Journal of Sustainability

Journal of Sustainability http://journalofsustainability.com/lifetype/index.php?blogId=1 Don't forget to visit our splash page at www.JournalofSustainability.com for our Discussion Board, Wiki and more! editors 2010-07-29T18:30:43Z Nationalization as Privatization in Reverse: Understanding the Nature of the Commons to Identify a Possible Point of Optimal Nationalization, Part 4 http://journalofsustainability.com/lifetype/index.php?op=ViewArticle&articleId=99&blogId=1 By Lucio Munoz*   * Independent Qualitative Comparative Researcher / Consultant, Vancouver, BC, Canada   Email:   <a href="mailto:munoz@interchange.ubc.ca"></a><a href="mailto:munoz@interchange.ubc.ca">munoz@interchange.ubc.ca</a> [continued] Determining the optimal level of nationalization             While we can nationalize it all, as some communist/socialist countries have done or did, this may not be an efficient move today as empirically it has been shown that some levels of privatization are needed to keep the overall system sustainable.  Persistent full nationalization and total privatization deficits appears to be the empirical reason why the Soviet Block fell or so called Soviet Union effect, which may explain why China became more eager to move towards capitalism allowing slowly more controlled levels of privatization and moving away from full nationalization.             This raises the possibility of the existence of an optimal level of nationalization, a situation where the level of the commons under public use meets social/public goals while allowing for some efficient private use. This situation can be appreciated both through a general asset inversegram and through a specific asset inversegram. a) Optimal nationalization under the general asset inversegram             Figure 8 below captures the dynamics leading towards this possible point of optimal nationalization using a general asset inversegram. <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F8.JPG" />             Figure 8 above indicates that we can nationalize up to point (f), which covers the section of the commons that is not yet under private use, section between point (c) and point (d), but this does not meet social/public goals so it is not optimal.  Figure 8 above also shows that we can nationalize all the way to point (h) and allow no private use at point (a), but this would be unsustainable in the long term as it would be subjected to the general asset Soviet Union effect as it would be operating at a total social welfare waste and total privatization deficit level the distance from point (g) to point (h) and from point (a) to point (b) respectively.              Finally, Figure 8 above can be used to express the view that if we nationalize the commons to a point of nationalization such as point (g) and allow some privatization to point (b), then this would be an optimal nationalization point M* as at point (g) social/public goals are met while some efficient private activity can take place. In other words, a point of optimal nationalization M* is a point where the commons is in an optimally compromised state.                    In summary, Figure 8 above can be used to say the following: 1) That an optimal nationalization point M* is possible at point (g); 2) That nationalizing beyond that point (g) = M* or to the right of it is not a good choice as doing this may make the overall system unsustainable as we would be operating under social welfare waste and privatization deficit; and 3) That allowing privatization beyond point (g) = M* or to the left of it, would lead to excess capitalism and to a social welfare deficits rendering those governments unable to meet their social goals. Hence, the optimal nationalization point M* in Figure 8 above is more than just social protection, it is the point of effective social protection. b) Optimal nationalization under the specific asset inversegram             Figure 9 below shows the nature of the optimal point of nationalization(M*) of national(N) and local(L) assets and its characteristics. <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F9.JPG" />             Line M* in Figure 9 above indicates the following: 1) That optimal nationalization requires the nationalization of assets of national interest(N) and of assets of local interest(L) up to line M* and the introduction of privatization of national assets(N) and of local assets(L) as indicated by section “a” and section “b” respectively; 2) That if we nationalize to the left of line M*, there will be nationalization or social welfare deficits and excess capitalism of national and/or local assets, a non-optimal situation; 3) That if nationalize to the right of line M*, there will be excess nationalization or social welfare waste and privatization deficits of national and local assets, another non-optimal situation; and 4) That at line M*, there is no social welfare waste, no excess nationalization, no privatization deficits, no excess capitalism, and no social welfare deficits of any kind as it is the optimal point of nationalization.             In summary, Figure 9 above can be used to say the following: 1) That an optimal nationalization point is possible at point M*; 2) That nationalizing to the right of that point M* is not a good choice as doing this may make the overall system unsustainable as we would be operating under social welfare waste and privatization deficit; and 3) That allowing privatization to the left of point M* would lead to excess capitalism and to a social welfare deficits rendering those governments unable to meet their social goals.  Hence, the optimal nationalization point M* in Figure 9 above again is more than just social protection, it is the point of effective social protection. The search for the optimal level of nationalization in China             As mentioned in the introduction above, China appears to be allowing currently some levels of  private activity involving assets of local relevance to little by little move towards a level of optimal nationalization while protecting assets of national relevance and keep political stability as its overall goal is still to meet its social/public goals, and the process of how China is doing that can be appreciated both ways, through a general asset inversegram and through a specific assets inversegram. a) The optimal level of nationalization in China using a general assets inversegram             The general asset inversegram for China is shown in Figure 10 below: <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F10.JPG" />             Figure 10 above shows the following: 1) That China before opening its commons to private activity in assets of local relevance was operating at full level of nationalization at point (h) just as the Soviet Union did; and therefore China was operating at the point of full social welfare waste and total privatization deficits; 2) That since China now has started to allow some private use of assets of local relevance, it is operating at point (i) in terms of levels of privatization and between point (g) and point (h) in terms of levels of nationalization reducing the level of social welfare waste, but still at a private sector or privatization deficit at the space between (i) to (b) as China is still operating beyond the point of optimal nationalization at point (g) = M*, which is not efficient; and 3) That China in the future will allow privatization slowly to move from point (i) to point (b) to eliminate that social welfare waste and that privatization deficit associated with it, an efficient move as it coincides with the level of nationalization at point (g), which is the optimal level of nationalization(M*) as it meets its social/public goals.              See that at point (g) or optimal nationalization point(M*) in Figure 10 above, 1) There is not social welfare waste and there is no excess capitalism; 2) To the right of point (g) there is social welfare waste and privatization deficits; and 3) To the left of point (g) there is social welfare deficit and excess capitalism.  In other words, as long as China can meet its social/public goals by operating at point (g) = M*, it will be able to efficiently allow private activity at point (b), which will help to keep the system as a whole stable.              However, Figure 10 above also permits us to see by the broken line from point (b) to point (d) that 1) If private activity in China is allowed to go beyond point (g) or to the left of point M*, slowly or quickly, it will be a  point of excess capitalism, then China would not be able to meet its social/public goals as it would be operating at a social welfare deficit point; and 2) The bigger the social welfare deficit, the more unstable the China system would become.  Therefore, China has a strong incentive to keep for sure private activity up to the optimal nationalization at point M* and avoid privatization beyond this optimal nationalization point M*. b) The optimal level of nationalization in China using a specific assets inversegram             The specific asset inversegram for China is shown in Figure 11 below: <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F11.JPG" />             Figure 11 above allows us to point out in detail step by step how China is moving from full nationalization(line T) to optimal nationalization(line M*) to remain politically stable during the transition: i) Section “1” and section “2” show that China has decided to allow slowly the privatization of local assets(L) and it will continue to allow it until it reaches the point of optimal nationalization M* and avoid that social welfare waste and privatization deficit;  and ii) Section “3” and section “4” indicate that after reaching optimality in the local assets privatization arena, China will have an incentive to privatize some national assets(N) up to the optimal point M* to avoid that social welfare waste and privatization deficit associate with national assets.              Notice that China is following the principle of inverse action, it quickly nationalized everything after the revolution starting from national assets to ensure system stability; and right now it is slowly allowing privatization starting from local assets to remain stable with the goal in mind of later privatizing some state assets.  And also notice that when China started to allow privatization in 1978, then the following happened: i) China went from a communist country to a dwarf country(Socio-capitalist) and from a communist development system to a dwarf development system(Socio-economic) as now it has a compromised use model; and ii) China created a dwarf market(State controlled invisible hand).   General Implications of the discussion above   Nationalization policy should be used as a proactive optimal policy to ensure effective social protection while encouraging controlled capitalism, not as a reactive anti-privatization non-optimal policy as it has been used so far.  This requires the nationalization of assets still in public use to place them outside the pulling forces of the private market; and the nationalization of private assets of national and local relevance. Full nationalization is not an optimal point as it is affected by excess state/bureaucratic self-interest, leading to total social welfare waste and privatization deficits; and therefore, it is not an efficient social protection mechanism.  Full nationalization should be avoided. as it is not sustainable in the long-run as shown by the fall of the Soviet Union. Full privatization is not an optimal point too as it is affected by excess individual/corporate self-interest, leading to total excess capitalism and social welfare deficits; and therefore, it is not an efficient social protection mechanism too.  Full privatization should be avoided. as it is not sustainable in the long-run as demonstrated by the recent excesses and crash of the financial system.   The optimal level of nationalization is an optimal compromised state and its goal is to ensure effective social protection, not just social protection.   The China experience shows that when moving from full nationalization to an optimal nationalization point, to remain politically stable, it should be done slowly beginning with the privatization of nationalized assets of local relevance first.   The principle of inverse action suggests that when moving from full capitalism to an optimal nationalization point, it should be done fast, beginning with the nationalization of assets of national relevance first.   The long-term viability of implementing optimal nationalization programs needs the creation of a world bank for optimal nationalization to assist countries with the financial support and expertise they may need to implement and ensure the success of such programs in the long-term. Optimal nationalization theory is consistent with sustainability requirements. Specific conclusions             First, it was indicated that the commons can be thought as existing in three different scenarios: fully in public use, fully in private use, and as a compromised commons.  Second it was shown that the process of privatization and nationalization can be viewed as having different stages; that the nationalization process can be seen as the opposite of the privatization process or as privatization in reverse; that a level of optimal nationalization may exist at a point where nationalization meets social/public goals while allowing some levels of privatization; and that this is an optimal compromise state where social goals are met and controlled capitalism can take place.             Third, it was pointed out also that current empirical development experience of China appears to be consistent with the theoretical possibility mentioned above as by allowing little by little some levels of privatization in assets of local relevance, China is now moving towards a level of nationalization that will still allow it to meet its social/public goals while eliminating social welfare waste, and therefore China is moving slowly towards an optimal nationalization point or a point of optimally compromised commons right now.  And finally, the general implications to other countries that are now moving towards or who will need to move away from the point of full nationalization or of full privatization were pointed out. General conclusions             First, it was shown that nationalization can be expressed as privatization in reverse.  Second, it was stressed that a possible optimal rate of nationalization exist; Third, it was shown that China is following the principle of inverse action when moving from full nationalization state towards the optimal nationalization point by slowly allowing privatization of assets of local relevance first; and finally, it was pointed out that nationalization policy should be used as a proactive optimal policy to ensure effective social protection while encouraging controlled capitalism, not as a reactive non-optimal policy as it has been the case so far. 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The World Bank(TWB), 2008.  G20: Global Financial Crisis: Responding Today, Securing Tomorrow, Background Paper, November 15, Washington, DC,USA. copyright 2010 Lucio Munoz and the Journal of Sustainability Issue 3 Number 1 2010-07-20T20:56:52Z editors Nationalization as Privatization in Reverse: Understanding the Nature of the Commons to Identify a Possible Point of Optimal Nationalization, Part 3 http://journalofsustainability.com/lifetype/index.php?op=ViewArticle&articleId=98&blogId=1 By Lucio Munoz* * Independent Qualitative Comparative Researcher / Consultant, Vancouver, BC, Canada   Email:   munoz@interchange.ubc.ca [continued]             Notice that when there are no assets in public use(g) and in private use(p) at the same time, then there is no commons(c), which can be stated as follows: c = gp The nature and characteristics of the different types of commons             From the model presented above( C = G + P ), it can be seen that there can be three different types of commons: a) The commons under full public use(C1)             One possibility is that the commons is under full public use(G), no private use exists(p), which can be represented as: C1 = Gp             This would be the case of a fully totalitarian state or full nationalization(FN) where no private uses exists(p).  As it can be seen in Figure 5 below, there is a point of full public use at point “a”. b) The commons under full private use(C2)             Another possibility is that the commons is under full private use(P), no public use exists(g), which can be presented as follows: C2 = gP             This would be the case of a fully capitalistic state or full privatization(FP) where no public uses exists(g).  As it can be seen in Figure 5 below, there is a point of full capitalistic use at point “b”.             c) The commons under compromised use(C3)             The third possibility is that the commons is under compromised used(M), one where the commons is under both public(G) and private(P) use at the same time: C3 = GP = M             This would be the case of a mixed state, where both public(G) uses and private uses(P) coexist or exist at the same time.  As it can be seen in Figure 5 below, there is public use-dominated mixed state at point “c” and there is a public use-dominated mixed state at point “d”. <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F5.JPG" /> <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx" rel="themeData" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml" rel="colorSchemeMapping" />   <style></style><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;}</style>             Note that the arrow on the top of the inversegram indicates that levels of public use(G) of the commons move from left to the right; and that the arrow below the inversegram shows that levels of private use(P) of the commons move from the right to the left. Possible levels of privatization             To facilitate the presentation of ideas, it is assumed that there are four possible levels of privatization: zero privatization, weak privatization, strong privatization, and full privatization.  Figure 6 below captures these ideas in detail. <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F6.JPG" /> <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx" rel="themeData" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml" rel="colorSchemeMapping" />   <style></style><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;}</style>             Figure 6 above shows the different levels of privatization of the commons as we move from right to left at the base of the figure:  At point (a) we have zero privatization; at point (b) we have weak privatization; at point (c) there is strong privatization; and Full privatization is found at point (d).  Notice that as the level of privatization increases, the level of public use decreases, showing that nationalization is privatization in reverse.             Also see that the move from point (a) to point (b) in Figure 6 above can be seen as the pre-globalization period when we moved from no privatization at all slowly to some privatization; and that the move from point (b) to point (c) can be taken as the globalization period, the move from weak quickly to strong privatization. Possible levels of nationalization             Since nationalization can be seen as the opposite of the privatization process or as privatization in reverse, then there can be also different levels of nationalization, which can be appreciated in Figure 7 below:       <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F7.JPG" /> <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx" rel="themeData" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml" rel="colorSchemeMapping" />   <style></style><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;}</style>             Figure 7 above points out the different levels of nationalization possible as we move from left to right at the top of the figure:  at point (e) we have zero nationalization; at point (f) we have weak nationalization; at point (g) there is strong nationalization; and full nationalization is found at point (h).  Notice that as level of nationalization increases, the level of private use decreases.  Hence, privatization is nationalization in reverse, which is consistent with the principle of inverse action.             Also see that the move from point (e) to point (f) in Figure 7 can be seen as the period of nationalizing all assets that are not yet in private hands and are still in public hands.  And the move from point (f) to point (g) can be taken as the period of strong nationalization of private assets.     [continued] copyright 2010 Lucio Munoz and Journal of Sustainability Issue 3 Number 1 2010-07-20T20:49:22Z editors Nationalization as Privatization in Reverse: Understanding the Nature of the Commons to Identify a Possible Point of Optimal Nationalization, Part 2 http://journalofsustainability.com/lifetype/index.php?op=ViewArticle&articleId=96&blogId=1 By Lucio Munoz*   * Independent Qualitative Comparative Researcher / Consultant, Vancouver, BC, Canada   Email:   munoz@interchange.ubc.ca [continued] Methodology             First, the qualitative comparative terminology used in this paper is listed.  Second, some operational concepts relevant to the presentation of the ideas in this paper are introduced.  Third, a commons variability model is presented, which allows pointing out the nature and especial characteristics of the different types of commons consistent with it.  Fourth, the notion that there can be four different levels of privatization is pointed out.  Fifth, the inverse idea that there can be four different levels of nationalization is discussed.             Sixth, a framework that allows us to visualize the nature of a possible optimal level of nationalization both using a general asset and a specific asset inversegram is shown.  Seventh, the optimal framework above is used to show how China, by slowly allowing some levels of privatization, is moving toward a point of optimal nationalization right now.  Eight, some general implications that can be extracted from the ideas discussed above are highlighted.  Finally, some relevant specific and general conclusions are provided. Terminology             The qualitative comparative terminology used to present the main ideas in this paper is listed in Table 1 below.     Table 1 ---------------------------------------------------------------------------------------------------- C = The commons                                          c = There is no commons G = Public use exist                                       g = no public use exist P = Private use exist                                       p = no private use exist M = Compromised use                                  M* = Optimal compromise use FP = Full privatization                                   FN = Full nationalization N = Assets of national relevance                    L = Assets of local relevance ---------------------------------------------------------------------------------------------------- Operational concepts a) Inversegram: refers to a diagram used to present or represent opposite processes. b) Representing the commons as a rectangular general asset inversegram             The commons(C) can be represented by a rectangular object  or cake made up of assets under inverse uses, public use moves from left to the right; and private use moves from right to the left, as shown by the arrows in Figure 1 below. <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F1.JPG" /> <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx" rel="themeData" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml" rel="colorSchemeMapping" />   <style></style><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;}</style>             The inversegram in Figure 1 above allows us to see that the commons(C) can be envisioned as a rectangular figure or cake that can be divided among different uses such as public use(G) or private use(P) or compromised uses(M). i) Public use(G): When the commons is being used to meet social goals it is said to be in public use.  Figure 1 above shows, as indicated by the arrow at the top moving left to right, that public use of the commons(C) can vary from zero to one or from nothing to 100%.  When public use is zero(G = 0), then the commons is totally privatized or there is full privatization(FP).              When the public use is one(G = 1), then all the commons is in a fully totalitarian state or there is full nationalization(FN).  When public use is between zero and one(0 ≤ G  ≤1), the commons is in a mixed use state.  ii) Private use(P): When the commons is being used to meet private goals it is said to be in private use.  Figure 1 above also indicates as shown by the arrow at the bottom moving right to left, that private use can vary from zero to one or from nothing to 100% too.  When private use is zero(P = 0), then the commons is totally in public use or there is full nationalization(FN).              When the private use is one(P = 1), then all the commons is in a fully private state or there is full privatization(FP).  When private use is between zero and one(0 ≤ P  ≤1), the commons is in a mixed use state. iii) Compromised use(M): When the commons is in a mixed used state, it is said to be in a compromised use(M).  When the portion of the commons in public use related to the portion in private use is bigger, we have a public use-dominated mixed use or public use-dominated compromised use.  When the portion of the commons in public use related to the portion in private use is smaller, we have a private use-dominated mixed use or private use-dominated compromised use.              For example, it can be seen in Figure 1 above that if the commons or cake is cut as indicated by the broken line in such a way that 0.6 of the commons is in public use and 0.4 of the commons is in private use, then we have a public use-dominated mixed or compromised state in this case. c) Optimal nationalization point(M*): refers to the nationalization point where social/public goals can be met while allowing efficient levels of privatization at the same time.  It is an optimal point of compromised use.  Nationalizing after this optimal point leads to nationalization inefficiencies or waste; and nationalizing short of this point leads to nationalization deficits, both of which are sources of system unsustainability.  In the long-term, as they accumulate, they can even lead to system collapse. d) Representing the optimal nationalization of the commons through the general asset inversegram             If we assume that the optimal nationalization level is found at point M*, as shown in Figure 2 below, then we can use it to introduce the following concepts: i) General asset optimal compromise use: is the level of public use and the level of private use that meet at the point of optimal nationalization(M*).  Operating to the right or left of M* is not optimal. The further away we operate from optimal M*, be it right or left, the more unsustainable it is expected to be in the long-term, as these would be non-optimal levels of nationalization.  Point M* can be appreciated in Figure 2 below. ii) General asset social welfare waste: represents the inefficiencies  that accrue or accumulate when operating at levels of excess nationalization found at any point to the right of M*.  Social welfare waste can be partial or total.  For example, point T in Figure 2 below represents a point of full nationalization; and therefore, it is a point of total social welfare waste(section “a” and “b”) while point Q shows a place of partial welfare waste(section “a”) as it is somewhere between optimal(point M*) and total(point T) nationalization. iii) General asset excess capitalism: refers to private use of assets beyond the optimal point of nationalization(M*), it can be partial or total.  For example, we can see in Figure 2 below that the private use to the left of point M* represented by section “e” is partial excess capitalism while operating private use at point W would be total excess capitalism. iv) General asset Social welfare deficit: refers to the situation where nationalization stops to the left of the optimal point of nationalization(M*) leading to a situation where it is not possible to fully meet the social goals.  For example, we can see in Figure 2 below that if we operate at point K, and therefore to the left of M*, then we would have the social welfare deficit represented by section “f”. v) General asset capitalism deficit: refers to the situation where we have excess nationalization.  For example, we can see in Figure 2 below that if we operate at the point of excess nationalization T, we have a privatization deficit represented by sections “d” and “c”; and if we operate at point Q, then we have a capitalism deficit represented by section “d”. vi) General asset Soviet Union effect: refers to the expected system breakdown that results from operating at the point of full social welfare waste or point T in Figure 2 in the long-term. This effect may explain why the Soviet Union broke down under full excess nationalization and total privatization deficits. vii) General asset full privatization effect: refers to the expected system breakdown that results from operating at the point of full excess capitalism or point W in Figure 2 in the long-term.  This effect may explain why the financial system broke down recently under full excess capitalism and total social welfare deficits. viii) General asset principle of inverse action: If the road from full capitalism to full nationalization is fast to ensure system stability, then road from full nationalization to privatization should be slow, to remain stable.   <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F2.JPG" /> <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx" rel="themeData" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml" rel="colorSchemeMapping" />   <style></style><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;}</style> e) Representing the commons as a rectangular specific asset inversegram             The commons(C) can also be represented by a rectangular object  or cake made up of assets of national(N) and local(L) relevance under inverse uses nationalized use and privatized use as shown in Figure 3 below: <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F3.JPG" /> <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx" rel="themeData" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml" rel="colorSchemeMapping" /> <style></style><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;}</style>             Figure 3 above allows us to see that the commons(C) can be envisioned as a rectangular figure or cake that can be divided among different uses such as full privatized use(FP) or full nationalized use(FN) or compromised use(M) of assets of national(N) and local relevance(L). i) Asset specific full nationalization(FN):             Figure 3 above allows us to see the following: Line “a” indicates that all assets, national(N) and local(L), are nationalized; Line “b” shows that all national assets(N) are nationalized and some local assets(L) are privatized; and Line “c” demonstrates that some national assets(N) are privatized and all local assets(L) are nationalized; ii) Asset specific full privatization(FP)             Figure 3 above lets us appreciate the following: Line “e” indicates that all assets, national(N) and local(L), are privatized; Line “f” shows that all national assets(N) are privatized and some local assets(L) are nationalized; and Line “g” demonstrates that some national assets(N) are nationalized and all local assets(L) are privatized; iii) Asset specific compromised use(M)             Figure 3 above permits us to point out the following: Lines “d”, “b”, and “c” represent three different types of nationalization-dominated compromised use; and that Lines “h”, “f”, and “g” represent three different types of privatization-dominated compromised use. f) Representing the optimal nationalization of the commons through the specific asset inversegram             If we assume again that the optimal nationalization level is found at point M*, as shown in Figure 4 below, then we can use it to restate the following concepts: i) Specific asset optimal compromise use: is the level of public use and the level of private use of national and local assets that meet at the point of optimal nationalization(M*).  Operating to the right or left of M* it is not optimal and the further away we operate from optimal M*, be it right or left, the more unsustainable we expect it to be in the long-term. Point M* can be appreciated in Figure 4 below. ii) Specific asset social welfare waste: represents the inefficiencies  that accrue or accumulate when operating at a level of excess nationalization of national and local assets as found at any point to the right of M*.  Social welfare waste can be partial or total.  For example, line T in Figure 4 below represents a point of full nationalization of both national(N) and local(L) assets; and therefore, it is a point of total social welfare waste in assets of national relevance(N) as shown by section “a” and of assets of local relevance(L) as indicated by section “b” while any point of compromised used between M* and T would show a place of partial welfare waste in national and local assets. iii) Specific asset excess capitalism: refers to private use of national(N) and/or local(L) assets beyond the optimal point of nationalization(M*), it can be partial or total too.  For example, we can see at point K in Figure 4 below that the private use to the left of point M* of national assets(N) as represented by section “d” and of local assets(L) as indicated by section “c” is partial excess capitalism while operating private use of national(N) and local(L) assets at point W would be total excess capitalism. iv) Specific asset Social welfare deficit: refers to the situation where nationalization of local(L) and national assets(N) stops to the left of the optimal point of nationalization leading to a situation where it is not possible to fully meet the social goals.  For example, we can see in Figure 4 below that if we operate at point K, and therefore to the left of M*, then we would have the social welfare deficit in national assets(N) represented by section “d”; and a social welfare deficit in local assets(L) indicated by section “c”. v) Specific asset capitalism deficit: refers to the situation where we have excess nationalization.  For example, we can see in Figure 4 below that if we operate at the point of excess nationalization T, we have a privatization deficit in national assets(N) represented by section “a”; and a privatization deficit in local assets(L) indicated by section “b”. vi) Specific asset Soviet Union effect: refers to the expected system breakdown that results from operating at the point of full social welfare waste in national(N) and local assets(L) or line T in Figure 4 in the long-term. This effect may explain why the Soviet Union broke down into different states under full excess nationalization of assets of national(N) and local(L) relevance; and full privatization deficits in assets of national(N) and local relevance(L). vii) Specific asset full privatization effect: refers to the expected system breakdown that results from operating at the point of full excess capitalism in national(N) and local assets(L) or point W in Figure 4 in the long-term.  This effect may explain why the financial system broke down recently under full excess capitalism in assets of national(N) and local(L) relevance; and total social welfare deficits in assets of national(N) and local(L) relevance, creating unsustainability within and between capitalistic countries. viii) Specific asset principle of inverse action: If the road from full capitalism to full nationalization is fast, from national to local assets to ensure system stability, then the road from full nationalization to privatization should be slow, from local to national assets to remain stable. <img src="http://journalofsustainability.com/lifetype/gallery/1/ART80F4.JPG" /> <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx" rel="themeData" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml" rel="colorSchemeMapping" />   <style></style><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;}</style> g) Dwarf  country: refers to a state that is viewed as having a full use paradigm, but it does not as it in fact has a compromised use; it is neither this, nor that, but a mixed used model. h) Dwarf  development: refers to the process that is viewed as reflecting a specific use development paradigm, but it does not as it in fact is being supported by a compromised use; it is neither this, nor that, but a mixed development model. h) Dwarf  market: refers to a market that is viewed as being driven by free invisible hand, when in fact is being cleared by a regulated invisible hand. The commons variability model             If we think of the commons( C) as assets that can be under public use(G) or under private use(P) or in both uses at the same time or compromised use(GP), then it can be expressed as follows: C = G + P [continued] copyright 2010 Lucio Munoz and the Journal of Sustainability Issue 3 Number 1 2010-07-20T20:11:18Z editors Nationalization as Privatization in Reverse: Understanding the Nature of the Commons to Identify a Possible Point of Optimal Nationalization, Part 1 http://journalofsustainability.com/lifetype/index.php?op=ViewArticle&articleId=94&blogId=1 By Lucio Munoz* * Independent Qualitative Comparative Researcher / Consultant, Vancouver, BC, Canada   Email:   munoz@interchange.ubc.ca Abstract:             The ongoing implementation of liberal privatization policies despite open and increasingly generalized social discontent, especially in developing countries,  is leading to the search for efficient ways to counteract it.  The Soviet Union disintegrated in 1991 while resisting privatization pressure; and to avoid the same outcome, China took more concrete steps soon after the Soviet Union’s collapse going beyond those taken in 1978 to move from a system of full nationalization to allow slowly more and more controlled privatization.  This is a policy that continues today, which appears to suggest that the search for optimal levels of nationalization in China is ongoing right now to ensure over all system sustainability.  The 2007-2009 financial crises affecting western countries including the United States showed that fully uncontrolled markets can lead to system collapses too; and steps are being taken to ensure the existence of more controlled private forces.             However, not much is written about the possible relationship between privatization  and nationalization processes and the possible existence of optimal levels of nationalization.  The main goal of this paper is to introduce new ideas, concepts, and analytical tools related to the commons under different pressures, which can be used to frame a possible point of optimal nationalization. Introduction a) Defining the commons             The commons is a term that has been usually used to describe the pool of resources that belong to the public domain.  In other words, the commons is a public asset, either under specific, but unclear use or under communal use.  When the commons is under specific use and unclear access controls, the commons is bound to experience the tragedy of the commons(Hardin 1968) as rational actions or individuals would lead to its destruction.  When the commons is under communal use and clear access controls, the commons is bound to be nurtured, up kept, and protected(Rowe 2008), as again rational actions or individuals would lead to what the author calls “The happy commons”. b) The commons and conservative policy             In general, a conservative policy is directed at maximizing the allocation of the commons for social use in egalitarian ways and minimizing its privatization.  The allocation of the commons to social use is not based on how much income/resources the individual or group has, but on the individual/group’s right to access public resources to maximize social welfare and stability. Hence, social protection or social issues are of paramount concern.  For example, social concerns have traditionally been the driving force behind the search for equity in access to land in Latin America(Muñoz 2001).              This conservative approach is usually called the welfare state model, which uses distribution mechanism outside the market to achieve social harmony and avoid too rich, too poor power struggles.  The egalitarian role of the conservative state is not an easy one,  redistributive policies such as land reforms are difficult to implement and sustain unless there is a very strong political will and a very strong technical and non-technical grassroots organization(Adams 1995).              Hence, the central theme of this conservative state development approach is the notion that the author calls “Nobody is left behind” mode of government action.  However, public assets under the conservative policy of the commons are under constant pressure from private forces as they are not nationalised public assets, just public assets under communal and non-communal uses; and therefore, they are not outside the market’s domain.  For example, the wave of land reforms promoted by the World Bank in developing countries including in Colombia since the 1990s were done through market based approaches(González and Lopez 2003) as market mechanisms are supposed to be more efficient than non market approaches in redistributing land, in particular, and the commons, in general.  So as long as public assets are not nationalized they will be under the pooling influence of privatization pressures. c) The commons and liberal policy             The liberal policy aims at minimizing the use of the commons for social use and maximizing its privatization.  This is usually known as the liberal market model that is expected to sooner or later trickle down and based on perfect market assumptions.  The allocation of the commons to private use is then based here on how much income/resources the individual or group has as it is implemented through the free market.  Kelly(2006) points out that the conversion of the commons to private use in the USA intensified during the 1980s when the Reagan administration endorsed this policy as an efficient policy; and it was spread all over the world by institutions like the World Bank and the International Monetary Fund.  However, it was stressed recently that the perfect market under sustainability requirements is not sustainable(Muñoz 2001).                            The central theme of this liberal state development approach is the notion that the author calls “Only a few will be better off” mode of government action.  It is a fact, the rich are getting richer and the poor are getting poorer and governments are increasingly less able to meet the goal of “nobody is left behind” as the expected assumption of trickle down associated with privatization programs mentioned above has not materialized yet.  It was pointed out recently that the Embudo Effect explains why the rich are getting richer under liberal agricultural policies implemented under extreme inequality conditions(Muñoz 2009) as then the trickle down assumption does not work; and hence the Embudo effect allows most benefits to accrue to the rich.             As privatization approaches the point of full privatization, social issues and goals will most likely not be met as whole states can be paralysed when corporate or immense market forces are not allowed to go the way they want to go.  Ramonet(1998) pointed out that as corporate mergers get bigger and bigger they have the cloud to transform countries into dwarf states and behave practically as they wish.  Hence, without nationalization or limits, the public system will tend towards the full privatization model in the long-term.             d) The commons, non-optimal nationalization and non-optimal privatization policy             It seems that up to today, nationalization policies and privatization policies have been used or implemented with no optimal goals as guiding principles, which in the long-term leads to excesses and waste.    i) Non-optimal nationalization policy             Nationalization policy has been used as a non-optimal reactive, counter privatization policy to ensure social protection from uncontrolled capitalism instead of as a proactive optimal policy to ensure effective social protection while encouraging controlled capitalism. For example, the two main uses of nationalization policies under the banner of social protection are: 1) To protect remaining public assets from market forces or creeping development; and 2) To revert key private assets to public use.  For example, Gordon(2006) indicates that the 2006 nationalization of oil and gas industry in Bolivia was implemented under the goal of recovering state property and control; and therefore, as a reactive, specific sector counter privatization policy             And hence the goal of nationalization, if there is one, is social protection, not optimal social protection.  Nationalization actions are taken without a clear idea of how much social protection is efficient protection.  Nationalization beyond the optimal point would lead to excess nationalization and waste. The author believes that how much of the commons is nationalized should be based on how much of the commons is needed to be under public use to meet national social goals/welfare; and that once that nationalization point is reached, the rest of the commons should be in private hands. ii) Non-optimal privatization policy             Privatization policy has been used as a non-optimal active, counter welfare state policy to ensure individual protection from an over controlling state instead of as a proactive optimal policy to ensure responsible capitalism and ensuring effective social protection. For example, the two main uses of privatization policies under the banner of efficiency are: 1) To open up remaining public assets to market forces; and 2) To promote a culture or need of more and more maximization or growth is better.  For example, the Commission on Growth and Development released a report with the aim of spreading the culture of more sustained growth is needed to push developing countries out of their development shortcomings(TCGD 2008).              And hence the goal of privatization, if there is one, is uncontrolled capitalism, not responsible capitalism.  Privatization actions are taken without a clear idea of how much capitalism will hinder efficient social protection.  Privatization far away from the optimal point would lead to excess capitalism and waste.  The author believes that how much of much of the commons is privatized should be based on how much of the commons needs to be left out under public use to meet national social goals/welfare; and that once that privatization point is reached, the rest of the commons should be nationalized. iii) In summary:             There is a need to avoid excess nationalization and to avoid excess capitalism, and to create a nationalization policy guided by the search for optimality or efficient social protection.  Such an allocation of the commons to public use would be an optimal allocation as it would allow meeting social/public goals while still permitting some controlled, but efficient privatization.  In other words, an optimal nationalization point would be the one that meets social goals while allowing controlled private forces to exist.              e) The commons,  full nationalization, full privatization, and sustainability             Sustainability suggests that full nationalization and full privatization processes will backfire in the long-term as they work outside sustainability principles.  Full nationalization leads to state/bureaucratic self-interest excesses; and full privatization drives towards individual/corporate self-interest excesses, which through time can lead to the system demise and/or model realignment, as detailed below. i) The case of full nationalization             The recent history of the commons under unrestricted full nationalization in the Soviet Union appears to indicate that full nationalization will be unstable in  the long-term as it creates operational inefficiencies, which without a private option are perpetuated.  It can be said that the Soviet Union era lasted about 74 years, it started with the Russian revolution of 1917 and ended with its dissolution in 1991.  It resisted the opening of doors to privatization until almost the end, when it was cash empty and short of food.  Gaidar(2007) points out in relation to the Soviet Union’s collapse the following: a) that the Soviet Union leadership ignored advice provided by key advisers in the late 1970s on the option to introduce privatization in the lines of that in China and so keeping stability and control, but they decided to follow a different route; and b) that the collapse could be understood simply by a story of grain(scarcity) and oil(mismanagement and unpredictable revenue).             By discouraging privatization and competition and working beyond the optimal level of nationalization, the Soviet Union allowed the increasing accumulation of widespread state/bureaucratic financial, production, and resource use inefficiencies across the commons creating in the process, what the author calls in this paper, “excess nationalization, social welfare waste, and privatization deficits”, which rendered the system in the end politically unstable.              In other words, the unrestricted socialist program implemented by the Soviet Union operated under excess nationalization, social welfare waste, and privatization deficits, which long term led to a system breakdown.  Then, the quick privatization that followed the break-up of the Soviet Union helps us to see the social instability and health implications of privatizing all state assets too fast.  Stuckler et al(2009) found in a study of massive and quick privatization and health issues in former members of the Soviet Union that fast and huge national privatization programs have a significant impact in adult mortality trends.             China on the other hand, started to allow privatization in the late 1970s in a very slow fashion, and it apparently quickly learnt the lesson from the experience of the Soviet Union described above to maintain political stability: i) The need to avoid social welfare waste; ii) The need to bring in controlled privatization below national level by allowing private forces to set up shop and access assets of local or provincial relevance; and iii) The need to bring change in slowly.  Hence, right now the Chinese system is slowly moving away from full nationalization and in that way maintaining political stability.  Cao(2000) points out the following: a) That since 1978 China has an open door policy towards international capitalism; b) That privatization in China has been planned to take place first, not in the state sector, but in a lower parallel sector acting as a social cushion with the possibility of later privatizing the state sector if all goes well; and c) That China has planned to implement capitalism through a socialist market.              Hence, the rise of privatization in China can be said to be a locally oriented slow process driven by a market under the spell of social goals.  In other words, China has planned the slow introduction of capitalism in the sectors below national or state relevant assets to maintain stability and insulate the state sector from expected or unexpected initial changes or shocks.  Breslin(2004) points out the following about the Chinese move towards capitalism: a) That China created a primitive state controlled hybrid system where a state public system and a non state, often local, private system now exist side by side; and b) That the process towards privatization has gone through three periods: policy reformulation period(1978-1984), Old system abandonment period(1984-1994); and the macroeconomic turning period(1994-to now).              See then that the private market in China is controlled by the state; and that China’s period of old system abandonment(1984-1994) coincides with the period of downfall and breakup of the Soviet Union(1985-1991).  And this indicates that China took into account the political instability leading to the breakup of the Soviet Union; and the fast privatization implemented by its former members after the breakup when deciding to take further steps towards more controlled capitalism.             And currently, the experiences of the Soviet Union and of China with privatization are facts that perhaps are putting pressure on other countries under full nationalization such as Cuba to allow some type of controlled privatization too and move away from full nationalization.  Tamayo(1996) reported that privatization was already taking place in Cuba under official denials; THJ(2007) reported the expectation among participants in a panel discussion about the future of Cuba that Cuba was on the way to the free market economy; and TBI(2008) reported that Raul Castro is expected by observers to lead Cuba through a slow privatization process similar to that in China             And perhaps, the experiences of the Soviet Union and that of China with privatization are lessons that current governments such as those of Venezuela and Bolivia should take into account to start thinking about nationalization policy from the optimal point of view, not based on the old reactive model, to achieve efficient social protection and controlled, but efficient privatization.  It has been reported that nationalization policy is sweeping Venezuela under President Hugo Chávez(Ingham 2007) with more intensity.  Hults(2007) points out the following: i) That nationalization started in Venezuela 1975, when then-president Carlos Andrés Pérez expropriated assets from private oil companies and created the state company Petróleos de Venezuela, S.A; and ii) That nationalization pressures intensified when President Hugo Chávez won election in 1998 as when entering office in 1999, he began implementing policies aimed at taking control of this state company to support nationalization’s aims.  Now, nationalization in Venezuela has spread to other sectors in the oil industry such as oil service contractors(Arostegui 2009) and to other sectors of the economy such telephone, electricity, and now banks(Simon 2009).             On the other hand, it has been stated that the election of Evo Morales as president of Bolivia in 2006 has been taken by observers and investors as another sign that Latin America is going left, increasing the nationalization risk(Zissis 2006); and that the 2006 nationalization of the Oil and Gas sector in Bolivia is the third out of four nationalization attempts since 1936 in the same industry(Jova 2006). ii) The case of full privatization             The recent history of the commons under unrestricted full privatization and globalization in the USA and other developed countries appears to show that full capitalism will be unstable in  the long-term too as  privatizing the commons above and beyond what is needed to meet social/state goals or far away from the optimal level of nationalization brings in long-term unsustainability.  The recent financial crisis exposed the need to make capitalism a socially responsible and accountable system and move it away from its irresponsible past.  Mcintosh(2010) pointed out in his foreword piece of “Capitalism in Question” with the financial crisis in the background the following: 1) That economic governance needs a big overhaul; 2) That the model of economic growth itself has now fallen into question; 3) That a model that provides both private and public benefits at the same time is now desirable; and 4) Then we can have a society that is sustainable.             Hence, free capitalism is leading to the increasing accumulation of widespread individual/ corporate self interest excesses or inefficiencies across the commons, creating in the process, what the author calls in this paper, “excess capitalism and social welfare deficits”, which are capable of rendering the system in the end politically unstable and lead to system breakdown and/or realignment.  Truman(2009) pointed out four types of possible causes behind the 2007-2009 financial crisis: 1) macroeconomic shortcomings; 2) regulatory shortcomings; 3) abuses in promotions of new and little understood financial instruments; and 4) abuses in exposure or risky behaviour, but he felt that in his view macroeconomic and regulatory failures were at the heart of it.  However, IBT(2010) reported in January 2010 that Mr. Lloyd Blankfein, Goldman Sachs CEO, blamed excess credit and excess liquidity as the main drivers of the financial crisis when addressing The USA Financial Crisis Inquiry Commission. Notice that all of those causes are in one sense or another excesses which are expected under full capitalism so it can work as efficiently as those financial officers expected it to be, but they underestimated  or did not care about the social pain and flashback associated with it.             Apparently, the USA and other developed countries have quickly learnt the lesson from the excesses described above, the need to avoid unrestricted capitalism and to avoid the presence of social welfare deficits to maintain political stability as they have recently  taken coordinated leadership in implementing regulatory measures that will avoid corporate/individual excesses and that will achieve more predictable social protection.   President Obama is planning to take action right now on limiting the activities and size(WH 2010) and the risk taking behaviour(TWSJ 2010) of banks.  Hence, right now the USA system is in the process of slowly moving away from full unrestricted privatization towards more controlled privatization and maintaining that way political stability. The European Union has been coordinating regulatory and crisis recovery actions with the USA since 2008 when the EU leadership called for the realignment of the international financial framework(EC 2008); and right now they are pursuing an ongoing coordinated response to seeking tighter financial rules within their borders and internationally to address now well-known system flaws(EC 2010).             And currently, the experiences of the USA and other developed countries with unrestricted privatization are facts that perhaps are putting pressure on other countries, especially developing countries around the world to control more closely their local privatization programs and speed; and move away from local unrestricted privatization programs as they do not have much control over the forces behind international capitalism.  Soon after the financial crisis stroked in 2007, the World Bank moved to point out the high vulnerability developing countries, especially the poorest ones, have when facing an international financial crisis that is not of their making; and it challenged policy makers, among other things, to take actions to address their financial crisis in a way that do not push developing countries to worse development conditions than before the crisis(TWB 2008).  iii) In summary:             Historical facts appear to suggest that full nationalization scenarios and full privatization scenarios do not meet the true sustainability test in the long-term, that where social, economic and environmental values can be conjecturally met; and therefore, they should be avoided.  This suggest that if sustainability is the goal, the aim is then to find an optimal level of nationalization, the point where social goals are met and excess privatization avoided; and therefore, there is a need to avoid processes of full nationalization and of full privatization.  The need to identify conditions leading to optimal nationalization policies             Hence, nationalization policy and privatization policy have been used as non-optimal opposing tools, not as optimal tools for effective social protection.  Yet, not much is written about the relationship that may exist between privatization processes and nationalization processes; and about the nature of possible optimal levels of nationalization, levels where social/public goals are achieved while providing some room to efficient private forces. This paper intends to share some ideas on the issues mentioned above. Goals of this paper             The main goals of this paper are: a) To show that nationalization can be understood as privatization in reverse; b) To point out how these ideas can be arranged in a way that it is possible to point out a possible level of optimal nationalization; and to highlight the consequences of operating short or beyond of it; and c) To use the framework mentioned above to capture the process by which China is right now slowly moving away from full nationalization and going towards the optimal nationalization point; and to stress the implications of this. [continued] copyright 2010 Lucio Munoz and the Journal of Sustainability Issue 3 Number 1 2010-07-20T20:06:31Z editors Whoops! Ten Common Mistakes to Avoid in Building your Sustainability Program http://journalofsustainability.com/lifetype/index.php?op=ViewArticle&articleId=93&blogId=1 by William (Bill) Wiley P.E., wileywun@gmail.com In Building a sustainability program, it is important to not trip over these common mistakes.  A successful sustainability effort takes time and you will make mistakes- but a little forewarning may help ease your way.  Some of these are simple and readily apparent, other may take more thought and commitment.  In any case you are now aware. Buying compostable or recyclable materials without the means to compost or recycle them. Many products today proudly proclaim their recyclability or compost ability, but be careful. Many compostable products require specific conditions( e.g. temperature, humidity, etc) Likewise many  recyclable products make sense where there is a local facility that accepts them. Failure to look at these important issues before you commit can leave egg on your face. Carbon footprint vs. Ecological footprint.   Although it’s a prerequisite to understand your “carbon footprint” today, do not overlook the other aspects of your project or proposal.   It does you little good to focus on CO2 reductions when you increase water use or increase land disturbance.   An interesting case study is the controversy over Concentrated Solar in Arizona. Use of manufacturer’s claims for your application. Many products today come with broad claims of saving  X amount of water or reducing CO2 emissions by Y amount annually.   These claims are usually based on  ‘best case’ conditions and clearly do not match your use. As an example, a waterless urinal manufacturer ‘s  claim of saving up to 40,000 gallons of water annually per fixture, did not hold up in computing  actual usage in a  high-rise building with multiple fixtures , a higher female/male ratio and where fixture replacement was  from existing low flow fixtures.   An important corollary to this example is to not use these claims in calculating YOUR ROI on this investment. Use of Recycled amount or Recycled percentage as a metric.   Recycling is good, but it should not be the ultimate goal. Your goal should be to increase material use efficiency and reduce that not used, whether it goes to a landfill or is recycled. A mature program should actually reduce its material recycled over time. Failure to engage your employees.   Employees are an organization’s ambassadors to the world. They interact with stakeholders of all kinds at schools, churches and even at grocery stores.  In today’s social media world, they also may ‘talk’ to people around the world.  In many cases, they carry more credibility than the official company spokespersons (think BP). Failure to educate and interact with them on a regular basis will undermine your effort. Doing  ‘Sustainability ‘without having good risk management and compliance programs in place. Nothing can undo all your good work sooner than multiple NOVs or a major faux pas.   For example, a public ethical lapse or a major spill can destroy  a reputation instantaneously .   Aramark CEO Joseph Neubauer said it well when he said:  ”It takes a minute to undo what it took a lifetime to build.”  Lack of a Sustainability  governance structure. Many organizations give the sustainability program to an enthusiastic employee and send them away to do good often with the admonition to keep costs down. This is a recipe for failure.  Lack of support from the C-suite, including authority to build an internal governance/implementation structure will doom your program to be just another initiative. Green only. In the media, sustainability is often portrayed as an environmental program or initiative. Getting past this “green only’ concept with all your stakeholders (including employees and management) is a difficult, but critical step.   Broadening your program to address your customer needs, employee health and safety, local community support, etc.  is just as important  to the sustainability of your organization as are the traditional environmental and financial metrics. Save money only. Part of the recognized benefit of sustainability is looking at ways to be more eco-efficient, often by tackling those low hanging fruit.  If you use resources wisely, you can reduce costs and reduce waste.  Both can save your organization money.  However, at some point in your program you will likely have to spend some capital to buy more efficient variable speed motors, hybrid vehicles or upgrade air conditioning,  as examples. Failure to invest will limit your potential long-term benefits. Failure to stay up- to date.   Your customers, stakeholders, investors, and regulators are all revising their views of the world and what they deem important.   For example, Wal-Mart’s supplier initiative was a big wake-up call to many companies, especially those that ended up losing business.  Similarly, shareholder initiatives on carbon disclosure and transparency caught many major companies off guard. Finally, Twitter and Facebook and numerous blogs can radically and quickly affect your company image – as well as your next day at work. These are a few of the common mistakes that organizations make in their sustainability journey.  With that said, everyone makes mistakes and unless they are fatal you can survive and build a sustainable organization that we all can be proud of.   For more tips see my earlier article on implementing a sustainability program, Lessons from the Sustainability Trenches. References: Neubauer, Joseph.    Reputation Rx:  CEO Quotes <a href="http://www.reputationrx.com/Default.aspx/CEOREPUTATION/CEOQUOTES">http://www.reputationrx.com/Default.aspx/CEOREPUTATION/CEOQUOTES</a> Wiley, William D. PE, 2010, Lessons from the Sustainability Trenches; 14 Tips to Achieve Sustainability in Journal of Environmental Management, June 2010. About the Author William (Bill) Wiley P.E. was Senior Manager for Sustainability for Arizona Public Service Co. from 2007 through 2010.  He is also adjunct professor for University of Phoenix, teaching science and ethics classes. From 1991 through 1994, he was Deputy Director of the Arizona Department of Environmental Quality. He is registered Professional Engineer in Arizona and has several publications on water, business process improvement and environmental management.   Copyright 2010 Journal of Sustainability (format) and Bill Wiley  (content) Issue 3 Number 1 2010-06-22T08:14:36Z editors Could it be Satan! by Mr. Critical http://journalofsustainability.com/lifetype/index.php?op=ViewArticle&articleId=92&blogId=1 by Mr. Critical, MrCritical@JournalofSustainability.com   An ''old lefty'' friend of mine has retired to an idyllic  Caribbean isle. Sort of idyllic, if you ignore the cardboard shanties. Ken built himself a castle, [fortified.] There he putters in his garden, writes his Marxist blog and plays the stock market. He also gives lots of money to good causes, which makes him feel very good. Curiously I happen to have another friend here in the US, a native of this island. His feelings about Ken are somewhat different. "I hope he understands, that when the revolution comes, we will kill him."    May has dedicated her career to avant guard installation art. Her most recent show featured an artist who piled 13 tons of some unspecified industrial waste on the gallery floor. It smells. The critics were thrilled. "Ms. X's installation deals with issues of consumption and toxicity."  One might ask just how it "deals" with those issues. It doesn't really say anything. It's just there. My suggestion that one might actually consider these very issues in selecting a piece was met with a firm refusal. "Good art is never polemical."   And Kim, an Albanian-American albino atheist, who has become quite wealthy selling insurance. But nevertheless quite bitter. "If I had been a white, [instead of WHITE,] Presbyterian I would be much richer." Kim sees this as a massive social injustice, somehow equal to that suffered by victims of actual famines and wars. [Sadly the other children did say mean things back in grade school, but today Kim does belong to the country club.]    And Martin. Heir to a big hunk of a major timber fortune, He also feels very good about all the money he gives to the Sierra Club. The way he sees it, is that if he didn't make all that money from the bad things daddy's company does, he wouldn't have it to give to the good causes. Or take "eco-vacations" with the carbon footprint of Godzilla. The mind boggles.    So----------- I am Mr. Critical. I do not shy away from judgement. I will happily  point out that something is wrong here. [As I learned from Mr. Wilbur, when someone tells you that being judgemental is bad, something fishy is going on.] But just what is wrong here?I am not suggesting, for example, that making money is evil. I would like a great deal more of it myself.    When you talk with Ken, what quickly comes to the surface is his bitterness. He is a brilliant guy. An astute political analyst. And a very witty writer. And no one pays any attention. But then, why would anyone pay attention to the rich guy  spewing  Marxist rants? It's the guy in the street, in the trenches, who has the authority, who gets the respect as a revolutionary. [And the rich guy who gets respect as an investment advisor.] <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx" rel="themeData" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml" rel="colorSchemeMapping" /> <style></style><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;}</style> copyright 2010 Journal of Sustainability <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <style></style><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;}</style> <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx" rel="themeData" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml" rel="colorSchemeMapping" /> <style> </style> Issue 3 Number 1 2010-06-22T08:03:21Z editors Garden Life on Earth http://journalofsustainability.com/lifetype/index.php?op=ViewArticle&articleId=91&blogId=1 <pre> by Barry Carter, bcarter@igc.org </pre> <pre>   </pre> <pre> Web Pages: ORMUS - <a href="http://www.subtleenergies.com/ormus/index.htm" target="_blank">http://www.subtleenergies.com/ormus/index.htm</a> Forest - <a href="http://www.subtleenergies.com/ormus/bmnfa/index.htm" target="_blank">http://www.subtleenergies.com/ormus/bmnfa/index.htm</a> Donate - <a href="http://www.subtleenergies.com/ormus/donate.htm" target="_blank">http://www.subtleenergies.com/ormus/donate.htm</a> </pre> <pre>   </pre> <pre> Most people have a favorite disaster scenario. Some favor global warming, others favor peak oil. Financial collapse is the favorite of many people but geological cataclysm is favored by others. Regardless of which disaster you may favor, the most immediate problem that develops, as a result of any disaster, will be related to food shortages. Already it is estimated that one billion people are starving on earth. </pre> <pre> Most disasters reduce food production or availability. Climate change causes flooding, drought and unseasonable freezes which all reduce food production. Peak oil reduces the availability of petro chemicals for fertilizer and pesticides as well as the fuel to transport food for long distances. Financial collapse makes it more difficult for everyone to produce and purchase food. Geological cataclysm can even cause an ex-president to apologize for policies that reduced the local food supply in Haiti in favor of imported rice from the USA. Even social disasters are most likely to cause suffering through starvation. When the structures we have built to serve us loose their way and begin to believe that we are here to serve them, they try to monopolize our sources of supply. Whether these are corporate structures, government structures, belief structures or religious structures does not change this pattern. </pre> <pre> Regardless of one's favorite disaster scenario, certain things can be helpful for the people in our communities. Here are some things that I think we all need: </pre> <pre> Clean air to breathe. Clean water to drink and bathe in. Nutritious food to eat. Energy for heating, cooling, lighting, transportation and communication. Materials for making and modifying the structures we live in and the clothing we wear. Good health. </pre> <pre> Since many people cannot do a lot in their daily lives to insure that they have: </pre> <pre> Clean air to breathe. Clean water to drink and bathe in. Energy for heating, cooling, lighting, transportation and communication. Materials for making and modifying the structures we live in and the clothing we wear. </pre> <pre> I think it is most worthwhile to focus on doing what I can to insure that my local community has: </pre> <pre> Nutritious food to eat. Good health. </pre> <pre> In service to these goals, I have been gardening organically since 1969. I believe that the more available this kind of info is, to the people on the ground, the more all will benefit. </pre> <pre> I am also engaged in a related area of "grassroots" research. Several hundred non-academic researchers around the world are exploring the agricultural and social implications of some newly rediscovered minerals that significantly improve the growth, taste and nutrition of food grown in soils where they are applied. We have accumulated many reports of significantly increased plant productivity, nutrition, freeze tolerance and drought tolerance. </pre> <pre> These minerals can be concentrated using simple kitchen chemistry on sea water or rock source materials. (Anyone with access to fire and salt water can concentrate them.) They can also be concentrated from the air or from fresh water using simple mechanical "traps". You will find a number of links to pages which describe the results of using these minerals for plant growth at: </pre> <pre> <a href="http://www.subtleenergies.com/plant-lynx.htm" target="_blank">http://www.subtleenergies.com/plant-lynx.htm</a> </pre> <pre> The simplest method for concentrating these minerals from sea water is also described on the page above and other open-source methods are linked. </pre> <pre> I think that it is also helpful to realize that growing soil increases carbon sequestration and that the use of these minerals with keyline plowing has doubled productive soil depth in one year. </pre> <pre> The best way to guard our life on Earth may be to garden locally. </pre> <pre>   </pre> <pre>   </pre> <pre> copyright 2010 Barry Carter and Journal of Sustainability </pre> Issue 2 Number 4 2010-06-18T13:51:38Z editors We Hear Talk http://journalofsustainability.com/lifetype/index.php?op=ViewArticle&articleId=90&blogId=1 Dear Editors: People hear talk of energy; coal, oil, nuclear and solar, but the real issue is not energy – it is authority. Government has taken authority away from the citizen and we must take it back. There will be no need for tax credits, grants, incentives, subsidies of any kind. There will be no NREL. We will use businesses to do our own shopping for energy, light, heat and cold. There are squadrons of people who have gained favor with government and will not easily go along with this; people with grants, with government contracts, people who sell solar tax credits, people who work for government labs. Who will do what we do if you take away our grants, they will ask. I say maybe no one, maybe no one needs what you do. What this influential mass of our population has been good at is having us forget. Forget what works, forget how to walk, how to ride a bicycle, forget clothes lines, windows and skylights. Forget inexpensive, traditional ways of using the sun and instead create a new “solar” energy that is patented, financed by investment bankers, expensive and subsidized by tax money. There is another way to run society. Government makes rules we play by. They do not handle society’s money. Government must guide by curbing what it bad, not by pretending to create good things. Government has no source of good things except by taking. How have our buildings regressed in this solar age to have so few windows and skylights to need the electric lights on all day? We can light, heat and cool our buildings without Government. Businesses can sell the equipment, even solar equipment like windows without government “help”. But, people couldn’t have new ideas, could they, without government grants to Universities and labs, could they? Yes they could, and have and will again. America need not extinguish itself. Sincerely, Steve Baer President Zomeworks Corp. 1011 Sawmill Rd Albuquerque, NM  87104 Phone: 505-242-5354 / 800-279-6342 Fax: 505-243-5187 <a href="mailto:zomework@zomeworks.com">zomework@zomeworks.com</a> <a href="http://www.zomeworks.com/" target="_blank">www.zomeworks.com</a> Issue 2 Number 4 2010-06-16T16:04:04Z editors Is it time for Open Source sustainability-related technology? Open source solar trackers? http://journalofsustainability.com/lifetype/index.php?op=ViewArticle&articleId=89&blogId=1 By editors, editors@JournalofSustainability.com In a well-considered book, “The Starfish and the Spider” (Portfoilio, 2006), Ori Brafman and Rod Beckstrom give a name to something that many of us have been vaguely aware of: decentralized organizations.  Unlike traditional hierarchical organizations, decentralized organizations are leaderless, flat and thrive when divided.  The preferred metaphor for the latter characteristic is the starfish, which can replicate itself from a single arm, because as a decentralized organism it contains all major organs in each arm; but the mythological Hydra is just as appropriate a metaphor. Historians are aware of the success of the decentralized Apaches against the centralized Spanish.  Hackers are aware of the success of eMule and Bittorrent, and Open Source software (the old Informix datablades, the Sun servers, Mozilla, to name a few).  The rest of us have heard of Wikipedia, Alcoholics Anonymous, and communes.  Brafman and Beckstrom didn’t discover the phenomenon. They just publicized it. I wouldn’t say they discovered it.  I refer the reader to manuscripts by Rainer E. Zimmerman, posted on arxiv.org 4 and 5 years before Brafman and Beckstrom’s book.  The articles are entitled “Decentralization as organizing principle of emergent urban structures,” and “Reconstructing Bologna.” The authors introduce a nuanced approach to the phenomenon, placing hierarchical and decentralized organizations on either end of a continuum.  They then give examples of “hybrid” organizations that fall somewhere in between these two extremes, on a so-called “sweet spot.”  One might think of it as a “Goldilocks effect.”  GM, for example, was a traditional hierarchical organization that granted partial autonomy to the lowest levels. Is it time for Open Source sustainability-related technology?  The question is timely, given that for example many of the pioneering solar patents of the 1960’s and 70’s have run their course.  One of our favorite solar trackers is 4,175,391 (1979), a passive tracker by Steve Baer of Zomeworks (A promising candidate for 2014 is an active tracker, 5,317,145 (1994) by Ron Corio of Array Technologies, also here in Albuquerque.).  Baer’s tracker is passive and uses Freon (TM).  It could easily serve as a platform for an open source passive solar tracker. We googled the phrase “open source solar” and found some postings relating to open source electronic circuits for a solar tracker.  There is an organization that publishes “Open Source Ecology” (<a href="http://openfarmtech.org/index.php/Main_Page">http://openfarmtech.org/index.php/Main_Page</a>).  Their website has a blog with Forum containing several open source hardware designs.  But otherwise there is no equivalent of <a href="http://sourceforge.net/">http://sourceforge.net</a> for solar technology.  For those of you who are not hackers, Source Forge is a leading depository for open source software.  Sourceforge is not a not-for-profit organization.  According to their website, “SourceForge.net is owned and operated by Geeknet, Inc., a publicly traded US-based company.”   The Journal of Sustainability would like to host open source sustainability-related technology.  The Journal is owned by Research & Design, formerly an S-Corporation, now a partnership.  We formerly hosted ads on the Journal website.  Now, like Twitter, we simply lose money on it.  We have an open source product of our own that we have been working on for a few years now.  Stay tuned and we’ll be announcing it shortly. copyright 2010 Journal of Sustainability Issue 2 Number 4 2010-06-14T15:33:48Z editors What If Markets Have Always Been Distorted? Would It Then Be a Good Fix to Add Fair Trade Margins to Correct Distorted Agricultural Market Prices? [Part 1] http://journalofsustainability.com/lifetype/index.php?op=ViewArticle&articleId=88&blogId=1 By Lucio Muñoz, Independent Qualitative Comparative Researcher / Consultant, Vancouver, BC, Canada  Email:   <a href="mailto:munoz@interchange.ubc.ca">munoz@interchange.ubc.ca</a> Abstract           It has always been assumed that we live in a world of perfect markets, where supply and demand interactions work magically in the absence of market distortions or externalities.  Today we know we live in a world ruled by overproduction and overconsumption, which promote ongoing wasteful, polluting and degrading social and environmental processes.  Is it possible that the traditional perfect market’s assumptions can be responsible for these negative outcomes through the creation of supply and demand scenarios that only meet at the lower pure economy price; and therefore lead to economic market flooding and waste?  If yes, that means that we have been living in distorted markets all this time, market that do not reflect the  right price; and these distortions need to be corrected now to ensure that the traditional perfect market reflects sustainability rules.           The general goals of this paper are: a) To introduce the notion of the right  market price, the traditional market price, and the corrected market price and to show how they can be related to ensure traditional market sustainability; b)To extend this notion to the right  agricultural market price, to the traditional agricultural market price, and the corrected agricultural market price and to point out how they can be linked to ensure that agricultural markets are consistent with sustainability rules; and c) To list some relevant specific and  general conclusions.   Introduction a) The market assumptions.           The main market assumptions can be summarized as follows: i) Pure supply and demand interactions determine the price in the traditional perfect market.            You can produce and consume as much as you want as long as there are buyers and sellers, there is no scarcity, and there are no limits to growth.  Prices then are determined solely by the free interaction of supply and demand; and when the world works this way, this is socially optimum. ii) No market distortions.           As a consequence of the perfect market assumptions, there are no market distortions such as social and environmental and other costs associated with production and consumption affecting other parties.  Externalities are assumed to be insignificant or zero and therefore, if they exist, they fall outside the dominion of the market. iii) No true sustainability concerns.           Therefore, the are no true sustainability concerns under the traditional perfect market, only economic concerns matter. iv) The same assumptions hold for the agricultural market.           The agricultural market price is determined at the point that supply and demand meet in an environment without distortions or externalities. Only economic sustainability is relevant in traditional markets, including the agricultural market. v) In summary.           In the past, it has always been assumed that we live in a world of perfect markets, where supply and demand interactions work magically in the absence of market distortions or externalities.  Amegashie(2006) points out that institutions like the World Bank follow these perfect market assumptions literally to support their decision making process and policy recommendations even so these conditions may not exist in the real world.  Hence, it has always been assumed that economic sustainability has nothing to do with true sustainability.  Under these assumed conditions then, it is normal to claim that any action that violate these assumptions will distort a market.   For example, it is said that fair trade pricing violates traditional supply and demand rules(Callahan 2008) as these laws as mentioned above are assumed not to be distorted.           This situation makes it easy for traditional economists/planners to ignored or brush off issues just because they fall outside those market assumptions or to suggest solutions that eliminate the academic pressure or need to internalize them.  In other words, if issues falling outside the assumptions like social and environmental equality and justice and related problems such as fair trade are present, they will be ignored as traditional economists/individuals consider them exogenous issues.  Tarnoff(2004) expresses his frustration with the inability of traditional economic theory to deal with issues such as fair trade.  The author believes that it can be argued too that because it has been assumed all this time that demand and supply in the perfect market have nothing to do with environmental issues we are now dealing with a growing global warming puzzle.  It has been pointed out that to link the need to deal with global warming with the greening of agricultural activities the traditional market price in agriculture needs to be adjusted to reflect among other things a green margin making the global warming price higher than the traditional market price(Muñoz 2008); and then they will be responsive to green supply and demand pressures. b) The practice.           A hard look at reality leads to the following facts: i) There are market distortions.            Current knowledge indicates that there are social, environmental and other negative externalities associated with market forces and these costs on third parties are real and should also be reflected in market prices, but since they have been assumed to be minimal or nonexistent or falling outside the model, they have not yet been included.  This has led to market prices that have been or are lower than they would be if externality costs or margins were added to arrive at the right market prices. This situation is not a socially optimum position. ii) Distorted supply and distorted demand interactions have led to lower prices.            Ignoring market distortions has sent the wrong signals to the market. Not reflecting the cost of distortions or externalities means that we have markets ruled by the interactions of dirty supply and dirty demand, and therefore, leading to lower prices than if we had added the externality margins left out to the traditional market price. Dirty here means that supply and demand considerations do not reflect the cost of externalities. iii) The results of living in a distorted market reflecting only the economic side.           Simple economic theory suggest that lower prices than they otherwise should have been would lead to more production and  more consumption and to the promotion of ongoing generation of waste, pollution, degradation, and the social and environmental neglect. iv) The same implications are true for agricultural market.           The agricultural market price is determined at the point where dirty supply and dirty demand meet as this process takes place in an environment full of distortions or externalities that are not reflected in that price.  Lower agricultural prices then have led to overproduction and overconsumption in agricultural markets. v) There are true sustainability concerns.           Today, there seems to be a consensus that we need to deal with the externalities associated to economic development, specially socially and environmental distortions, to be able to build the foundations of true sustainability. vi) In summary:           Today we know we live in a world ruled by overproduction and overconsumption, which promote ongoing wasteful, polluting and degrading social and environmental processes; and it is clear today that this situation is not sustainable.  Besides markets being poorly priced or distorted because of the traditional market assumptions mentioned above, a second wave of distortions comes when providing subsidies, which encourage not just more overproduction and overconsumption, but also commodity dumping.  Dumping is leading to a third wave of market distortions as protectionist voices, justifiably or not, lead to ongoing trade unpredictability, and therefore, unsustainability. For example, Davis(2009) points out how the European Union may be relying on antidumping laws to remain competitive in areas and industries where it not longer has a comparative advantage.           In other words, we know that the economy must incorporate the cost of distortions to be truly sustainable and to promote responsible economic, social, and environmental behavior. Under these real conditions then, it is wrong to claim that actions taken to correct distorted markets will distort them more as these actions are needed to correct them. For example, we should expect that if prices allow producers to meet their economic goals while meeting their social and environmental responsibilities, then we would be encouraging positive economic behavior on all producers, not just on so called fair trade producers.  Hiscox(2007) points out that fair trade works in promoting positive economic behavior because it allows profitability while being able to provide better social and environmental rights.  The key to the economic structure and positive impact of fair trade on local economic, social and environmental conditions is found in the especial relationship connecting fair trade producers with ethical demand(Hayes and Moore 2005).           Under this line of thinking, corrected markets encourage responsible economic behavior leading producers towards the optimization of production or the socially optimal output, which may lead to the following: a) It will make it more difficult for traditional economists/planners to ignore or brush off issues that fall outside traditional assumptions such as fair trade margins and other externality based actions; b) It may induce them to incorporate them in their models as they would be then endogenous issues; and c) It will satisfy critics of the old economic model as now they should expect to see an adjusted economic thinking that is able to deal with all issues as endogenous issues.  Actions in this direction appear to be under way.  For example, now the term “sustainable consumption” is being used in OECD countries not only from its economic aspects but also from its related social and ecological aspects indicating attempts to internalize social and environmental issues in sustainable consumption policy implementation(OECD 2008). The need to better understand the implications of poorly price and corrected markets           Current knowledge shows that there are more than just economic issues in a market, and therefore, the traditional market price, including the agricultural market price, may be distorted as they do not include externality margins.     It has been recently indicated that from the point of view of sustainability, the perfect market is not sustainable(Muñoz 2001).  Hence, poorly price markets would not reflect social, environmental, and other externalities, making issues such as fair trade in general and agricultural fair trade in particular fall outside the economic domain while corrected markets would make those externality issues endogenous to market economics.           Then, the following questions and their implications are relevant: What if markets, including agricultural markets, have always been distorted? Would it then be a good fix to add fair trade margins to correct distorted agricultural market prices? This paper provides a production and consumption framework that makes it possible to contemplate the market implications of living under the rule of underpriced markets and of corrected markets. Goals of this paper           The general goals of this paper are: a) To introduce the notion of the right  market price, the traditional market price, and the corrected market price and to show how they can be related to ensure traditional market sustainability; b) To extend this notion to the right  agricultural market price, to the traditional agricultural market price, and the corrected agricultural market price and to point out how they can be linked to ensure that agricultural markets are consistent with sustainability rules; and c) To list some relevant specific and  general conclusions.   Methodology           First, the terminology used to present the ideas in this paper is listed.  Second, some operational concepts are presented, discussed and implications analyzed.  Third, the notion of the real market price, its components, and implications are introduced.  Fourth, it is pointed out how the traditional market price is derived from it and relevant implications are mentioned.  Fifth, it is described how the traditional market price can be corrected to reflect social and environmental sustainability requirements.  Sixth, the implications of different price structures and markets on production and consumption are summarized.  Seventh, the idea of the clean market is pointed out graphically and analytically.            Eighth, the notion of the real market price is applied to the agricultural market.  Ninth, the notion of the traditional market price is presented in the agricultural context.  Tenth, the notion of the corrected market price is expressed in agricultural terms to reflect social and environmental responsibility in agriculture.  Eleventh, the implications of different price structures and markets on agricultural production and consumption are summarized.  Twelfth, the idea of the clean agricultural market is pointed out graphically and analytically.  And thirteenth, some relevant specific and general conclusions are provided. Terminology           The terminology used to convey the ideas in this paper are listed below. Table 1 ---------------------------------------------------------------------------------------------- SE = Social externality                         EE = Environmental externality OE = Other externalities                       GM = Green margin SM = Social margin                              OM = Other margins FTM = Fair trade margin                      P  = Traditional market price RMP = Right market price                   DMP = Distorted market price DM = Dirty market                               D = Dirty demand S = Dirty supply                                    DP = Dirty price CM = Clean market                               D* = Clean demand S* = Clean supply                                  CP = Clean price TMP = Traditional market price           CMP = Corrected market price Mi = Margin “i”                                     RAMP = Right agricultural market price      AMi = Agricultural margin “i”              TAMP = Traditional agricultural market price RM = Right market                                CAMP = Corrected agricultural market price TM = Traditional market                       AFTM = Agricultural fair trade margin CoM = Corrected market                       Q* = Clean quantity AMi = Agricultural margin “i”              AP  = Traditional agricultural price     AGM = Agricultural green margin        CAM = Corrected agricultural market   ASM = Agricultural social margin        TAM = Traditional agricultural market Pi  = Price “ i ”                                       Qi  = Quantity “ i “ -------------------------------------------------------------------------------------------------     <meta content="Word.Document" name="ProgId" /> <meta content="Microsoft Word 12" name="Generator" /> <meta content="Microsoft Word 12" name="Originator" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml" rel="File-List" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx" rel="themeData" /> <link href="/C:%5CUsers%5CGinger%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml" rel="colorSchemeMapping" /> <style></style><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;}</style> copyright 2010 Journal of Sustainability and Lucio Muñoz Issue 2 Number 4 2010-06-12T11:58:28Z editors