schneiderism

I have been reading and researching more intensely about peak oil and the intricacies and intrigues of U.S. energy policy. I found an excellent resource in the comprehensive blog The Oil Drum, as well as Peak Oil, and the Association for the Study of Peak Oil and Gas. It was at The Oil Drum that I came across this video of Bill Moyers from June of this year. Moyers ties a few things together, and makes some assertions that are worth serious consideration:

Luis de Sousa put together a really interesting piece for The Oil Drum that captures a number of perspectives on the value of human labor power as compared to the power generated by a barrel of oil, and goes some distance in explaining why oil is such an efficient energy source, and why we are addicted to it. The post is fascinating, especially as the conversation gets increasingly complex, so definitely read it. Here’s a quick overview of some of the calculations that inform the comparison:

• One barrel of oil is equivalent to about 25,000 hours of human labor, which is about 12.5 years at 40 hours of labor per week.
• The average American uses about 60 barrels of oil or oil equivalent (coal and gas) per year. This is about 360 billion joules of energy.
• For a human to generate labor equivalent to the energy created by a barrel of oil would take an average of 10,000 hours would cost about $200,000 at $20/hour.
• A barrel of oil generates 1,700 kwh. A human averages 150 kwh per year.

I suppose a subtext of this discussion is the hard reality that we are still very challenged to offer serious, viable alternatives to oil as an energy source. This reality, coupled with a history that has seen industry, and by extension our economy, establish and refine an oil based energy infrastructure over most of the last century, perhaps explains why we still struggle with energy policy and change. Oil has become an integral, integrated part of not only our economy, but also our culture and society. Creating change in this situation is analogous to turning the proverbial freight train.

Matt Dickman recently conducted a really interesting reader poll over at his blog Techno//Marketer to get a sense of what people felt the most influential medium might be. The results are presented in the graph above. I believe it is a safe bet that his readers skew massively to the internet, but I believe they are still representative of the paradigmatic changes that have occurred in the greater media landscape. The broader theme here, that the ways in which people interact with information is changing, is something I am actively exploring myself. What is absolutely not surprising from Matt’s survey is the incredibly low performance of newspapers and radio. The EBITDA of newspapers has been trending down for years, and many historically prominent rags are facing irrelevancy to their audiences. Audience preferences and expectations with regards to how they engage information is changing, this interaction is very fluid, and while some struggle to adapt to this reality others have been slow to respond and are suffering the consequences of a dwindling subscription base and shrinking advertising revenues. That spells doom for those newspapers. The same is happening in radio, and the EBITDA of radio is tracking similarly to that of newspapers. At the heart of this is the reality that we are increasingly moving away from having things pushed at us, and increasing moving toward technologies and mediums that allow us to engage media and information in ways that are dynamic and customizable to our preferences. Also, there is an informational frequency issue and newspapers, especailly, have struggled to compete with the 24/7 nature of the informational engagement model of the web. Those that have moved to a comprehensive web strategy have struggled to find an appropriate revenue model, especially one that can scale. We are watching media evolution and the survival of the fittest, of the most innovative.

Going back perhaps a decade, many newspaper publishers failed to appropriately survey the landscape for strategic risk to their organizations. As a result, they missed important opportunities to substantively investigate and innovate their business models. The web has moved incredibly quickly and efficiently in becoming pervasive in our society, in our culture, and many publishers now face the incredible challenge of trying to change a business model when it is absolutely too late.

As evidenced from the graph above (via The Oil Drum), it goes to China. 50% of the cement produced last year was produced and ultimately used by China, which equates to 1.3 gigatons of cement. China only exported 33 million tons of cement out of that 1.3 gigatons. Just as an FYI, a gigaton is one billion tons. India was a distant second at .3 gigatons. With the growth and expansion of the nascent infrastructure that has been underway in China, especially in preparation for the Olympics, this probably is not too surprising, but the enormous gap between China and the entire rest of the world is definitely noteworthy. Additionally, something startling that I learned is that each ton of cement produced also produces a ton of the greenhouse gas CO2. In 2007 cement consumption in China produced 1.3 gigatons of CO2, which I’m guessing is a helluva lot of CO2 to be produced by one industry in one nation.

Putting these numbers into context, and perhaps as an explanation for the relatively small production of cement in the United States, is the reality that we invested in and built up our infrastructure during the 1940’s, 50’s and 60’s. That effort also required massive amounts of cement, tonnages that I am guessing are comparable to China’s recent production totals. With our infrastructure largely in place the requirement for massive quantities of cement in the U.S. just is not there, relative to the demand for cement in support of growth in China. That is, until the escalation in the crumbling of our streets, highways, bridges and interstates begins to necessitate more comprehensive replacement and expansion, something that certainly seems to be gaining more momentum nationwide as our national infrastructure moves into its sixth decade of intense use.

I very highly recommend subscribing to The Oil Drum if you have any interest in energy policy, peak oil, and the social, political, and economic implications of our dependence on foreign oil. The coverage on this blog is comprehensive and the writing is excellent.

Our little family is definitely feeling the pinch of higher gas prices, to the tune of a couple hundred dollars a month more than we were paying about a year ago. Yet, my wife and I are ok with this and are adjusting our lifestyle and schedule to allow us to drive less. We know that these high gas prices may be what it takes to change not only the habits of Americans as individuals, but of society at large. The net of that will be a very good thing. So we are beginning to drive much less, and be much more thoughtful in our destinations. We are clearly not alone.

A Department of Transportation study (via nextautos) has revealed that in April of this year Americans drove 1.4 billion fewer miles on highways than they did in April of 2007, a 1.8% reduction. So far for 2008 Americans have driven 20 billion fewer miles than they did in 2007. What is interesting, though, is that while those numbers may sound large they are not yet a significant percentage reduction over 2007, though the April numbers continue a six month trend in declining miles travelled. I would anticipate that miles driven will continue to decline and while 1.8% may not seem like a large decline it is my guess that this is a trend that will continue for some time to come. If the high gas prices last as long as many are saying they will, those declines in driving may become permanent lifestyle changes.

Here in the United States we are definitely feeling the pain of higher gas prices, but that pain is only a result of our expectations being unreasonably set by unrealistically suppressed gas prices for… well, forever. The graph above compares the gas prices of several nations over the last year. The average price in the United States for a gallon of gasoline would be the bluish line at the bottom, the one far below the cluster of lines.

This perspective brought to you by our friends at Telstar Logistics.

Click on the image above to enlarge the graph to make it more readable. It paints a picture that is probably not that surprising, but definitely attention grabbing. The United States faces a very different reality in the world today than it did toward the end of the 1990’s. Today we face a diverse spectrum of new players who are incredibly competitive, players who are in some cases much more disciplined, ambitious, and intensely focused on innovation. The elephant in the room is China which, again, is no surprise. China has been nothing but resurgent over the last decade and nothing tells that story as well as the graph above. China’s rise over the other 33 nations in the survey demonstrates a much changed world economic landscape in technology. Note also the ascendancy of Mexico, South Korea, India, Singapore, and Taiwan. We all owe Thomas L. Friedman of the NYT’s a small bit of deference on this matter.

The graph is the result of a study conducted bi-annually by the Georgia Institute of Technology that measures the technology standing of 33 countries based upon four key technology focused factors:

1. National orientation toward technological competitiveness
2. Socioeconomic infrastructure
3. Technological infrastructure
4. Productive capacity

From the intro to the Georgia Tech report on the study findings:

“…China may soon rival the United States as the principal driver of the world’s economy – a position the U.S. has held since the end of World War II. If that happens, it will mark the first time in nearly a century that two nations have competed for leadership as equals”

The graph above and the recent editorial by Thomas Friedman intersect with some grim realities. The steadily rising price of oil has created petro-authoritarian states that no longer see the United States as a nexus of power in the world. In fact, they actively work to counter American interests globally, and do so fairly effectively right now. Huge amounts of money is flowing into states like Venezuela, Russia and Iran, and power and influence follow money. Energy and security expert Gal Luft testified to Congress last week and pointed out that as oil approaches $200 a barrel, OPEC will have amassed the wealth to:

“…potentially buy Bank of America in one month worth of production, Apple computers in a week and General Motors in just three days.”

Gal Luft

In his editorial, Thomas Friedman points out that the really startling issue here is that despite the confluence of so many negative catalysts around oil for our nation, and catalysts that will have long term socio-economic implications for us as individuals AND globally as a nation, we still do not have an effective energy policy in place that moves us past this desperate reliance on oil. What is it going to take?

A friend shared The Alternative Productivity Manifesto with me. We’ve discussed the workplace of the future and productivity issues previously, especially as these relate to the tension between controlling your time, how you use it, and the pressures exerted by a production focused mindset in so many businesses. The Alternative Productivity Manifesto is an excellent response to the present realities of the 40 hour work week, a productivity system visited upon us in the 1940’s and not revisited since. This despite the doubling in worker productivity over the last sixty years. We’re twice as productive, yet real wages are going down as compared to a historical average. We’re twice as productive, but there is ubiquitous pressure to put in more time, not less, and to sacrifice more to productivity. When did productivity become equated with quantity of time? Why does the worker not also benefit from their own efficiency and productivity? This disconnection is partly driven by our own ignorance of and inability to exert influence over the value systems within corporations, and partly by the enormous industry that has grown to help organizations squeeze every ounce of productivity out of their workforce. Productivity is big business, and big businesses invest big money with consultants that help them optimize and maximize the people that make up these companies. Not only that, but there is an enormous productivity industry focused on individuals promising enlightenment through productivity. This, of course, is achieved through the reading of endlessly published productivity books, blogs and through the purchase of innovative new productivity products. We struggle with ourselves.

In response The Growing Life has put forth The Alternative Productivity Manifesto to provide some perspective, and perhaps challenge the status quo. Here are just a few tenets from the manifesto that resonated with me:

• If your productivity increases, but your pay stays the same, then you’re effectively taking a pay cut (same goes if you begin working longer hours for the same pay).
• Productivity should be designed around our lives, not the other way around.
• The societally scripted routes to success via productivity are failing us.
• Hyperfocusing on productivity often gets in the way of the messy, circuitous, and discursive routes of personal development.
• Massive value creation often happens during times when no work is ostensibly being accomplished and productivity levels are ostensibly nil.

The media is creating a lot of confusion about the pressing economic situation. There is much talk, and hype, regarding whether or not we are in recession, mostly pointing to the realities of a recession that “may” already be underway. Scanning the mainstream media is an exercise in gloomy prognostications and flimsy evidence. Reading Rich Karlgaard’s blog at Forbes.com I came across the following excerpt of the 2008 Global Forecast by David Malpass:

“After the ongoing two-quarter slowdown, we expect a U.S. rebound in the second quarter extending through the second half. The softness in foreign growth in recent months should pass as U.S. orders start flowing again and the impact of lower U.S. interest rates spreads globally. We think the wave of downgrades in other outlooks–the Fed’s on February 20, the IMF’s in January, the falling Blue Chip forecast–is a delayed reaction to the severity of the August financial market turbulence. We’re more focused on the forward-looking response to the Fed’s interest rate cuts (3% and likely to fall), which we view as a significant positive event in the growth outlook.”

I appreciate that Karlgaard goes out of his way to present alternative viewpoints to those that seem to make better headlines. Malpass, as Karlgaard points out, has a pretty stellar record and is credited by Karlgaard as being one of the most accurate economic and market forecasters to navigate the intensity of the last eight years. Malpass feeling bullish about the U.S. economy is a very, very good thing. We need more good things right now.

While everyone worriedly contemplates (did you see the state of international stock markets today?) whether or not the United States has entered a recessionary period, Bruce Nussbaum takes a stand at Business Week and offers up a smart list of the 10 worst mistakes you can make in a recession that will hurt and inhibit innovation. Sometimes knowing what not to do is a bit easier then knowing what to do, and this list is definitely worth reviewing as you and your company plan for navigating our changing economy. Here’s what NOT TO DO from Nussbaum’s article:

1 - Fire talent. Because of America’s accounting laws, investments in talent are expensed, not capitalized, so cutting back on people, especially really smart, high-priced people, is a quick way to cut costs. The accounting rules only hurt companies who follow them. Talent is the single most important variable in innovation.

2 - Cut back on technology. Xerox and others report that companies are already curbing investments in technology to save money. Banks especially. The rise of social networking and consumer power means that companies have to be part of a larger conversation with their customers. This means big money spent on IT.

3 - Reduce Risk. Innovation requires taking chances and dealing with failure. Recessions push managers to be more conservative. They need to fight this instinct.

4 - Stop New Product Development. Saving money often means cutting back on new products and services during an economic downturn. This hurts companies when growth returns and they have fewer offerings in the marketplace to attract consumers.

5 - Boards Replace Growth-Oriented CEOs with Cost-Cutting CEOs. Sudden declines in revenues and profits often leads boards of directors to search for managers with experience in pinching pennies. That’s what appeared to happen recently at Bang & Olufsen. Boards forget that most recessions last only two or three quarters and, these days, are relatively shallow. Penny-pinching CEOs don’t have the skills to grow, when growth returns.

6 - Companies Retreat From Globalization. It’s expensive to expand globally and managers often save money by cutting back on emerging markets. It’s a big mistake. Emerging markets are sources of new revenue, business models, and talent.

7 - CEOs Replace Innovation As Key Strategy. By turning defensive, top managers take innovation off the top of the official agenda and replace it with systems management and squeezing costs. The entire organization follows. It is extremely hard to reverse this when growth returns.

8 - Performance Metrics Are Changed. To Save money and cut costs, managers shift employee evaluations away from rewarding riskier new projects toward sustaining safer older goals. Risk-averse behavior follows. Again, this is hard to change.

9 - Hierarchy Is Reinforced Over Collaboration. Sudden drops in revenue and profit often lead companies to panic and mobilize to stem the decline. The need for fast decision-making often leads to a return to command-and-control management. This alienates creative-class employees, young Gen Y and Xers and stops the evolution of corporation organization toward a flat, collaborative, open source model.

10 - Retreat Into Walled Castles. Cutting back on outside consultancies is seen as a quick way to save money. Yet one of the key ways of introducing change into business culture is to bring in outside innovation and design consultants. They know what companies across a broad range of industries around the world are doing to promote change. Not receiving this information can hurt a company’s global competitive position.

There are many indicators that this recessionary period will be relatively short lived, with the United States emerging sometime at the end of 2010/early 2011 or so (look for my imminent post on economist Brian Beaulieu of EcoTrends, who I had the pleasure of hearing present on the state of the economy last week). An optimist’s take on recession is that it is an opportunity to refine your business, diversify your offerings, enter new markets and prepare for the relative deals in the economy as the markets hit rock bottom. Time to find your inner optimist.

And it’s probably a good thing, given the perceived arrogance of our nation internationally these days. Either way, for the first time since the 19th century the United Kingdom is going to surpass the United States in the standard of living. Much of this is due to the value of the British pound with respect to the American dollar. As of January 10, 2008:

1 British pound = 1.9655 U.S. dollars

It is also do to the reality that in the United States average incomes have remained largely stagnant since the 1970’s. That is approaching 40 years of income stagnation. Remarkable that we have enjoyed the prosperity we have given this reality.

The Canadian dollar has also been competing very well with the American dollar as of late:

1 Canadian dollar = 0.994332 U.S. dollars

As has the Canadian standard of living. Which is probably why you are beginning to see a reversal of business investment with Canadian businesses taking advantage of bargains south of the border.

Then, of course, there’s the Euro (which is actually lower vs. the dollar than it has been in a while):

1 Euro = 1.4697 U.S. dollars

Original story from the TimesOnline