FLOW Vision News: JUNE 2007

Dear Friends in FLOW,

Mark Frazier and I have recently completed a document that is serving as the basis for an Alliance in support of Women's Empowerment Free Zones (WEFZ).  This document is posted as our Member's Platform this month.

The core of our WEFZ proposal is the fact that when land is declared a free zone with a world-class business environment, land values increase dramatically - in many cases by 30 times or more.  This is largely due to the fact that poor legal environments are the leading cause of poverty around the world.  Consider that in many countries it takes a year or more to open a business legally, or that one must pay employees for three to six months after one no longer needs them, or that contract enforcement is haphazard and uncertain.  Entrepreneurs in most of the developed world are often unaware of the convenient and reliable legal infrastructure that enables them to open a business, hire employees, obtain credit, etc.  Remove the irrational obstacles and the process of entrepreneurial wealth creation starts fast - and then accelerates.

When businesses have access to a world-class legal environment they thrive.  In the past free zones have had a mixed reputation because of an association with sweatshops, on the one hand, and corrupt deals between corporate and government cronies, on the other.  Indeed, in the past free zones were often a way for insiders to obtain great wealth for putting the deal together.  Mark's insight is that the wealth-creating aspect of free zones is in no sense dependent on the more sordid side:  the wealth creation that takes place from world-class business environments is real, and that wealth could be applied to good causes.

Thus we propose to create WEFZs in which, after a thirty-year period, community trusts would own 65% of the extraordinary value created in free zones.  It is worth nothing in this context that the ruler of Dubai just created a $10 billion foundation, largely from the wealth he obtained by means of the wealth created in Dubai in the past fifteen years.  We envision a world in which, around the world, community trusts supporting women and children receive these massive windfalls.  In a sense, we are proposing the largest philanthropic initiative in history, based on proven models of wealth creation.  Skeptical?  Read our WEFZ document and let us know what you think.

I see two primary obstacles to the realization of this dream:

1. Many people do not believe that wealth is created by means of entrepreneurial activity.
2. Many people are fearful about helping poor people become wealthy on environmental grounds.

I'll address each issue briefly here.

The first is so self-evident to me that it did not occur to me that it needed to be explained until I met a brilliant programmer who was working for an entrepreneurial start-up in Montreal who didn't believe it.  He had so internalized anti-capitalist attitudes according to which all capitalist activity was exploitative that he didn't believe that entrepreneurs created wealth.  I had to walk him carefully through the fact that he was, in fact, doing productive work each day, and that he would not have been doing that productive work unless his employer had created the company, and so forth and so on.  The fact that a very smart person believed in this, in 2006, dumbfounded me.  We all need to evangelize the fact that, under most circumstances, entrepreneurial capitalism is the most sophisticated technology on earth for advancing human well-being.

When we are cold and we build ourselves a shelter, or when we are hungry and we plant food to feed ourselves, we know that our work has led to improving our condition.  As an educator, when I train young people to think for themselves, to read and write well, to listen and speak well, and so forth, I know that I am providing them with skills that will make them more effective and more valuable in their professional lives and, in some respects, more effective in their personal lives as well.  When tech entrepreneurs start new web companies they seek to make our lives more connected and more efficient; whether or not a particular entrepreneur succeeds or fails, on balance our opportunities for learning, communicating, and pursuing our goals have exploded exponentially in recent years.  Most of the time, most economic activity makes life better for someone somewhere - it is an act of creation.

Because the costs of economic activity are not always internalized, there are many cases in which profitable economic activity was an act of destruction as much as an act of creation; consider, for instance, a coal power plant that created electricity but degraded air quality in the process.  But as we internalize costs, through property rights solutions to tragedy of the commons problems, the profitability of economic activity will more closely track the creative contribution of the entrepreneur.

Indeed, in order to illustrate this principle, I'll provide an example of an entrepreneur whose work may well address the second obstacle to WEFZ, the notion that making poor people wealthy will destroy the environment.  I don't intend the story of this one entrepreneur to be taken as the solution to anything, but rather as a parable of how wealth creation can be aligned with environmental benefit.

Jim McNelly became fascinated with composting in the 1970s.  He began simply as an enthusiast who practiced composting, studying it, and later writing books and articles on it.  He became an expert based on his love of composting. 

Gradually he began composting for others, working with larger and larger clients to transform their organic wastes into superb soil supplements.  As he worked with larger clients, he needed to solve numerous technical problems that had not been necessary to address on smaller scales.  Eventually he created a patented technology for automatic industrial scale composting based on containers modified from the standard container ship unit.  His composting containers now produce a super-enriched soil supplement from organic refuse automatically, without releasing significant gases during the process (uncontained composting can release ammonia, and methane during the decomposition process).

The resulting soil supplement has a sufficiently high nitrogen content in a “bio-available” form to outperform all commercial fertilizers and yet it almost certainly qualifies as "organic". (Not quite yet because in order to get the nitrogen content up there he has to add a small proportion of non-organic nitrogen and this technique is under review by USDA).

Jim's small company, with three full-time employees and various contractors, had its first profitable year last year.  This year they expect to see explosive growth, with every year looking brighter beyond.  Indeed, based on prospective size of the global market for his product, Jim is applying for the $25 million Branson/Gore Carbon Sequestration Prize.

What?  Composting could become the leading carbon sequestration technology of the 21st century?  Well, maybe.  The premise on which Jim makes his calculations is based on the global issue of soil depletion.  Commercial farming techniques combined with erosion have depleted hundreds of millions of acres around the world.  The application of commercial chemical fertilizer is running into decreasingly marginal returns in many places.  If he can produce high-nitrogen compost that outperforms chemical fertilizer at a lower price, suddenly it becomes profitable for farmers around the world to buy his high-nitrogen compost rather than chemical fertilizer, with the added advantage that applying it each year enriches the soil rather than depletes it.  Strictly as a by-product, this massive scale composting would sequester many hundreds of billions of tons of carbon by plowing it back into the earth as a component of this super-soil.  And it would eliminate trillions of tons of rotting organic matter from landfills and other stockpiles where large stockpiles of plant matter generate fugitive methane, another significant carbon-based (CH4) greenhouse gas (indeed, some scientists consider the methane issue to be more serious than the CO2 issue).  Finally, "nutrient pollution," much of which stems from fertilizer run-off, is the single largest water pollution issue on the planet - and stabilized nitrogen-rich composted soil, tilled into the ground, results in a tiny fraction of the nutrient run-off as compared to chemical fertilizers.

Will all of this happen?  We don't know.  Right now, McNelly's market is relatively small because the up-front cost of his composting containers is high.  At present, they are primarily used in places where there are advocates for industrial scale composting, or where sensitive aquifers place strict limitations on the run-off from chemical fertilizers.
But as with all product innovation cycles, as his market grows his company will produce a higher quality product for a lower price.  How to accelerate this process?

Last month we pointed to Peter Barnes' book Capitalism 3.0, which advocates environmental trusts as a solution to environmental problems.  With a water trust, for instance, aquifer or rivershed trustees would be responsible for protecting the integrity of the water.  At present, there are rivers where bass fishermen protect the water by suing upstream polluters - it turns out that bass fishermen are a large, well-organized, aggressive constituency who want the rivers clean and full of bass.  A river trust would engage in similar protections of the river regardless of the particular species of fish in the river.  If fertilizer run-offs were polluting the river, the trusts would sue either the farmers or the fertilizer companies for letting the run-off contaminate the stream.  Merely the threat of such a lawsuit would make less toxic fertilizers a better investment for the farmers or fertilizer companies.  Thus with a slightly higher cost imposed on either farmers or fertilizer companies, Jim's composting containers obtain a large commercial market. 

Other paths to scalability are also possible:  As soils become more thoroughly depleted and as Jim's nitrogen-rich compost becomes better known, direct market demand from farmers could stimulate growth.  Or if Jim is able to modify the chemical component so that his compost qualifies as "organic" under U.S.  law, demand will increase.  Or perhaps Jim's existing produce will be considered "organic" in some country even though it may not yet meet U.S.  standards.  The rate at which demand for his product will grow depends on numerous variables, including the cost of his inputs, the interest rate, the cost specified by landfills for accepting organic refuse, the cost of competitor's products, etc.  If Jim's company is producing millions of composting containers, it will be a very profitable company and he will become a very rich man.  But at no point was money ever the purpose of his work.  He is just a hippy geek who loves compost.

The primary reason for telling this parable is not the ultimate fate of Jim's business.  It is, instead, to show one of millions of means by which entrepreneurial creation will ease our growth pains.

His story is interesting because it is unexpected and far-reaching - who would have thought that composting could do so much?  We could well find ourselves in a world some years hence, with 8 billion people all enjoying a U.S. standard of living, but with less air pollution, less water pollution, richer soils, and so forth than we have today. 

Instead of Jim McNelly, it might be one of the literally hundreds of sustainable companies that venture capitalist Vinod Khosla is investing in.  Khosla, a founder of Sun Microsystems, has a complex portfolio of venture investments that include solar and wind power, complex new materials that could result in new materials, various types of genetically-modified ethanol sources, new electrical storage devices, and more.  Khosla knows that in order for any environmental solution to be scalable, it must be profitable.  He is thus only investing in companies that he expects will, in fact, become profitable. 

Or perhaps Bill Joy's Fiber Forge will do it.  Joy was Sun Microsystems' Chief Scientist, and one of his dozens of projects is Fiber Forge, an entrepreneurial effort to create economical automobile parts out of carbon fiber.  Carbon fiber tennis rackets and golf clubs have largely replaced metal because they are higher performance and lower weight.  High-performance bicycle frames and Formula One race car chassis are now carbon fiber.  If the cost can be brought down so that carbon fiber can be used for most metal automobile components, hundreds of pounds of weight could come off of each car, allowing us to reach fuel economies undreamt of today.  Eight billion people might well be driving cars fifty years from now - but cars made of carbon fiber that get 200 miles to the gallon from a genetically-modified, almost emission-free plant fuel that does not yet exist.

The faster that economic growth takes place in poor nations, the sooner each one will reach the "demographic transition" in which family size decreases to the replacement rate or below.  In all wealthy nations, the native populations are no longer growing - the average family size is 2.1 children or fewer.  By accelerating economic growth, and by focusing its benefits on women, WEFZ will defuse the population bomb, and thereby reduce many pressures on the environment, even faster.  By means of internalizing the external costs of pollution, through environmental trusts and other means, we will create the incentives through which entrepreneurs will create solutions to all of our environmental issues.

Work with us to liberate the entrepreneurial spirit for good, and encourage your friends to spread the idea of Women's Empowerment Free Zones to create peace, prosperity, happiness, and well-being for all - sooner, rather than later.

Towards peace, prosperity, happiness and well-being for all,

Michael Strong
CEO & Chief Visionary Officer
FLOW, Inc.

P.S. Our book this month, Jack Hollander’s The Real Environmental Crisis:  Why Poverty, Not Affluence, Is the Environment’s Number One Enemy provides a comprehensive review of the ways in which poverty exacerbates environmental problems.

Please contact us at contact@flowidealism.org with ideas, insights, and inspiration. And remember that FLOW is a non-profit organization that promotes economic freedom and broadly distributed prosperity. You can support FLOW through your financial contributions among other means.