participate in equities and bond liquidity-based trading, countries are saddled with debt-financed, encumbered equity, operating liabilities and pro rata financial obligations, and very disillusioned citizens.

Finally, lack of market-appropriate tools. Most countries have little more than license, royalty, and tax as means to capture some benefit for the loss of extracted minerals or energy. When they realized that they’ve been disadvantaged, they revert to the globally unpalatable (though popularly expedient) actions like nationalization of licenses on producing properties. And if they raise taxes, demand more royalty participation, or nationalize incompletely considered and illegitimately granted licenses, they are penalized as not being stable business environments thereby diminishing standing for foreign investments and partnerships. All too often, the rule of law is eclipsed (as it has recently been in Papua New Guinea) by expediency where the short term empty promise of benefit concedes lax regulatory environments where public interest is subordinated by misinformed public officials to placate unethical demands from corporations.

Against these challenges, most paths lead to the decision to succumb by a few public sector officials who are co-opted for their own personal gain while they abandon the public interest they’ve been elected to promote. Corruption, beginning with multi-national corporations who see uninformed governance as a weakness to exploit, is a frequent utility in this expediency-driven model.

Could there be a different path? Would it be possible to get it right?

Yes. Countries and their mineral and energy ministers could demand that the counter-party in benefit sharing be the listed company or demand a equity tracking benefit that would allow for monetization of the early equity appreciation immediately post announcement of resources and immediately post the granting of production licenses. Countries could demand that they are compensated on the applicable market appreciation in the equity, bond, and commodity markets attributable to their market contribution. Countries could demand that their counter-party signatories be the senior listed company (the holding interest) rather than the shell subsidiaries from which benefit can be easily shielded. Countries could set compensation and contract REVENUE requirements rather than relying on the antiquated body-count requirements. Countries could demand the implementation of Trade Credit Offset equivalent programs for competitively bid contracts where local businesses could be nurtured and grow into scalable suppliers and partners with capacity building, training, and technology transfer. And, are you ready for this? Investors could actually demand that the companies in which they invest are held accountable for misleading and unethical business behavior including fraud in negotiating, contracting, and environmental and community accountability.

What has been historically labeled as sovereign risk could be cured by actually placing indemnity issuers in mineral and energy rich countries so that the financial incentives of contract stability are actually aligned with all actors. By linking financial and risk management business – required by any multinational corporation’s shareholders to the country in which business is being done – economic literacy and benefit can grow and the operating environment can be stabilized.

And, it’s important that we get this right. You see; if we don’t actually take responsibility across the board – investors, corporations, and countries – we will galvanize a public response that is already fueled with mistrust built on expectation misalignment and abusive experience. Democracy is not possible when the public is not informed of all the facts. Those who promote democracy but insist on the preservation of secrecy and willful ignorance are simply insuring their own demise and accelerating the same. If we’re going to see constructive international market development in the coming years, the only thing we’ve got left is an attempt to innovate ethics into our capital markets. If we don’t, expedient actors who are resource hungry will innovate their own model and we all will be the poorer.


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The Poverty of Nations and the Visible Hand...of?

Boarding the plane in Dalanzadgad for our return flight to Ulaanbaatar, I ascended the stairs behind an Australian who was sporting more corporate logos than entirely necessary. On his shirt was the logo for Mitsui Coal, on his coat, Hitachi and on his carry-on, a mining company.

“Whatcha doin’ here?” he asked.

“Working with the local camel herding communities to understand their connection to the regional and global market and ecosystem, and the local groups that are working to deal with desertification on the Gobi by re-planting Gobi trees,” I responded.

“Ha,” he scoffed. “We’re just here diggin’ holes like we do everywhere. We’re not much worried about trees.”

I settled into 8C on the Saab prop plane for the 500km flight back to Ulaanbaatar and watched out the window as we taxied down the runway and lifted off into the setting sun. Looking out of my window, I saw the horses, the spring and lake where Batbayar (“Baidi”) and his wife Jaagaa are planting 20,000 Gobi trees and the endless steppe (see the Heritable Innovation Trust Post from today). I saw the horses pasturing in the lush green of the water that dots the vastness and I reflected on my first trip to this amazing land.

To the rest of the world, South Gobi is a land of untapped potential. Coking coal, gold, copper and other metals are the generous legacy of the once forested land where trees, dinosaurs and vast seabeds once covered the land. Out in the Sand Mountain region to the west of Dalanzadgad, the plain is broken with huge cliffs and canyons where you cannot help but step on fossil after fossil – each footstep a decision between one piece of coral still layered in the fossil record and one that was washed out with the last rain. Every now and then you find yourself encountering lava and evidence of the volcanism which brought huge mineral deposits near the surface.

In this land - quite similar to Utah or parts of Colorado - humanity is replaying its predictable, tired addiction. A land of “natural resources” has evoked the Adam Smith impulse to see the value of this place by the sum of its subtraction. President Elbegdorj has seen countless other countries fall into the Resources Trap (referred to in an earlier post from Paul Collier’s work) and has chosen to take a different path that includes more domestic benefit for the country’s resources. I wonder if the Parliament and the President of Mongolia are willing to take an even bolder step. I wonder if they would have the willingness to lead the world into a new capital system where people actually live without extracting the last ounce of gold and ton of coal.

What we know is that the story of BP in the Gulf of Mexico – now day 50 – is the unifying story of the last 234 years. As I type this post, CNN International stated that BP is considering all options to cap the hemorrhage of oil – including the nuclear option. And we, the willing, gullible consumers of 24 hour news are supposed to sit by and accept as we are hypnotized into the belief that somehow or another bombing the seabed is an option? And whether it’s a nuke on the seafloor or the growing use of cyanide and heavy metals to feed the gold addiction that is now toxifying some of the most scarce water resources on the planet in the Gobi desert, we rush on.

For the record, the two volume publication of Adam Smith’s work in 1776 was titled, “An Inquiry into the Nature and Causes of the Wealth of Nations.” His “invisible hand” was a reflection of the state of moral philosophy which gave rise to revolution in the Americas and the challenge to monarchists in Europe. His work was social commentary – not a declaration of truth. And so for us to respond to the Pavlovian glockenspiel in seeing Mongolia as the place where mining companies and their technological minions (like Caterpillar, Hitachi, Mitsui, and others) supply the last syringes in the crack house of our addictions are the winners is fitting on a day where we also see a tactical nuke on the seabed as an acceptable option for containment of an oil disaster in the gulf!

Are we better than this? Are we willing to stop wringing our hands in Washington D.C. and Louisiana about oil slicks and actually do something? Like, stop all BP equities trading so that the company knows that it must apply all of its efforts and resources to stop the leak and, until then, it’s quarantined? Like identify every deep water well or extractor and immediately require retrofits to insure that this cannot happen elsewhere? Like requiring all stock exchanges to list only those companies in compliance with International Council for the Exploration of the Sea guidelines and have sanctions, including full financial liability and profit disgorgement, for those who are in violation BEFORE they toxify the seas?

See, if we actually priced in the cost of the consequences of actions – like the cost of water extinction in the Gobi desert – we’d realize that Adam Smith was wrong. Sanctimoniously calling “greed” the “invisible hand” doesn’t make it better. It just makes it palatable for a moment. We are better than this. We can transition to another reality – not through activism but accountability. I can’t wait to see the first mine that actually honestly reports all costs, discloses all benefits, and spends as much time thinking about the extinction of the resource as it does about quarterly profits. And I can’t wait to see a commodity market in which trading premiums flow to those products sourced from Accountable Commodity suppliers. Transparency is the first step and action is its corollary. And rather than waiting, we’re going to see if it can be done. More on that later.

When I’m back from the remote western regions of Mongolia, you’ll hear from me again. In the meantime, share this and last week’s post with those you know and let’s start moving to another future. The hole has been dug deep enough! Let’s start planting new seeds.

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Tradewinds, Gates Foundation, and Black Gold: Follow the Money

“A commitment to excellence in all that we do.”
“Integrity and respect in our dealings with our clients, colleagues and business partners.”

These are a few of the principles promoted by Tradewinds Global Investors. With a reported $27.6 billion of assets under management, I was intrigued by these principles in light of the places where Tradewinds’ “integrity” has placed their money. The reasons I found Tradewinds Global Investors interesting is both their stated Core Values and the company they keep. Their reported positions include two notorious environmental nightmares – BP (NYSE:BP) and Barrick Gold (NYSE: ABX), one of the major owners of the Allied Gold (ASX: ALD; AIM: AGLD).

In fairness, I should point out that a current review of BP’s ownership includes quite an interesting fraternity including: Wellington Management Co., State Farm, T.Rowe Price, Bill and Melinda Gates Foundation, Vanguard Funds, Fidelity Diversified International and several banks. Wellington, Fidelity and State Farm share the fraternity of owning Rio Tinto (NYSE: RTP) along with TD Asset Management. Under another arm of TD – this time TD Securities - Barrick’s ownership fraternity includes Blackrock and Capital Research Global Investors.

As we approach the 50 day mark on the BP oil spill, I wonder if anyone finds it ironic that Nautilus Minerals (TSX: NUS), at their May presentation to the Offshore Technology Conference in Houston TX celebrated the “minimal” impact risk of offshore extraction. They proudly announced that, “Nautilus Minerals Inc ("Nautilus") is following the lead by the offshore oil and gas industry to tap vast offshore resources.”

As I sit here in Ulaanbaatar, Mongolia, I find myself amused by the observation that the Capital Market System that appears to be failing at present, if the truth be told, really never worked at all. You see, somewhere between 401(k)s, insurance and bank reserves, stock exchanges, and operating businesses, we made it o.k. for people to assume that they’re making investments which, in turn, build wealth. However, what we’ve really done over the past several decades (at least) is insulate those who are “building wealth” from any visibility into the costs of that wealth. While residents of the Gulf coast in the U.S. are rightfully upset as millions of gallons of oily sludge wash up on their beaches, are any of them connecting the dots and demanding that their retirement fund managers STOP pouring money into companies that operate in a careless fashion, indifferent to ecosystems in the interest of making the bottom line as fat as possible?

In an era where we hear about “financial reform” and “increased transparency” in the capital markets, where are the calls for stock exchange regulators to assist the public in getting to the truth about how their profits are being derived? And you, the reader, where are you in demanding that your investment intermediaries actually abide by their lofty public relations and marketing “core values” while they continue to support companies who operate with indifference to humanity and the ecosystem? When Warren Buffet has the audacity to dismiss the economic crisis as an undetectable market anomaly (save for, in his words, “a few Cassandras”) where is the U.S. Congress’ or the White House’s resolve to actually inquire of the Cassandras as to where, when and why they saw the big one coming?

You see, I think that we’ve gotten lazy. And worse than that, I think we’ve decided that our comfort – built on an illusion of our insular, sterile world – is more important than actually finding out from whence our comfort comes. I think that we’ve gotten quite content to let our discount electronics consumption ride on the now suiciding labor force in China where working conditions are so detestable that employees find killing themselves more desirable than making the next HP or Apple product - a situation that Steve Jobs reportedly finds "very troubling." Really?

I had the chance to meet with some of the community development team of Rio Tinto’s mining operations here in Mongolia. While many people mistake me for just another activist opposed to extraction on principle, what we did this week is to have a discussion about how things could be changed here so that mining and social values could co-exist. Am I convinced that the ground water will be more preserved, that communities will gain greater benefit, or that the environment will be spared? Not yet. But what I did reconfirm is that when people sit down and learn from each other – actually listening and conversing – productive steps are possible. More importantly, I confirmed that, if an average human being actually wants to gain more visibility into what a company is doing, it’s possible. It involves getting off your couch and going to see the impact that your money is making.

I don’t know the folks at Tradewinds. I have no idea whether they are indifferent to human values or whether they’ve just made investment decisions based on quantitative inputs in impersonal matrices. I don’t know if they’ve spent time on the Gulf coast helping clean up the oil spill or whether they’ve been pressuring BP to still declare a dividend and get on with making money. I don’t know if they’ve seen the villages displaced by Mark Caruso’s water diversion in Simberi (Allied and Barrick Gold) which has turned the airport into a flood plain and has turned local gardens into swamps. I don’t know if they know that their “community relations” budget included the employment of mercenary paramilitary assets to deal with community relations. But I do know this. If we are ever going to turn around the insanity that blights our current state of humanity, we better get involved in who is putting our money wherever it’s going.

Any of you who want to ask specific questions about where your money is being invested and who are willing to do so in the comment section of this blog, I will be more than happy to share with you my experience on the ground (and invite others to do the same). Even a gold mine can operate with ethical principles if those who put their money into it make “all-in” value a priority for management. We can do better, and for the sake of the world, we must. While we watch China expand its reach over the control of the world’s resources, we can lay the foundation for earning the accountability that we’ve neglected far too long. If we wish to have any moral authority to offer commentary on what has already been behavior defined by expediency, we better earn that voice.

Wake up!

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Duck and Cover – Your Desk Will Save You

For the sake of argument, let’s assume that a bunch of toxins in the air, water, food supply and earth are adversely impacting life on a geospatial and species level. Let us further assume that, through resolute actions, humanity could do something about it. And finally, let us assume that there’s a linear sense of time in most peoples’ heads where failure to animate will lead to considerable adversity and death. These arguments, stated with varying degrees of hyperbole and passion, were constant companions at the Brasil 2020 Climate Leadership Campaign meeting in Praia do Forte, Bahia, Brazil. Rivers will dry. The Amazon will become a savanna. Polar caps will be doffed favoring a balmy, tropical look. Over one billion people will become refugees from flooded coastlines. The apocalypse of our consumption will consume us and we will die. People need to know this so that they do something…

So what are we going to do? How are we going to respond?

Stop. When was the last time that this sales pitch led to change? I’m not talking about the infinitesimal half-life change of post conference resolutions where you go and pump the tires of your bike and promise that, the next sunny day, you’ll ride it. I’m not talking about the New Year’s resolution in which exercise and moderation are going to ready your bulging frame for the summer’s sun. And I’m not talking about the change which, like the cigarette or drug addictions, are pushed towards eradication through taxes and criminalization (neither of which effectuate systemic change).

Here’s one scenario. We could convene a conference. In the conference, we could bring together activists, some of whom are already convinced that we’re probably already doomed. We could make sure the conference is at a comfortable, adequate distance from an airport to insure that we can discuss changing consumption in air conditioned bliss while we avoid any contact with the tropical sun and the annoying, incessant distraction of waves and wind. We could find sponsors for our budget in companies who persist in increases in production for consumption – but want to do it cleaner. And then, we could have honest dialogue about the fact that over-consumption is killing us. And then, we could puzzle over why we don’t see change. But, no worries, we can convene another conference to celebrate our macabre fascination with the closer we get to falling into the abyss of our own delusional creations.

Alternatively, we could take the same group of passionate activists and actually DO SOMETHING. We could have them spend a week in a school interacting with children and parents on equipping them with tools to see value in energy efficiency (like Tom Feegel’s “Green My Parents” program and Isaac Edington’s Instituto EcoD). We could take a group of companies and audit their current energy utilization showing them public domain, established technologies which would greatly reduce their effluent (like Jigar Shah’s Carbon War Room). We could spend three days in the favelas and then see how much we long for running water, water heaters, fans, air conditioners and other energy consumers to which our Edison / Westinghouse addiction blinds us. We could, actually take action which would allow us the humility to see that it is us that persists in behaviors that we have no interest in changing.

Or we could look fear and apocalypse in the face and surprise it by providing it no quarter. As a kid in Southern California, I remember the civil defense drills in school where Mr. Kirkland, a Korean War veteran, taught us to be prepared for a Soviet nuclear attack by crawling under our desks and holding our clasped hands over our neck to avoid flying glass. I remember our earthquake drills where we’d go out on the playground and watch as “the big one” opened a crack imperceptibly wider in the blacktop confirming that we really were going to fall into the sea. Civil defense 40 years ago gave rise to a population of 300 million who acquiesce to a Department of Homeland Security and to a President for Change who persists in a war to rid the world of a threat of terror. A desk won’t block nuclear fallout. Watching cracks in blacktop won’t keep California from keeping its date with the sea. And the weapons we use to defend ourselves from terror one day will be used by those we’ve armed against us. If we are going to defuse fear, we’re going to have to choose a path based on its attraction, not based on a reflexive response to apocalyptic prophecies.

How about this? What if we start an enterprise embodying 100% of the principles which we’d like to see in a world worth saving? That enterprise could take on several characteristics which are corollaries to last week’s post.

Rather than focusing on the ARTIFACT of production or consumption, we could facilitate manifesting the ESSENCE of a thing. Rather than chasing the planned obsolescence of the “next” whatever, we could facilitate time limited experiences in which EXPERIENCE is valued over ACQUISITION.

Rather than seeing ourselves as the arbiters of value when we manipulate a RESOURCE for refinement or manufacture, we could actually focus on minimal state UTILIZATION. Using one of the examples from a few weeks ago, create appliances which are energized with SAME STATE ENERGY – heat for heat, pressure for cooling or animation, light for luminescence, fluid dynamics of water and wind for movement, etc. By rewarding “same state energy” engineering, carbon dioxide would rapidly become as inert as the Soviet threat.

You see, I’m not advocating for an indigenous hunter gatherer subsistence. To the contrary, I’m proposing true innovation in which we emancipate creativity to be, well, creative. Rather than imposing constraints that make things fit into the “grid” – our matrix of self- and species destruction – let’s engage in radical experiments that put all assumptions up for consideration. Our enterprises require no corporate protection from liability as we embrace trusteeship and accountability. Our value exchanges can trade multi-dimensional credits and debits. By learning from our neighboring life, we can photosynthesize. By understanding schooling fish and migrating birds, we can expand our sensitivity to energy fields. By looking into our own physiology, we can awaken the intelligence that chooses to live and signals the conditions of expiration. This is going to be really cool, high tech, stuff. It’s going to radically change our experience as humans on this Earth.

And, are you ready for this. If we’re really up against a carbon dioxide, 2012 Mayan Calendar, White Rider with fiery swords, Armageddon, we’ll hop in our photosynthetic amphibious biosphere with our neighbors, roll into the raging sea and have a front row seat for the sunrise on the day after this mess ended.

Kevin summed it up nicely in his impassioned statement, “We’ve had enough conferences – I’m done with conferences. What we need to understand is why we don’t actually implement what we say we desire.” Kevin, let’s start now. Rather than another trip through the looking glass chasing the illusive rabbit in Wonderland, let’s actually build a human experience worthy of this place we call home. And once built, let’s learn, share our experiences, and build another. And one last note. Jigar Shah described his “Creating Climate Wealth” conference innovation where those in attendance were those passionately committed to doing rather than talking. He described a venue where design and engineering using the assembled intelligence and experience was the convening impulse. I look forward to exercising this convening model and seeing communities of action formed to create possibility. I hope the next one is held outside at the location calculated to require the least movement of the most people for the greatest impact…


... now off to Mongolia so stay tuned

Step Away from the Trough

This has been a bad week for US PIIGGS (the rather pejorative acronym used by economists to refer to the once powerful economic hegemonic countries where deficit and debt vastly exceed economic prospects – modified, as you would expect by yours truly to include the United States to accompany Portugal, Ireland, Italy, Greece, Great Britain, and Spain). As we reflect on the countries that once colonized the resources of the world to feed their cavernous appetites of consumption, we find some irony in the fact that now, it is the objects of their colonial impulses that seem to be ascending with indifference towards the plight of their former dominators. In a display of exceptionally fragile acquiescence, the Germans decided that the preservation of the euro was more important that confronting fiscal reality and so, to the hyperbolic acclaim of Friday’s markets, they passed fiscal measures to defer the date of the euro collapse for the near future.

Cutting through the “fat-finger” perfect storm hypnotic babble which told investors that the market was once again safe to pour more money into the casino, one can see the emergence of a specter who, like Dickens’ Ghost of Christmas Future, is asking us to consider. Do we want the future that our actions have dictated or, can we still save Tiny Tim and the Cratchit family, and in so doing ourselves, by deeply changing our consensus illusions and behaviors?

US PIIGGS fattened at a trough that is characterized by a progressive journey through six layers of cognitive detachment. Sausage is the destiny for this journey. Join me, if you will, on a journey whose language you were taught at an early age and in whose shadow your archetypes have been carefully maintained.

US PIIGGS are the legacy of Exploration. The Exploration impulse is an interesting one. The premise is simple. We come to a point where local conditions trigger an impulse to have more than that which is around us so we set off confident that we know what we’re looking for and that we’ll recognize it when we find it. Cloaked in the bravado that somewhere out there is “more” and that once found, the “more” will be “ours” over which we will have dominion, we set out.

Our journey enters the second step of delusion when we Discover that for which we were looking. Isn’t it ironic that we “discover” what’s already there? Whether it’s the Portuguese “discovering” Brazil, or Jack Welch “discovering” that people in India had brains worthy of service to GE, the arrogance of the term “discovery” is staggering. We don’t contemplate for a moment that what we label discovery could also be correctly described as the “confirmation of our prior ignorance now unveiled by new information”. But that, my friends, wouldn’t support a very glorious story so we don’t call it what it really is.

Having discovered place, people, or resource, our next impulse is Conquest. The impulse is not to interact with that which was moments before the object of our ignorance. No, we’d rather make sure that it (or they) knows that our value system dictates subjugation for our predetermined needs. And, by the way, the “value” of it or them is measured by us. Period. The forest is worth its lumber. The soil is worth its minerals or crops. If there is spirit or medicine or sanctuary, forget it. That’s the stuff of myth and legend. If other perspectives or people who happen to be “there” challenge the illusion of our ownership, we exterminate the evidence. Ask yourself how many Iraqis have needed to die so that we can rid them of the scourge of a leader that killed his own people?

And then, once we conquer, we Colonize. This impulse is vital as it invites like minded into our ownership and enclosure illusion. By inviting those who share our views of the world into our newly “discovered” reality (and reminding them that it’s ours), we build a consensus illusion into which systems of control and enclosure can be established and maintained.

Once appropriately enclosed, we then Domesticate. We reduce the unrecognizable into conformity with our needs. A multi-species ecosystem becomes hectares of “usable” crops. A mountain becomes a concession for extraction. A community becomes a labor pool which, if trained to perform within the confines of an established order, may be designated as “skilled” and rewarded at a modicum above those who remain “illiterate”.

And having thus extinguished the essence from our new conquest, we Indenture and Commoditize. The final step in this hideous descent into globally integrated participation in the industrial world order is to insure that those who “supply” are saddled with what Paul Collier describes as the “Natural Resources Trap” in his book, The Bottom Billion. This trap is where abundance is enslaved through corporate concessions and “debt-based” “development” from which all benefit flows externally save the few despots who sell out their countrymen for a few coins of graft. Tragically, Paul, like so many development experts and economists remain silent on the degree to which corporations – acting for the benefit of shareholders – are given license to engage in graft, slavery, and corruption and this is just, in Paul’s silence, the way “business is done”.

One billion people, slaves to US PIIGGS for over two centuries, still starve, still lack clean water, still live with civil unrest, war, and destabilization. And now, the trough, filled at their expense, has emptied.

Is there another way? Is there a six step program which can provide us something other than a wallowing hole filled with the stench of excess?

I would propose that there is.

Education. No I don’t mean literacy. I don’t mean training for consensus belief. I don’t mean the literal removal of willful ignorance with an internet, search engine world. Education means that we move into a posture of genuine inquiry where we seek to learn that which we don’t understand. Education involves sitting down at the feet of many and hearing numerous perspectives and from them drawing a new sense of order, purpose and values. Education means that we see ourselves as learners and students – finding perspectives that inspire and challenge historical metrics and myths opening up possibilities for the new rather than the perpetuation of the old.

This opens the door for Observation. Where discovery evoked an arrogant confirmation that we recognized that for which we set out to covet, observation involves taking the time to see what the yet-unknown has to teach. In observation, the recognized should be momentarily marginalized and devalued so that the perplexing, the unexplainable, can be considered. Maybe we have something that we can offer. Maybe something is being offered. Maybe we have no place in this place at all. Maybe we need to change to adapt to the new.

That which we observe allows us to Integrate. Beyond impulses to enclose, integration connotes a process in which the observer and observed begin a process of mutual interaction for mutual benefit. If benefit is derived from cooperation, great. If value is enhanced or preserved by sharing learning but moving separately, great too. In both instances, the interacting parties are richer for having experienced respectful engagement.

As we integrate our observations, we can begin to Contribute. Once upon a time we realized that investment involved making deposits BEFORE we expect returns. In the Post World War II industrial globalization, we expected concessions and returns just for showing up. When I speak about contribution, I mean genuinely invest in the people and the place. Listen to local needs and local challenges. Begin by offering perspective – not solutions. Offer creativity, not the privilege of being associated with a multi-national brand. Collaborate rather than enclose. In partnerships and meaningful, respectful engagement, bring what you can fully into the mix of ingredients from which something new can emerge.

This opens up the possibilities for Invitation. Invitation sometimes involves opening up opportunities for others. Sometimes it involves having opportunities opened for you. Sometimes new opportunities arise that benefit all parties. In our work in India with a new startup launched by Sharadha Ramakrishnan, we have seen huge opportunities arise where resource sharing – information, physical space, and commercial endeavors – all are emerging unsolicited. A major industrial trade show in the U.S. is opening up the possibility for global market interaction with South America, the Middle East and North Africa, simply by being open to invitations from previously unknown partners.

And from these five steps emerges the sixth stage of Fruitful Cooperation. While the dying world is filled with Sustainability (the ability to survive without resource exhaustion – doesn’t that sound fun?) and Resilience (the elastic response to come back from extreme deforming stress – wow, even more fun!) peddlers from the end of the caravan, Fruitfulness has to do with persistent, cooperative abundance derived from networks of endeavors and value exchanges. Using the principles of Abundant Enterprise, fruitfulness seeks to insure that discipline and moderation are heard over the cacophony of the frenetic “more”.

Exploration loses its allure in the commitment to genuine Education.
Discovery disintegrates as the Observed becomes more enchanting.
Conquest expires while the inspiration of Integration breathes life and meaning.
Colonization unravels as Contribution creates networks of trust.
Domestication is unbridled as creativity Invites possibility for new engagements.
And the enslavement of the Indentured is emancipated for Fruitful participation in beneficial enterprises which enable ethical, repurposing stewardship.

Ideal? Utopian? No. We are evidencing this possibility in enterprises around the world. Given the fact that we’re seeing US PIIGGS collapse, precisely what evidence do you have supporting the “it’s working well” theory supporting the consensus illusion from which my proposal sounds utopian? Last time I checked, the small furry creatures who lived together did a whole lot better than the Brontosaurus. Look into it!

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The Greatest Challenge Facing Humanity – Climate or…?

So, Inverted Alchemists – what was it about 1215 that could have had such an abiding impact on the modern economic condition of humanity? What could have launched, in the same year, the Fourth Lateran Council under Pope Innocent III, the Magna Carta and the Charter of the Forest, and the commissioning of the Chinese expeditionary fleet to explore the edges of the world? I wouldn’t be my father’s son if I didn’t point out that, on tax day, April 15th, 1215 there was a major solar eclipse that would have clearly carried with it ancestral significance. And, what I’m going to discuss may, in some giant macro system way be linked to the eclipse, but was… drum roll please … the eruption of the Eternal Forever White Mountain on the current border between China and North Korea.

For all those “Inconvenient Truth” aficionados, the hyperbole around “greatest challenge ever is carbon emissions” is, well, just that, hyperbole. The eruption of 1215 altered everything about the known universe and actually put into motion one of the most consequential alterations in geopolitical, religious, and economic shifts in recorded history. The first eruption sent ash into a global circumnavigation which immediately changed the climate of Europe for hundreds of years. The ash altered crop production, altered economic activity and destabilized entrenched incumbent assumptions in such a profound way that the effect is seen today.

In the wake of a year of profoundly and adversely altered crops throughout the entire northern hemisphere, the Church responded with an elaborate dogma justifying debt-based monetary systems and providing tacit assent to the necessity of usury. Further, it went on to establish the sacrosanct nature of taxation as the primary utility of the state to support central banking activities. The nobles of the Isles saw their opportunity to extract from the King a series of concessions in which they negotiated delegated sovereign authority (the Magna Carta) for the maintenance of balanced social order. At the same time they demanded the perpetual creation of, and stewardship for the Commons for the benefit of the Commoner (the Charter of the Forest) – specifically arguing that the Commons must be maintained for the sustenance of the people and their enterprises. And the Chinese recognized that their obsession with the Western frontier exposed them to resource shortages evidenced by the breakdown of access to their own coast leading them to launch the ships that navigated the world for the first time in the modern era – over 200 years before Europeans “discovered” their ignorance.

What I find amusing is the degree to which the progeny of these civilizations (and I use that term advisedly given the fact that the Fourth Lateran Council was the beginning of the genocide called the Inquisition) are exhibiting indistinguishable responses to the current climate conversation modeled after their forbearers. The Western scientific and industrial complex (our new purveyors of dogma and creed) are pronouncing apocalypse which can only be averted through mass conversions, crusades, and tribunals of truth (called by the Republicans, Democrats and Tea Partyists “debates”). If we are going to “save civilization” from the infidel (aka. emitters of carbon), we must realize that failure to act will certainly destroy our fine civilization. Federated states – the post Doha aspirational Lords – are feverishly using the moment in an attempt to extract concessions from the Bretton Woods, World Bank, IMF, UN sovereigns and, not surprisingly evoking the value of Commons. And, the Chinese are executing the most aggressive extractive resource expeditionary fleet of modern times with whole countries being the resource reserves for behemoth consumption on the horizon.

Do any of you see the irony in the fact that the SAME actors are behaving in the SAME fashion to, you guessed it, the yet again apocalypse called Climate Change? Is it possible that the reason for this redundancy of doomsdayers and opportunists is that we have failed to understand humanity’s role in an appropriate scale?

For the record, I think pollution sucks. Further, I think that Americans and Europeans who celebrated their investments supporting companies who, in an interest to jack up profits for the benefit of their shareholders, moved operations to countries where the cost of production wasn’t impaired by environmental regulations and now wring their hands about Chinese, Mexican, Korean, or Indian pollution suck even worse. Those who shop at Wal-Mart, the most ubiquitous icon of polluting consumption on Earth so they can save $0.15 on “Made In China” plastic tableware for their “Save-the-environment” party…, well, “suck” doesn’t come close to the right word for that and I keep my blog family friendly so…..

But, here’s the cold hard facts. The climate and its change are NOT our biggest challenge. They’re not even close. Our biggest challenge is to get out of our polycarbonate consumer economy addiction and realize that, as long as we don’t concern ourselves with the “all-in-consequence” of all we use and consume, we are doomed to another 800 years of ash. The ice-age of indifference that has created the hothouse of acrimony, if unaddressed, will continue to repeat its tiresome cycle and billions will be the worse for it. The Church in 1215 abandoned the Divine and took things into their own mercenary hands. The agents of federated power in 1215 negotiated sovereignty to a monarch rather than calling for accountable stewardship of the Commons. And those who saw themselves in 1215 as the “greatest kingdom on Earth” set sail for the purpose of extracting resources and tribute from every corner of the globe.

So here’s a thought. How about overturning one of these paradigms? How about moving from the fear of mortality and the apocalypse to call for unified, ecumenical action indifferent to race, color, creed, religion or any other nonsense that separates and divides? How about embracing the Commons as the preferred form of resource and enterprise engagement where reward goes to the most beneficial use – not the cheapest exploitation to land shelf space at a big box store? How about the magnificence of a country from which came most of the world’s greatest innovation, reclaiming its creative destiny rather than accelerating the demise of the unsustainable consumer morass? Or, are we simply too complacent to consider another path?


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When Will We Ever Learn?

This week was old-home week for InvertedAlchemy. The week began with the further unmasking of the Greek bankruptcy which, per my earlier post, was prevented “at all costs” with the €110 billion solution. This emergency financial package lit the streets of Greece aflame with protesters who see their government and the Eurozone failing to deliver on the illusions that it once promoted.

Then, we found out that the Pension Benefit Guaranty Corporation’s 2009 Annual Report showed that the PBGC is in a worse insolvency than earlier suggested and they have at least a 10 year horizon of deficit operations. In the Inspector General’s commissioned report, a “no-confidence” assessment is given to the PBGC’s ability to know what its true financial position is and what liabilities it actually faces. So, when one reads their annual report and learns that there is a 50% chance that they could be fully underwater with actuarial liabilities that cannot be funded, the whole “Guaranty” part of their name seems to come unraveled.

The one that missed the scrutiny of the media but was one of the great admissions of the Ponzi-style collusion holding up our illusory economy was the financial report from MBIA - the insurer of bonds. The major single contributor to their profits was - drum roll please - collecting on "insurance" on their credit default swap exposure. The whole AIG bailout cover story is gradually showing up in financial statements and, you guessed it, THEIR profits are coming at your tax expense (and the debt that the Chinese continue to support). If there was accountability, there would be white collar jail terms...

And then, my favorite. Wall Street’s tumble that the public was told was the result first of a “trader error” and then “runaway computer trading”! Did anyone actually see what this really was? Did anyone see that this volatility was not an accident at all? Rather, now that the market has sucked the last it can from the giant asset reallocation program that has been buoyed by the helium that the Treasury has pumped into the Zombie Economic Recovery (ZER – a term I’ve coined for the propaganda-based recovery promoted by those who have hidden the real liabilities and exposures under the cover of “stimulus” while propping up the illusion of economic activity by government spending of debt-financed money), what this really was, in my estimation, was a test. This test was to see the degree to which mass contagion can be used to pull off the equivalent of the fabled Rothschild London Exchange asset grab following Waterloo. Ten percent of the value of the largest exchange on Earth gets wiped out in the matter of minutes and we blame it on a “glitch”. Worse than that, we believe the “glitch” story. Let’s be clear about one thing – computers (even really big, smart ones like the ones running the quant funds – covered here before) are programmed by HUMANS who tell the machines what to do. The computers didn’t “glitch”. People did the Thursday, May 6, 2010 coup attempt and they’ll do it again.

Ignorance Arbitrage (the ability for misinformation management by a few to acquiesce the masses into complicity for their detriment) is the oldest trick in the economic playbook. It is why churches and temples are richly adorned while worshipers starve. It is why New York, Toronto, and London flourish regardless of the economic conditions of the paper they trade. And it is fueled by a worldview which is inextricably religious in its origins – namely, the fear of mortality.

Let’s examine the following. Interest is the animating fuel for debt. By its very nature, interest (known more accurately by its historical term “usury”) makes an assumption which cannot hold. The assumption is that there will always be more in the future than there is today. Now there’s no way that we’d be willing to believe that this assumption can hold if it weren’t for our nostalgic fantasy about a promised “hereafter”. Isn’t it ironic that the two primary mechanisms supporting our current economic system are pensions (a belief that there will be more at the end of life allowing us to die well rested) and life insurance (explicitly created to cover our debts post mortem)? Take either of these financial products out of circulation and our economy collapses. Without these, there’s no statutory demand for the perpetual supply of fixed income financial products. “Debtors’ Prison” is not a nostalgic figment of a Charles Dickens’ London – it is the animating paradigm of our economy. We’re just posting bond through life and calling it more palatable terms. Oh, and by the way, our tax systems are set up for acquiescence. If we want the privilege to avoid taxes now, we “defer” our tax liability by fueling – you guessed it – the pension schemes which pump money into the hands of the usurious.

When Christians pray their “Lord’s Prayer”, why do you suppose that they forgive “debts” as they as “debtors” are forgiven? Was this what was said in Aramaic, Greek, or early Latin? Why did we choose economic terms rather than an equally viable and more inclusive “offense”? Marketing! When temples and churches are gilded while worshipers starve, you see the value of marketing. No Prophet would ever endorse what the industry of religion has done to promote their brand. But, that’s another topic.

We have debt and interest and we have pensions because we’ve been sold a bill of goods. The false promise of the “wealthy hereafter” which is somehow better than the “now” cows us into blind obedience. Don’t question the anti-gravity of perpetually increasing resources supporting an “interest” constant growth. Don’t question the anti-gravity of a leisurely end of fruitful engagement retirement which is buoyed by the pensions and entitlements which disengage our wisest minds. Remember that life insurance – set up by the Scottish church to cover the post humus debt of clergy under the nostalgic name of “Widows and Orphans Fund” (which by the way co-opts the church’s mandate set forth in the Book of Acts in the Christian Bible) – was justified as an acceptable industry because of the growing issue of insolvent estates of vicars. In short, the purveyors of the “hereafter” had here and now fiscal mismanagement issues. As a result, an industry was born – not surprisingly justified by and for the same interests – which now serves as the bedrock for our monetary and economic system.

Fear of mortality is at the root of our current economic system. And it is this root that must be acknowledged, confronted, and cut. No matter what laudable objective we seek to finance, no matter what cause we wish to animate, the use of the systems created on fear of mortality will always include the curse that comes free inside – enslavement to an illusion which demands perpetual growth. And no matter how much we try to dress it up with fancy words like “tax deferred”, “pension”, or “retirement”, it’s all the same – a projection of a future that is always better than the present.

Well, I for one, live in a simple reality. That is that all we have and all we need is here now. Our fiction about a future with “more” actually enslaves our creativity, our enterprise, and our destiny. Ironically, the current projection of a future with “more” is a self-fulfilling prophecy. The cost of the “more” that benefit a few in North America and Europe predominantly actually mean that there are “more” in poverty, slavery, and wont than at any point in human history. Our need to support the illusion mean that more women are trafficked, more children indentured, and more resources extracted than ever before. And the reason why the illusion can be maintained is because we choose to see ever less of the world. We ignore the environmental and social devastation of extractive industries until they hit our retirement real estate. As the Gulf of Mexico oozes, can we find in our consciousness the wake-up call for the environmental carnage in Nigeria and South America? As we see the ocean foul, can we intervene before Nautilus Minerals destroys Lassul Bay in East New Britain Papua New Guinea? Or will we let the Australian, Toronto, and London Stock Exchanges continue to pump money into an anonymous corner of the globe because it’s good for long-term investors?

Is it possible that the “Streets of Gold” in the hereafter could mean that gold is so meaningless that it is used as a building material? Could the wisdom actually be calling us to consider a future where what is seen as material wealth in the present is Irrelevant? When we work to build the economic “next”, can we contemplate a world in which fortunes can rise and fall without devastating consequence? Choose now, Choose to live, Choose to be stewards of Liberty!

And before next week, ask yourself the following question. “What was it about 1215 that gave rise to the Magna Carta, the Charter of the Forest, the Fourth Lateran Council, the Catholic Inquisition and the Expansion of the Chinese Expeditionary Fleet?” The answer to this question will begin to unravel another economic puzzle.

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