I get asked this question a lot; by the people operating power systems, by the Oil & Gas industry, and the traditional old school bankers. They also ask about price of intermittent renewable energy plus energy storage; and when that will reach grid parity. Essentially, they are saying that the new innovations cannot replace the current technologies because the cost don’t stack.
I’m not sure those are the right conversations to have or the right questions to ask. Economics do drive a lot of systems and considerations but they probably should not be hijacking our priorities and our realities. Climate change is real; and if we are to put our best foot forward to make the difference, we are not going to make it. Putting our best foot forward is about using our minds, engaging our hands and changing our lives.
Yes, baseload power will be changed, energy prices will increase, perhaps our spaces, our wealth will have to be sacrificed. But our earth can remain a sanctuary for life, and our world can remain intact; if only we are putting our best foot forward. Not dragging our feet, not trying to maintain status quo. Not trying to exercise malicious obedience.
In my line of work as a strategy consultant, I sometimes work on techno-economic studies. Using a combination of statistical analysis, forecasting techniques and calculations, we estimate various different cost trajectories, and examine the economics of something. It could be a project, a technology, or a decision that a company is trying to undertake which has some cost impact and some benefits somewhere else.
In economics, we can only perform estimates when we assume all else equal. That’s the only way to perform proper sensitivity analysis. When you change more than one parameter, then you’d call it a scenario analysis. There are infinite possible scenarios when there is infinite parameters to shift or parameters with continuous range of possibilities. So when we model the economics of something, we’d always be varying something that we think we have control over, or that we expect will be changing in the near term, and see the effects on the economics.
Yet we often think that the economics of a technology or something will remain the same unless something drastic happens. More often than not, economics of technologies shift when various players in the market make different investments, either in the underlying technologies, manufacturing capacity for the gears and components, or simply into research and development. The actions of many different parties can have a collective impact of making the economics work when at first it doesn’t seem to work.
When we critique the economics of a new innovation or project, we often forget we are comparing them against the status quo where many are already very well-invested into. The years, decades and even centuries of using a technology, manufacturing it, creating complex supply chain and auxiliaries around the status quo. It is naturally hard to beat. But what is critical about a new technology is that the incremental investments can make a large impact, small changes to scale can also make a difference. Coordination and changing expectations play a big role.
Will the economics of new innovations change overnight? Unlikely, but they typically change faster than you and I can work out the math for the economics of it.
I have been going through Bob McGannon’s Linkedin course on ‘Leading with Intelligent Disobedience‘, he brings up the concept of ‘malicious obedience’. It is the behaviour that follows from ‘well, if that’s what you want’. And it is probably what we engage in more often than we are proud of.
I think by juxtaposing intelligent disobedience with malicious obedience, one suddenly recognise rules for the place they should be. Yet more often than not, we follow rules somewhat blindly, out of laziness, fear or lethargy, when there might be more wisdom and intelligence in breaking them. Of course, here, we recognise another dimension for following the rules – it is to do so with malicious intent.
Of course, the malicious intent might not spring up overnight. It could be employees who knew something was wrong and sounded the alarms but the management refused to heed. It could be a child protesting the stupidity of a rule at home and not having received the appropriate explanation for why the rule was in place. So the risk of not empowering others with the ability to disobey intelligently is that we send the wrong message about what obedience is about.
In my career-coaching, I often encounter cases of communication challenges from employees or staff especially in conveying messages or ideas to the bosses. Part of the problem is probably culture and the strange imbalance of power with bosses, particularly in larger organisations. There is a lot more filtering of information with complex intentions:
Staff might be trying to simplify things for bosses in order to get information across fast but end up obscuring some information
Staff may also be trying to manage their bosses’ perception of them and hence try to be focused on delivering more good news than bad
Information might be mixed with remarks incorporated for bootlicking purposes
All of these we learnt through a combination of poor workplace culture, bad upbringing with parents hiding lots of different things here and there. There are much better ways to be able to bring truth to the table without having to flinch at the expected responses.
Highlight the context and the objectives of the company or project, and gain affirmation first
Bring up how the objectives are not being met
Define the problem clearly and how it connects to the objectives not being met
Provide some options; each of which justified either by expert or external opinions, past experience from the team and other parties
Request for a decision to be made
If the boss sits on the decision and don’t make it; you may need to be more persistent in highlighting the issue. Then you can start bringing the consequences and laying alongside the costs of the options so that doing nothing would clearly be more costly.
This approach is also useful for sales but perhaps that’s for another day.
Bob McGannon introduces some rules for breaking the rules when talking about intelligent disobedience which I found to be useful in general even without considering the notion of intelligent disobedience. He suggested some really quick considerations:
Do it as an exception: only when the standard rules don’t work.
Don’t do it in stealth: Convey your intention and explain the reasons you’re breaking the rules.
Not to be passive aggressive: you don’t play nice and say you’re going to follow the rules and then leave your boss’ room and then break them.
Don’t break the law: if a rule is based on a law, you need to make sure that you’re not acting in a manner that breaks the law.
Why putting these ideas upfront is important for management and also within the context of any organisation is that you want people to be acting intelligently and have a clear robust process for exceptions. It doesn’t mean you create extra bureaucracy; if anything, it is to allow people to act wisely and be allowed to face the music later if they agreed it is a mistake.
Within an organisation, by introducing these ideas, you empower employees and treat them maturely as individuals rather than a cog in the system. In practically all areas of life, when we need people to be more autonomous, we naturally will end up hiring the best people.
Through the Linkedin learning course by Bob McGannon, I became acquainted with the idea of intelligent disobedience. I think the premise that he lays out is pretty interesting. That the human world is made of many rules and usually, 95% of the time, these rules work but then there is always 5% of the time when it doesn’t. This is when circumstances are extraordinary, when the situation is not as expected by the rule-makers and so on.
The exceptions are what calls for intelligent disobedience. After all, the reason that a person should be put in a job is not because he knows all the rules on the job. He needs needs to be able to follow, but more importantly, he needs to know when to break them. If rule-following is all it takes, then the cockpit of most commercial aircraft technically don’t require pilots. It is the need to take exceptional actions that we need professionals to take certain roles.
Talents are basically known to be the ones who break rules. They don’t get punished for them; in fact more often than not, they are celebrated. Philip Yeo is a good example of that in Singapore. In fact, he probably exhibited most traits of intelligent disobedience in most of his stories of defiance that he recorded in his book, “Neither civil nor servant”. To a large extent, risk-taking involves a lot more nuanced thinking than the manner our Singaporean culture allows for.
The previous two posts are really just preparing me for this final one about returns on capital. We have talked about the aspirations of labour and that perhaps capital should be more like labour, where it is not just trying to get a return to multiply itself, but actually to look to more qualitative returns as well. But how would capital do that?
We see examples of this done using state capital. The government uses its capital to invest into public infrastructure, education or even public housing; all of these drives returns at broad economic and social levels. And this can generate more taxes in the future but the idea of the government isn’t to actually be able to generate more taxes in the future. Having more taxes is good because it can sustain the pace of these investments but the actual return is what the society reap in terms of better standards of living, greater knowledge in the people and so on.
Yet private capital holders are not exactly thinking this way. Private capital holders act as if most of what matters is that invested capital reaps more capital. And imagine if this was applied to the government, that it simply invests more so as to gain more taxes. It might end up investing in more coercive approaches to extracting more taxes. Or to just invest in areas that gives it more power.
If companies starts developing a vision of the future and of the world it wants to build, and define the returns on capital as what gains the world get in steps towards those vision, one could expect businesses to behave differently. In other words, we start investing the way we would want to be able to practice charity or giving effectively. We put our money where there can be most impact and action towards the future we want to see in the world. The returns come when we are able to step into the future that we had envision, not when the money flows back in. In most cases, if that future in our vision materialises, the monetary gains should come in to sustain that vision. If it doesn’t, then something is missing somewhere, and you either find another vision or path to invest into, or harness further resources needed to move towards that.
Labour is different from capital; the output of labour is meant to upkeep life, and in order to keep labour going, the returns are used to enrich labour in different ways. It could be investing to enhance skills and hence quality of labour; it could be food for sustenance and continued provision of labour; there is also enjoyment and entertainment, that labour needs to have meaningful life. The returns on labour is not to have more labour, nor to expand labour, but to live, to enrich life of labour.
Labour also has fixed lifespan; it needs to be utilised or it gets wasted. It cannot remain stationary or stagnant the way capital could. It does not hold its value when it is not being worked. And being worked, it accumulates greater value more quickly. Hence, labour can be chasing something more basic and yet more elusive than what capital chases.
When money was less easily printed, more of a medium of exchange and unit of accounting than an object of desire or a means of comparing riches across large groups of people, capital was not just a stash of cash. Capital was productive capacity vested in some kind of hardware or tangible ‘thing’. It could be a plot of land, or a buffalo, or a building that can shelter one from a storm.
When you have a plot of land, you’re chasing produce or crop yield. But it doesn’t stop there because crops can decay, so you have to find your market. And even in the market, you have to be clear what you hope to get eventually with the crops you sell, because the money that you hold might get debased quickly or you could be just bartering the crops. So you might think alright, I want to be able to improve yield, so the gains will go towards a buffalo, or some tools. Or you use the crops to pay workers, so you get more help and work the land more intensively.
You ‘save’ by preserving food, or having more children (whom you feed with the extra crops). And so the land, which is your capital chase for returns but what you get in terms of returns may not be more land or more ‘money’ but more goods, a richer experience of life. When humans try to regulate that by creating money, and then try to introduce price stability and the notion that money or at least the value is somewhat more persistent than other things in the world, our perception of how the world works gets skewed.
We accumulate money and try to accumulate even more with the money we get. All the while, it becomes just a meter that is counting scores without changing your life. Sure, you can exchange money for luxuries and a so-called better life. But why not just postpone that and make more money in the meantime? So the game of capital is just chasing returns, almost perpetually. The result is that capital seeks to indebt people; and the central banks ease the problem by printing more, creating inflation so that people will be led to consume, and to actually behave a bit more like when money was less trustworthy.
But this itself becomes a bit of a solution for easing recessions, stimulating the economy – kick-starting some kind of positive cycle that leads to growing activities and expansion of economies. And the whole system goes back to being a dog chasing its tail. The growth in our economy is simply to achieve more growth. And that is starting to behave more like capital again. No wonder capital wins labour in the game, because we’ve all been led to play the economy like capital’s game.
Perhaps if we understand labour a bit better, we can steer capital for the better?
I have written about green ammonia and hydrogen before. And I might keep talking about them because they are important candidates as energy vectors in a decarbonised world. They are quite likely what is considered as the end points of the transition for the world towards zero carbon or low carbon. What does it mean to transit to green ammonia or green hydrogen? What needs to take place, and who will move first? What should the players be looking out for in order to make the switch?
We need to start defining intermediate steps for the switch. There is actually very little doubts about the inevitability of the switch. Yes there are concerns that it might be energy intensive, the costs are high, and the market is not formed yet. But realistically, most new things are like that. When the Apollo mission took up 60% of the computing power of United States in order to perform its calculations for the project, there wasn’t anyone saying the industry is not formed yet we should wait for better computers before we send man to the moon. We just viewed the mission as a series of problems to be solved, within the budget constraint.
The transition needs a budget; it can be a small one or it can be a large one. The issue is that the businesses needs to take a stance and say that climate change and the transition is a mission I want to be on, and to explore the series of problems to be solved in order to complete the mission. And we don’t wait for costs to come down before we make the transition, we take active steps towards it. That is also what leadership is about. That is really the only issue people should be considering.
So for example, if you’re providing equipment for natural gas systems – be it power generation, cogeneration, for steam methane reforming, etc. You need to start thinking about the smaller pieces of things: are your valves able to handle hydrogen? Do the membranes in your cryogenic tanks work if it was to be filled with hydrogen? What about your manpower, are they able to be trained in the safe handling of the gas? All these to prepare for the transition. You won’t be able to make the transition overnight or achieve it through a single project. It takes much smaller steps.
