Monday, November 23, 2009

How Relocalization Worked

Druid perspectives on nature, culture, and the future of industrial society


John Michael Greer

One of the points that I’ve tried to make repeatedly in these essays is the place of history as a guide to what works. It’s a point that deserves repetition. A good many worldsaving plans now in circulation, however new the rhetoric that surrounds them, simply rehash proposals that were tried in the past and failed repeatedly; trying them yet again may thus not be the best use of our limited resources and time.

Of course there’s another side to history that’s more hopeful: something that worked well in the past can be a useful guide to what might work well in the future. I’d like to spend a little time discussing one example of this, partly because it ties into the theme of the current series of posts – the abject failure of current economic notions, and the options for replacing them with ideas that actually make sense – and partly because it addresses one of the more popular topics in the ongoing peak oil discussion, the need for economic relocalization as the age of cheap abundant energy comes to an end.

That relocalization needs to happen, and will happen, is clear. Among other things, it’s clear from history; when complex societies overshoot their resource bases and decline, one of the things that consistently happens is that centralized economic arrangements fall apart, long distance trade declines sharply, and the vast majority of what we now call consumer goods get made at home, or very close to home. Now of course that violates some of the conventional wisdom that governs economic decisions these days; centralized economic arrangements are thought to yield economies of scale that make them more profitable by definition than decentralized local arrangements.

When history conflicts with theory, though, it’s not history that’s wrong, so a second look at the conventional wisdom is in order. The economies of scale and resulting profits of centralized economic arrangements don’t happen by themselves. They depend, among other things, on transportation infrastructure. This doesn’t happen by itself, either; it happens because governments pay for it, for purposes of their own. The Roman roads that made the tightly integrated Roman economy possible, for example, and the interstate highway system that does the same thing for America, were not produced by entrepreneurs; they were created by central governments for military purposes. (The legislation that launched the interstate system in the US, for example, was pushed by the Department of Defense, which wrestled with transportation bottlenecks all through the Second World War.)

Government programs of this kind subsidize economic centralization. The same thing is true of other requirements for centralization – for example, the maintenance of public order, so that shipments of consumer goods can get from one side of the country to the other without being looted. Governments don’t establish police forces and defend their borders for the purpose of allowing businesses to ship goods safely over long distances, but businesses profit mightily from these indirect subsidies nonetheless.

When civilizations come unglued, in turn, all these indirect subsidies for economic centralization go away. Roads are no longer maintained, harbors silt up, bandits infest the countryside, migrant nations invade and carve out chunks of territory for their own, and so on. Centralization stops being profitable, because the indirect subsidies that make it profitable aren’t there any more.

Ugo Bardi has written a very readable summary of how this process unfolded in one of the best documented cases, the fall of the Roman Empire. The end of Rome was a process of radical relocalization, and the result was the Middle Ages. The Roman Empire handled defense by putting huge linear fortifications along its frontiers; the Middle Ages replaced this with fortifications around every city and baronial hall. The Roman Empire was a political unity where decisions affecting every person within its borders were made by bureaucrats in Rome. Medieval Europe was the antithesis of this, a patchwork of independent feudal kingdoms the size of a Roman province, which were internally divided into self-governing fiefs, those into still smaller fiefs, and so on, to the point that a single village with a fortified manor house could be an autonomous political unit with its own laws and the recognized right to wage war on its neighbors.

The same process of radical decentralization affected the economy as well. The Roman economy was just as centralized as the Roman polity; in major industries such as pottery, mass production at huge regional factories was the order of the day, and the products were shipped out via sea and land for anything up to a thousand miles to the end user. That came to a screeching halt when the roads weren’t repaired any more, the Mediterranean became pirate heaven, and too many of the end users were getting dispossessed, and often dismembered as well, by invading Visigoths. The economic system that evolved to fill the void left by Rome’s implosion was thus every bit as relocalized as a feudal barony, and for exactly the same reasons.

Here’s how it worked. Each city – and “city” in this context means anything down to a town of a few thousand people – was an independent economic center; it might have a few industries of more than local fame, but most of its business consisted of manufacturing and selling things to its own citizens and the surrounding countryside. The manufacturing and selling was managed by guilds, which were cooperatives of master craftsmen. To get into a guild-run profession, you had to serve an apprenticeship, usually seven years, during which you got room and board in exchange for learning the craft and working for your master; you then became a journeyman, and worked for a master for wages, until you could produce your masterpiece – yes, that’s where the word came from – which was an example of craftwork fine enough to convince the other masters to accept you as an equal. Then you became a master, with voting rights in the guild.

The guild had the legal responsibility under feudal municipal laws to establish minimum standards for the quality of goods, to regulate working hours and conditions, and to control prices. The economic theory of the time held that there was a “just price” for any good or service, usually the price that had been customary in the region since time out of mind, and the municipal authorities could be counted on to crack down on attempts to push prices above the just price unless there was some very pressing reason for it. Most forms of competition between masters were off limits; if you made your apprentices and journeymen work evenings and weekends to outproduce your competitors, for example, or sold goods below the just price, you’d get in trouble with the guild, and could be barred from doing business in the town. The only form of competition that was encouraged was to make and sell a superior product.

This was the secret weapon of the guild economy, and it helped drive an age of technical innovation. As Jean Gimpel showed conclusively inThe Medieval Machine, the stereotype of the Middle Ages as a period of technological stagnation is completely off the mark. Medieval craftsmen invented the clock, the cannon, and the movable-type printing press, perfected the magnetic compass and the water wheel, and made massive improvements in everything from shipbuilding and steelmaking to architecture and windmills, just for starters. The competition between masters and guilds for market share in a legal setting that made quality and innovation the only fields of combat wasn’t the only force behind these transformations, to be sure – the medieval monastic system, which put a good fraction of intellectuals of both genders in settings where they could use their leisure for just about any purpose that could be chalked up to the greater glory of God, was also a potent factor – but it certainly played a massive role.

The guild system has nonetheless been a whipping boy for mainstream economists for a long time now. The person who started that fashion was none other than Adam Smith, whose The Wealth of Nationscastigates the guilds of his time for what we’d now call antitrust violations. From within his own perspective, Smith had a point. The guilds were structured in a way that limited the total number of people who could work in any given business in any given town, and of course the just price principle kept prices from fluctuating along with supply and demand. Thus the prices paid for the goods or services produced by that business were higher, all things considered, than they would have been under the free market regime Smith advocated.

The problem with Smith’s analysis is that there are crucial issues involved that he didn’t address. He lived at a time when transportation was rapidly expanding, public order was more or less guaranteed, and the conditions for economic centralization were coming back into play. Thus the very different realities of limited, localized markets did not enter into his calculations. In the context of localized economics, a laissez-faire free market approach doesn’t produce improved access to better and cheaper goods and services, as Smith argued it should; instead, it makes it impossible to produce many kinds of goods and services at all.

Let’s take a specific example for the sake of clarity. A master blacksmith in a medieval town of 5000 people, say, was in no position to specialize in only one kind of ironwork. He might be better at fancy ironmongery than anyone else in town, for example, but most of the business that kept his shop open, his apprentices fed and clothed, and his journeymen paid was humbler stuff: nails, hinges, buckles, and the like. Most of this could be done by people with much less skill than our blacksmith; that’s why he had his apprentices make nails while he sat upstairs at the table with the local abbot and discussed the ironwork for a dizzyingly complex new cutting-edge technology, just introduced from overseas, called a clock.

The fact that most of his business could be done by relatively unskilled labor, though, left our blacksmith vulnerable to competition. His shop, with its specialized tools and its staff of apprentices and journeymen, was expensive to maintain. If somebody else who could only make nails, hinges, and buckles could open a smithy next door, and offer goods at a lower price, our blacksmith could be driven out of business, since the specialized work that only he could do wouldn’t be enough to pay his bills. The cut-rate blacksmith then becomes the only game in town – at least, until someone who limited his work to even cheaper products made at even lower costs cut into his profits. The resulting race to the bottom, in a small enough market, might end with nobody able to make a living as a blacksmith at all.

Thus in a restricted market where specialization is limited, a free market in which prices are set by supply and demand, and there are no barriers to entry, can make it impossible for many useful specialties to be economically viable at all. This is the problem that the guild system evolved to counter. By restricting the number of people who could enter any given trade, the guilds made sure that the income earned by master craftsmen was high enough to allow them to produce specialty products that were not needed in large enough quantities to provide a full time income. Since most of the money earned by a master craftsman was spent in the town and surrounding region – our blacksmith and his family would have needed bread from the baker, groceries from the grocer, meat from the butcher, and so on – the higher prices evened out; since nearly everyone in town was charging guild prices and earning guild incomes, no one was unfairly penalized.

Now of course the guild system did finally break down; by Adam Smith’s time, the economic conditions that made it the best option were a matter of distant memory, and other arrangements were arguably better suited to the new reality of easy transport and renewed economies of scale. Still, it’s interesting that in recent years, the same race to the bottom in which quality goods become unavailable and local communities suffer has taken place in nearly the same way in most of small-town America.

A torrent of cheap shoddy goods funneled through Wal-Mart and its ilk, in a close parallel to the cheap blacksmiths of the example, have driven local businesses out of existence and made the superior products and services once provided by those businesses effectively unavailable to a great many Americans. In theory, this produces a business environment that is more efficient and innovative; in practice, the efficiencies are by no means clear and the innovation seems mostly to involve the creation of ever more exotic and unstable financial instruments: not necessarily the sort of thing that our society is better off encouraging.

Advocates of relocalization in the age of peak oil may thus find it useful to keep the medieval example and its modern equivalent in mind while planning for the economics of the future. Relocalized communities must be economically viable or they will soon cease to exist, and while viable local communities will be possible in the future – just as they were in the Middle Ages – the steps that will be necessary to make them viable may require some serious rethinking of the habits that now shape our economic lives.

John Michael Greer, author of The Long Descent.

Wednesday, November 18, 2009

Solar Panel Makers Seek Local Ties

NOVEMBER 17, 2009

SunPower, Suntech Build Out Dealer Networks to Establish Brands

By JERRY A. DICOLO, Wall Street Journal

Solar panel makers, taking cues from industrial products like Trane air-conditioners and Andersen windows, are racing to roll-out networks of installers across the U.S. and internationally as they try to establish their brands in the residential market.

SunPower Corp., Suntech Power Holdings Co. and others are enlisting hundreds of locally-owned installers with partnerships that offer training, sales support and help with marketing and advertising.

With the dealer networks, the manufacturers hope to build brand awareness in what many see as a commodity product. But the moves come as solar-panel manufacturers battle weak demand due to the recession and an oversupply of panels.

Companies such as First Solar Inc. and SunPower have recently lowered their forecasts for the year, hurt by excess inventory and price competition.

Most panel makers sell directly into the utility market and use distributors to reach consumers. Now some are betting that by cutting out distributors and working directly with small local installers, they can increase the loyalty of installers to one brand while raising profits.

"It's going to be a significant part of the business," said Mark McKahan-Jones, head of Suntech's dealer sales division. The company, which is based in China and said Monday it plans to open a U.S. facility near Phoenix, has enrolled 200 U.S. installers so far.

Smaller rival SunPower, which is based in San Jose, Calif., has about 900 installers, including 200 in the U.S. In addition to sales and distribution support, SunPower offers its installers access to training programs and co-marketing funds.

By agreeing to work directly with a panel manufacturer, small installers say they pay less for panels than from larger distributors. They also have credit agreements, can get help arranging loans for customers and are offered technical support.

In California, by far the largest solar market in the U.S., SunPower had nearly 30% of the market in the third quarter under the state's subsidy program, according to FBR Capital Markets using data compiled from the program. In the program, which does not include utility installations, Evergreen Solar Inc., Kyocera Corp., SunTech and Sharp Corp. rounded out the top five.James Albert, founder of ISI Solar, a New City, N.Y., which installs panels from various makers, said brand recognition comes into play in about half of his jobs. "There is no question that branding and associating yourself with much larger entities is important," he said.

Sharp's solar division also has a dealer partner program, but Ron Kenedi, head of the Americas for Sharp solar, said the company is focused on only the top installers with long track records in the industry. "We don't try to get as many dealers as possible," Mr. Kenedi said.The solar industry is still split on whether the brand of a manufacturer or a local installer should take precedence. "I don't want to usurp their effort with my brand," Suntech's Mr. McCahan-Jones said of local partners.

SunPower Chief Executive Tom Werner said regional advertising and marketing has allowed the company's high-efficiency, sleek panels to fetch premium prices.

Mr. Werner said his strategy in some ways mirrors that of Apple Inc., which has a loyal customer base willing to pay more for its well-designed products.

Although the market is nascent, some customers do ask for SunPower panels by name, said Jonathan Gonzalez, head of customer service and marketing for Poco Solar Energy Inc., an installer in Santa Clara, Calif. that is in SunPower's dealer network.

"If they don't know about solar at all, that is one of the brand names that will pop out," he said. Poco, which has about 30 employees, is considering adding a SunPower logo to its employees' shirts, he said.

But others aren't convinced, particularly larger, more established installers.

"Because Suntech, Sharp and all these panel manufacturers have such great technology and the quality is superb, it doesn't really matter which module you use," said Lyndon Rive, chief executive of SolarCity, a large installer based in Foster City, Calif., with more than 460 employees.

"I can't tell you the difference between a Suntech and a Sharp panel," he said.

Sharp's solar division also has a dealer partner program, but Ron Kenedi, head of the Americas for Sharp solar, said the company is focused on only the top installers with long track records in the industry. "We don't try to get as many dealers as possible," Mr. Kenedi said.

Government subsidies continue to drive the U.S. solar-panel market, with California and New Jersey leading in solar installations due to high tax credits and rebate programs.

While national statistics on the solar-panel market are sparse, California's solar subsidy program provides data that are often used as a proxy for U.S. demand.

Using data from the subsidy program as well as its own forecasts, market-research firm iSuppli Corp. estimates that residential installations will make up roughly 20% of total U.S. demand in 2009.

"The residential market is very important, because it is a higher margin type of business," said Mehdi Hosseini, a solar analyst with FBR Capital Markets.

Tuesday, November 10, 2009

Why would the IEA underplay the level of oil reserves?

There are charges that the International Energy Agency's figures are false, and the world is much closer to running short of oil than the IEA lets on. European correspondent Stephen Beard talks with Bill Radke about those claims.


Tuesday, November 10, 2009


BILL RADKE: The International Energy Agency is scheduled to release its World Energy Outlook today. Meantime there are charges this morning that the agency's figures are false. And that the world is much closer to running short of oil than the IEA lets on. That's a claim in this morning's Guardian newspaper in London. Joining us live from London now, Marketplace's Stephen Beard. Good morning.

STEPHEN BEARD: Good morning, Bill.

RADKE: Stephen, what are the details of what the Guardian is reporting?

BEARD: The paper says that the IEA's reports on oil and gas reserves, which are widely followed by government's around the world, are not to be trusted. The paper says that it's spoken to a whistle-blower at the agency, a senior official speaking anonymously, and he says the agency has deliberately underplayed the rate of decline in oil and gas reserves.

RADKE: And what would be the IEA's motive in doing that?

BEARD: The whistle-blower says the agency has been pressured to do this by the U.S. American officials, allegedly, were afraid that the true picture of the reserves would cause panic buying, and could hit stock markets... because the world would then realize we're going to hit constraints on oil supplies much sooner than expected.

RADKE: So what does the whistle-blower say about the real picture of oil reserves?

BEARD: Well the IEA in its last World Outlook forecast that oil production would not peak until the year 2030, and then it would reach 105 million barrels a day, sufficient to meet anticipated demand. The whistle-blower says many people in the agency believe that is false, that the world will struggle to pump 95 million barrels a day at best. And it will reach that peak earlier than expected. I called the agency in Paris this morning. Nobody was available to comment on the Guardian's story.

RADKE: OK. Marketplace's Stephen Beard joining us live from London. Thanks, Stephen.


E.P.A. Intervenes on Video by 2 Employees

NOVEMBER 9, 2009, 3:41 PM


The Environmental Protection Agency has directed two agency lawyers to make changes in a video they posted on YouTube that is critical of the Obama administration’s climate policy. But the original video has already been reposted several times by other YouTube users.

The E.P.A., citing federal policies, told the two officials, Laurie Williams and Allan Zabel, a husband-and-wife team of lawyers based in San Francisco, that they could mention their E.P.A. affiliation only once and must remove footage of the agency’s office in San Francisco. Although the video provided a disclaimer saying that the couple were speaking only for themselves, it mentioned their affiliation with the agency more than once.

They have been told that if they do not edit the video to comply with the policy, they will face possible disciplinary action.

The video, titled “The Huge Mistake,” was produced and posted in September, but the agency did not issue its warning until The Washington Post published a widely cited opinion article by the couple on Oct. 31 raising concerns, echoing those in the video, about cap-and-trade legislation that the Obama administration supports.

Ms. Williams and Mr. Zabel say that global warming requires an urgent response, but assert that cap and trade, in which the government sets a declining ceiling on emissions of greenhouse gases and then allows companies to trade permits to meet it, can be easily gamed by industry and fail to reduce global warming pollution. They began making statements of this sort more than a year ago.

Their critique has been embraced by James E. Hansen, the NASA climate scientist who was pressed in 2006 to rein in his comments about global warming by political appointees under President George W. Bush. Like the couple, Dr. Hansen favors collecting rising fees on greenhouse emissions and returning the revenue to citizens to limit the impact of higher energy prices.

On Thursday, Mr. Zabel said, E.P.A. regional ethics officers called him in for a formal meeting to express concern about the video and demanded that it be pulled down by the following day. Ms. Williams was traveling and did not participate in the meeting, she said.

E.P.A. officials said the agency did not object to the content of the Web video or the op-ed piece and did not challenge the couple’s right to express their opinions.

“E.P.A. has nearly 18,000 employees and all of them are free to – and many do — publicly express their views on issues of the day, including issues that are central to E.P.A.’s mission,” Scott Fulton, the agency’s general counsel, said in a statement. “The only requirement is that employees adhere to the government’s ethical regulations, which are in place to ensure that E.P.A. and other agencies maintain the highest possible ethical standards at all times.”

Mr. Williams and Ms. Zabel say they quickly removed the video from their personal Web site and from their YouTube account. However, they said, other people had already copied the video and put it up on separate YouTube accounts and it is still easily found.

In an interview Monday, Ms. Williams described herself as being “very anxious” about how her superiors might react to the video’s still being out there. She said she and her husband had informed the agency about the other postings of the video as soon as they knew of them and were doing everything they could to comply with the directive.

A watchdog group, Public Employees for Environmental Responsibility (PEER), is accusing the E.P.A. of muzzling two career employees. “E.P.A. is abusing ethics rules to gag two conscientious employees who have every right to speak out as citizens,” said the group’s executive director, Jeff Ruch. The group has posted the original video and script at its own Web site.

An E.P.A. spokeswoman said that the agency was satisfied with the couple’s efforts to limit distribution of the video and was not currently considering any punishment. She said that Mr. Zabel and Ms. Williams had been scrupulous in the past about pre-clearing publications with agency officials.

Thursday, November 5, 2009

California Water Overhaul Caps Use

November 5, 2009


LOS ANGELES — California lawmakers on Wednesday approved a series of bills that would vastly overhaul the state’s troubled water system. The water package is the most comprehensive to emerge from the state since the 1960s, when California last upgraded its system for what was a far smaller population of users.

Prompted by a protracted drought — which has reduced water supply, harmed the fishing industry and contributed to crop loss — environmentalists and agricultural interests have agreed to broad concessions.

The plan calls for a comprehensive ecosystem restoration in the Sacramento-San Joaquin River Delta — a collection of channels, natural habitats and islands at the confluence of the Sacramento and San Joaquin Rivers that is a major source of the state’s drinking water.

It also calls for new dams, aggressive water conservation goals and the monitoring of groundwater use, which other Western states already do. And it paves the way for a new canal — once the third rail of California’s byzantine water politics — that would move water from the north of the state to the south.

The series of bills, which Gov. Arnold Schwarzenegger has said he will sign, include an $11.1 billion bond issue, which voters will be asked to approve next November. The rest of the roughly $40 billion project would be paid for by localities, largely through new user fees.

The pressing sense among lawmakers that they needed to do something other than oversee the nation’s largest budget crisis provided Mr. Schwarzenegger with one of his largest — and most likely final — policy victories as governor.

“This is the most comprehensive water resources action that California has taken since the state water project in the ’60s,” said Richard Little, the director of the Keston Institute for Public Finance and Infrastructure Policyat the University of Southern California. “First of all, there is so much in it,” Mr. Little said. “And for the first time, they are tying ecosystem enhancement and environmental restoration directly to the infrastructure.

“Before, we always planned the projects and then mitigated the impacts,” he said. “Now it is all on coequal footing.”

Many environmentalists still believe that the bill’s penalties for misusing the water supply do not go far enough. But they won oversight of the ailing estuary, checks and balances on future dams and some mild penalties for failures to conserve water. Local agencies will also monitor groundwater.

Republicans in the state’s Central Valley, who object to water restrictions and always push for more conveyance from the north to the south, also had to back down. “This is a huge step forward for California,” said Laura Harnish, the regional director for the Environmental Defense Fund. “It marks big progress toward managing our water supply and ecosystem in a 21st-century manner.”

Oversight of the Delta canal “has been resisted for a number of years for political reasons,” she said. “We think today, that if there is a canal that is going to come, it is going to be of a size and operated in a manner that” environmental groups could tolerate.

Water usage has been at the center of a statewide battle for decades, particularly concerning the delta, which is near collapse because of overpumping. Further, a three-year drought and a federal order last year forcing water authorities to curtail the use of large pumps in the Sacramento-San Joaquin Delta to help preserve dying smelt has reduced water flows to agriculture and resulted in dust-bowl-like conditions for many farms.

In 2008, more than 100,000 acres of the 4.7 million in the Central Valley were left unplanted. Additionally, environmental problems in the Sacramento River have resulted in a collapse of the Chinook salmon population, closing salmon season off the coast of California and much of Oregon for two years in a row.

At the same time, the state has not built any new water infrastructure in years, even as the state’s population has increased, making it harder to move water north to south — the goal of proponents of a new canal — and to capture excess water in wet years to use in dry years.

Collecting data on groundwater levels — which many rural constituents have resisted because they fear such monitoring will lead to new restrictions and penalties — is likely to help the state better manage both water supply and the problems that can be caused by overuse of that groundwater.

However, the state will not be doing the monitoring, as environmentalists and the Schwarzenegger administration sought; it will be done by the local water authorities, and refusal to go along could result in the loss of local bond money.

Environmentalists also sought hard penalties on what they call “illegal diversions” of water, but that move proved too controversial among Democratic and Republican lawmakers, who threatened to bring down the whole package over its inclusion.

The administration now has to sell large bond offerings to the California public, which may be wary of taking on new debt at a time of great fiscal crisis. But such a move may presage other efforts to fix areas of the state’s infrastructure beyond its ailing water system.

Wednesday, November 4, 2009

IEA to cut long-term oil demand outlook next week - WSJ

Wed Nov 4, 2009 8:43am IST

SINGAPORE (Reuters) - The International Energy Agency will "substantially" downgrade its long-term oil demand forecast in its annual energy outlook next week, the second cut in a row, the Wall Street Journal reported on Wednesday.

Efforts to better manage expanding oil demand in the developed world have been more effective than first expected, the paper quoted a person familiar with the report as saying. It did not give any estimates on how deep the cut might be.

While the IEA's outlook is unlikely to affect the prevailing short-term view that the global economy's recovery from recession is reviving oil use, it is an important gauge for oil companies considering whether to build refineries or drill new wells.

The IEA and other analysts have repeatedly warned that a failure to make sufficient investments now could lead to another supply crunch in the next decade, particularly as economic growth in energy-intensive developing nations revives, but some are also growing increasingly bearish on the outlook for demand.

"The rise in global oil consumption over the next 10 years could be minimal," the paper quoted Philip Verleger, a veteran independent energy economist based in Colorado, as saying, noting that new energy-efficiency standards for everything from vehicles to building codes will help keep a tight leash on demand.

In last year's World Energy Outlook the IEA cut its annual oil demand growth forecast until 2030 from 1.3 percent to 1 percent on the basis of higher prices and slower economic growth.

It also shaved 10 million barrels a day off its long-term forecast, projecting consumption in 2030 would hit 106 million barrels a day, or about 25 percent above current levels. The Journal said it wasn't clear yet how that compares with the cuts expected in this year's forecast by the IEA.

(Reporting by Jonathan Leff; Editing by Sanjeev Miglani)

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