What does additionality mean? There’s this idea that the activity needs to add on something to the existing context. This is a big matter in the case of renewable energies as people are speaking against carbon credits or renewable energy certificates that are actually not adding more renewable energy or removing carbon emissions from the atmosphere.
We are trying to create a system where incentives themselves are not blunted or abused. If for example, we introduce incentives to reduce rat infestation by rewarding those who catch rats, then you risk the abuse where people are breeding rats to be killed and submitted for incentives. The result of this unintended condition is that people are taking actions that may be contrary to what the original intent of the incentives were.
The world is trying to shift towards a low carbon world. Incentives ought to be rejigged and aligned towards reducing carbon emissions. Yet if we allow abuses and undermine the credibility of emission reductions, we’re hurting ourselves. If forest land owners are suddenly making new revenue streams for trees they are already protecting, it might be a problem that there is no additionality for the new carbon assets.
We should only be incentivising activities that will reduce the world’s carbon emissions. Or increasing its sequestration. The problem is that is hard to measure and align standards of what really counts.
One of the biggest argument for capitalism and market economy is the promotion of innovation. Competition promotes innovation; and the common incentive of money (as a placeholder for all things monetised) helps to drive that competition. The challenge is that money is based on those who actually happen to get hold of a lot of it, no matter how.
Consequently, the market economy can develop a lot of innovations that are not useful. An additional brand of shampoo, or another design of reading glasses, or another variation of packaging. Yet these sometimes seemingly useless improvements can be incremental steps towards newer, disruptive products. So even during those times when money is seen to be chasing something frivilous, the march and progress in innovation can still be advancing.
Yet we are unlikely to rely purely on the movements in the market to develop innovations that we as humans truly need. Often, innovations that eventually change the world involves some degree of intentionality and sense of mission. The market for innovation isn’t as much about dollars and cents, as compared with purpose and mission.
One of the most power tools that economics have brought to the world is cost-benefit analysis and really assessing what is the constitution of cost or benefits at various levels: individuals, firms, regional government, national government, countries.
Where it fails is the ability to properly ascribe who cares about what. The assumption around rational, selfish agents cannot possibly hold in reality. On the other hand, there is radical inconsistencies when you perform such optimisation on behalf of “government” which is staffed by human agents and with politicians have their own agenda. Over the years, these poor assumptions have made room for more colourful, richer analysis of agents, decision-making units at different levels.
Now if we move our attention to the dimension of time rather than perspective of our agents, we realise another issue. We can assess somehow the cost and benefits of today if we use our imaginations but to stretch it to the future would require even more manipulations. And the uncertainty make render the exercise less fruitful than one may expect.
Alas, we continue to use these tools expecting them to work while not having proper assessment of whether they work or not when the outcomes play out in reality. It is not the issue of calculating those figures but how we incorporate them into our judgment that matters. Yet with limited budgets and resources, most have chosen to opt for a semblance of the exercise, paying a smaller cost but getting almost none of the benefits.
About 81 years ago, Dorothy Sayer, a British writer penned these words:
A society in which consumption has to be artificially stimulated in order to keep production going is a society founded on trash and waste, and such a society is a house built upon sand.
Dorothy Sayers (1942), Why Work
In the article, I’m amazed by the clarity which Dorothy Sayers foresaw the world post-war, with piercing critique of the economic system we have created. The economics that she was schooled in was one of observations of the market, of history and of human psyche itself.
The second world war has ended for more than 70 years now; and as predicted by Sayer, we had immediately jumped back into the business as usual, where work and labour was valued only by money. And this is why we churn out more waste our planet can scarcely handle (both in terms of carbon emissions and lots of material wastage).
Sayer’s remedy has to do with appreciating our work in a different way and valuing it more. And much of it certainly sounds like echoes of the messages around ESG, corporate social responsibility and sustainability these days. Yet she also points to something deeper, points revolving around values of work, of the things we do in society, and value that is created to serve lives and human beings, not abstracted by the market in the form of price signals.
Her full essay can be found here. I confess of course that my shared faith with Sayers help me appreciate the essay in a deep way. If you do care about sustainability and our world, even if you are not a Christian, surely some of the points she brought up should give us a deeper motivation to drive us to live in a manner that is a part and yet apart from this market system?
So there was an announcement about brand name school being moved to neighbourhoods that were newly developing. Or what Singaporeans affectionately call heartlands. And then there was a bit of furore. Maybe it was also about the all boys school starting to be co-ed and accepting girls.
Singapore has a long history of all boys school turning into co-ed schools. Think Gan Eng Seng School, Tanjong Katong Secondary Technical School (now known as Tanjong Katong Secondary School). So in some sense, these ‘elite’ institutions have been slow at embracing diversity. The uproar and concerns voiced reflected the obsession Singaporeans have with brand names and in many sense, social status.
Having built a successful society that is based on levelling the playing field and trying to be ‘meritocratic’ means that there will be lots of forces usually around to seek to differentiate and stand out. Schools are one of the most significant way to perpetuate this. And I honestly would not be surprised if because of this shift, the area in Tengah becomes hot property for the parents wanting to send their children to prime schools.
In future, branded schools may be ways to rejuvenate neighbourhoods.
When is it good for something to be structured and when is it good for it not to be? It’s not entirely clear. I think humans do enjoy a bit of both. At some level, the world is structured but it is also messy and complex. There is land and sea, forests and deserts. But there are also ecosystems and lots of freedom to roam within the realms you find yourself in.
What happens when an environment is too structured? Problem solving becomes playing games, more about figuring out the rules and toying with it than to really deal with problems at hand. This is how the big companies develop more bloat and bureacracy with politics.
And what if the environment lacks structure?Outcomes become less reliable. The randomness can create uncertainty and encourage inefficiency. Yet at the same time it can build resilience.
What do you want for yourself? For your kids? For your staff? How would you structure it?
Reducing carbon emissions is about doing less things. But our culture and economy is not used to that. Maybe that’s why it is easier to sell the idea that we must do more new things or different things.
New actions from various parties in the economy requires new forms of coordination. We are not familiar with all that and neither are we familiar with the roles, actions and expectations.
In some sense the talents who used to do this sort of work would have come from those with public policy background but because of the manner the economy and talent flows have evolved in the past few decades, these people now come from everywhere.
For those in research, it is knowledge that catalyses actions. For those in politics it is the voice from the people. And for businesses, it would tend to be what constitutes opportunity, these various pockets of objectives, desired outcomes and tools need to be laid out and strung together.
It’s interesting how people are amazed by ChatGPT passing exams. Exams are narrowly designed processes with somewhat clear rubric for determining scores, exactly the same type of process that had been used to train and improve machine learning and artificial intelligence. Never mind that it’s passing Wharton MBA or law exams, these are special situations which are designed specifically to be somewhat ‘gamed’. And these are the situations where machines are in their elements.
The fact that they only pass the exams and not excel, reflects that the variability of the exams and the desire to really pick out top human candidates. This is also a test for the exams-setting as it reflects that they are not at all about just getting the answers right. Rather, exams should be designed and set to be open-minded to ‘surprise me’ type of situations.
We could all become machine-like, ask ‘What is going to be on the test?‘ and then approach it by trying to get answers right to everything. Or we can learn to solve real world problems by acting like humans, accepting our weaknesses and vulnerability, and cracking on bit by bit. Problems are rarely solved by invulnerability – they are typically solved by first acknowledging what we don’t know and moving at the edges of what we do know.
What are negative prices in the market? When you don’t want something and have to pay someone to take it. But why can’t you just “dispose” it somehow? Or “leave it there”? Maybe there are regulations in place. Or maybe there isn’t a place that you can and want to “leave it”
Carbon prices are negative prices; you need to pay someone to take it away. By creating regulations to prevent people from just “leaving it there (in the atmosphere)”, you push the cost of disposal to the polluters and set out the signals and momentum necessary to rewire the system.
Free market doesn’t emerge spontaneously; it requires regulation, boundaries and legal mechanisms to enforce rules, especially explicit ones. Implicit rules are also necessary to keep things together. Question is if we are willing to create a system intellectual property and enforce rights to spark innovation, why aren’t we doing so for climate change?
I wrote about finding talents; but what do you do after finding them? Do you leverage them? Do you beat them into conforming with the system and structures you’ve created? The use of talents is more important than finding them because you’re not going to keep them if you think that the transaction is just about remuneration in exchange for them applying their abilities to your problems.
Conditions need to be created to leverage on our talents better and that can come from remuneration but it also involves the structure of work, processes and the environment created by managers and prevailing cultures.
If you don’t have them, then finding talents might be a waste of time and resources.
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