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Expert vs advisors

I’ve been reading the ‘Strategy and the Fat Smoker’ by David Maister. I think very highly of David’s crisp thinking in the manner he approach strategy and the manner in which he cuts through issues and topics. He simplifies the concepts to the core of the subject matter without ignoring the human elements in them.

One of the interesting ideas he introduced is the idea of expert vs advisors when it comes to serving in professional services. A lot of consultants claim to desire to serve customers as advisors, as trusted partners but in reality they want to be treated as the expert, to have control and defend their expertise rather than to build strong trusting relationships with their clients.

In essence, from my perspective, the expert cares about the topic and the subject matter more than the client’s problem. And as a result, the client can benefit from the expertise but more as flat information or knowledge than actionable insights.

The advisor may not be the expert but he gains his authority to consult with the client through his deep understanding of the client’s problem. And that allows his synthesis of insights gathered from other parties, especially those who consider themselves experts.

A client can decide what he needs is an expert but he can never expect the bespoke synthesis to come from the expert. He or she will have to take responsibility for that.

Making the contribution

For first time in history but it’s already been a while, the world collectively seem to have abundance. The total amount of food produced could feed the entire world one and a half times over. If energy is used efficiently and excesses trimmed, the entire world should have decent amount of power to live normal modern lives. Of course that depends on what you mean by normal but I’m covering the same point that there’s enough in the world but the problem is distribution.

And distribution is not just a physical problem of course. Distribution can be an economic problem in itself. The fact that the market doesn’t really care that much about the distribution of resources, buying power / puchasing power is actually a problem. It skews the global economy towards what the people with means needs rather than producing for the best outcomes of the world. And this is perhaps why energy continues to be skewed towards the developed, high energy consumption countries or markets.

So making a contribution to this world isn’t really about production. If the world continues in the same fashion tomorrow, you can really make a greater impact on someone’s life – from an incremental perspective – by improving the distribution in the system. By bringing access to higher quality energy, better nutrition, bringing critical and vital knowledge to the communities which can use them properly. That sort of contribution is of unparalleled value. Probably not the kind of contribution involving helping companies break into new markets or keeping fossil fuel businesses alive to emit more carbon.

What is value?

One of the key fundamental steps to take in order to move towards a low-carbon future is to re-assess our notion of value, economic value. Over the past decades, economic value had been increasingly important as more and more things in the world could be bought with money. This is what Michael Sandel calls the making of a market society.

This is worrying because the value of anything and everything used to be so much more. There’s richness in being able to evaluate and appraise value of various things in different ways. And this is why dollar values can never encapsulate all of that. In fact, there is no such thing as a market for single goods and services. The notion of a market price is just about as real as the notion of an average. The same good can be simultaneously sold at low and high prices depending on where, when, and to whom it was sold.

By defining this abstract concept of market values, we are trying to make a subjective valuation something objective. We are trying to abstract from specific context and circumstances and forcefully say that surely there is something about the good or service itself that has nothing to do with all that. And if we can gather the averages or have a large number of observations, we can use that statistic as something objective. In reality, the statistic is just a statistic – is it a market value? That’s up to whoever is reading the statement.

Beyond the market, the real way to appraise value continues to be subjective and that is okay because we all should be selecting the dimensions we all care about and build our decisions based on that.

Ready-made solutions

Just add hot water to instant coffee and you get your morning cup of coffee. Boil some water and pop the noodles and powder in, or even better, just rip the packaging and put it into the microwave, pressing just a few buttons then wait – and you get your meal. Bring a packet of ready-mix cement and mix in water, and you can have some of the bonding materials for your brick building. Or you can start paving the road.

So why can’t you just order a report and instantly know everything there is to know about a market? Or to pay someone to give you all the answers to entering a market for your business? Even better, pay someone to enter the market, run the business for you and then you just reap the business success benefits? The challenge of having instant, ready-made solutions in some parts of life is that we start expecting all parts of life to be like that.

And worse still, we allow the market to grow into crevices of our lives expecting it to deliver but it never does. Professional service can deliver a report but won’t be able to ensure you learn all about a market. You could get someone to develop a strategy to enter a market for your business but you’re the one who would eventually have to follow through with it. And moreover, the less you’re involved in co-developing the plan, the less you’ll be able to actually execute it.

There are just so much work that is better, more beautiful and meaningful because they involve co-creation and where you’re paying for someone to partner with you to make a new thing happen. The reason you’d pay them for it is because you will eventually reap the full benefits of the result while they wouldn’t have been working to partner with you otherwise. And in this domain, there are no ready-made solutions for you to purchase; you will have to do the work if you want the success. And it won’t be guaranteed.

Bridge to the future

Having been based in Australia for two months now and getting a better view of the overall energy landscape, I’d say that the greatest hurdle we need to overcome is developing an alignment in commitment, plans and action to bring bioenergy especially biomethane into the system energy mix in order to decarbonise.

We are trying to build a bridge to the low-carbon energy future. And there has been many announcement, efforts and plans around hydrogen hubs, hydrogen parks. In the year 2023, the prices of electrolysers didn’t seem to come down all that much as expected, renewable electricity in the form of wind and solar, while being cheap, is bringing about a degree of intermittency that challenges grid operations to the extent that overall cost of electricity or at least access to electricity remains high. As it turns out, we were building the bridge from the destination towards us when we were working on the hydrogen projects. They were good, at some point in the future but it seems that they are not being built fast enough to reach us today. We are still unable to adopt those solutions.

This means that as the decarbonisation targets and emission reduction dreams comes back to bite us, we need to start building the bridge from our side. And biomethane is a great solution that allows us to do that. It displaces natural gas on a one-to-one basis and does not require end-users of natural gas to change their appliances. Biomethane can be spec-ed properly in the biogas upgrading process in order to achieve the quality required for gas grid injection. Moreover, the production of biogas (precursor to biomethane) can be done in conjunction with managing our organic and agricultural wastes which were either being burnt, composted openly or sent to the landfill – all of which involves some kind of carbon emission (albeit short-cycle to a certain extent) that does not achieve extra work done. And don’t get me started on the potential of biogenic carbon dioxide as a future market to build.

Lots of clear work and action. Once we get the perception right and eliminate the misinformation around bioenergy in Australia.

Incentive to ignore

In 1977, more than 45 years ago, James Black, a senior scientist from ExxonMobil delivered a sobering message to the company:

In the first place, there is general scientific agreement that the most likely manner in which mankind is influencing the global climate is through carbon dioxide release from the burning of fossil fuels…

And in later warnings, he was clear about the need for action

…present thinking holds that man has a time window of five to 10 years before the need for hard decisions regarding changes in energy strategies might become critical.

And if you want to know more about this you can check out the article published 8 years ago in Scientific American. What I’m trying to say here is that incentives are important guide to corporations, businesses and while they are operated by humans, we cannot trust them to follow moral principles or human values that are not captured within regulations, rules or laws. In fact, we already cannot quite trust them to follow rules, regulations and laws to begin with, especially when they are at odds with profit-making.

The market is designed to act in certain ways that do not necessarily promote the greatest general well-being of the society. The conclusion that Adam Smith came to unfortunately doesn’t apply to the extent that market incentives rule so many aspects of our lives.

If ExxonMobil had been not only incentivised to ignore the climate problem but potentially contribute to confusion in the subsequent decades, how can we expect shareholder pressure, financial reporting and disclosures to help? And at the same time, putting all of these burden on the companies are probably going to make more enemies to decarbonisation. Disclosures are more about self-regulation and expecting the market to bring the whip. That’s hit and miss; and when there is incentive to ignore the problem, the market would, as we have seen for more than four decades.

It is time for governments to wake up and lead the mission on climate change. Businesses, consultants, NGOs, activists can only go this far and no more.

Government bashing

The government tends to be an easy target for most of the problems, or the lack of solution towards them. In most cases, the lack of technical solutions tend not to be the barrier towards solving the problems. It is a matter of adoption. And people look towards the government to drive the uptake of solutions. The struggle today, in the market economy where there’s a multitude of technical solutions backed by various different economic interest, there’s some kind of gridlock towards having governments select solutions.

Historically, the popular beliefs, ideas and thoughts drive the directions of democratically elected government. Influence from businesses probably will contribute to some of that. But the options are limited (automobiles or horse carriages, internal combustion engines or electric engines, AC or DC transmission, etc.) and there are certain dimensions by which governments can justify their choices and move forward.

Today, it is less clear. Should we electrify homes completely or allow them to continue using gas, albeit having to encourage the development of renewable gases? Should the government be driving the choice of technologies used in homes or industries by enabling or making difficult the development of more biomethane for grid-injection? Or should they be encouraging full electrification not just of homes but also industries, and even heavy transport, redeveloping infrastructure to be able to deliver lots of electricity, enabling battery swapping or ultra-fast charging along highways?

What are the dimensions that the government should be optimising along, should they be taking positions to propagate certain solutions or standards? Are they in the position to make those choices? Yet some of these innovations and technological adoption can only move forward with enabling policies. The issue is that being in a standstill and not enacting any policy is in itself a choice for status quo, for the carbon-intense way of life, and dooming our system. Yet making a choice can mean excluding certain options or causing certain options to be more or less expensive than they otherwise would be, hence favouring one over another.

Taking policy positions and ultimately making some kind of technological choice implicitly is inevitable. So it is just a matter of what are the priorities.

Markets and distribution

One of the things we learnt early on in economics is that allocative efficiency which the perfect competitive market seem to move towards is efficient in terms of maximising social welfare even if distributionally it is skewed. In other words, by using the ability to pay as the final arbiter for who gets the goods and services, the society moves towards high levels of efficiency about what gets produced and who gets what goods/services without questioning whether things are really ‘fair’ or if in the first place, the ability to pay is properly distributed.

This is a problem that we seem to ignore because it is convenient to think we are already in the best of worlds. The idea of Pareto optimal is powerful – that you stop moving things around as long as you cannot make someone better off without having to make someone worse off even if the one who is slightly worse off is not much more worse than the amount of betterment you can create in another. That comparison isn’t objectively possible anyways.

But by sweeping it under the carpet, economics close itself off to a lot of interesting philosophical debate that really matters and tries to consign itself to an amoral science. Yet championing for markets is not exactly amoral, it is taking the stance that the market approach is morally superior and already deferring to the market in the work of economic justice. Michael Sandel writes and lectures extensively on this and as we ponder over how we marketize various things from infrastructure to healthcare, we can go back to consider those ideas.

Extracting surpluses

I spent many years focused on infrastructure development, particularly working on getting private sector involvement into infrastructure investments, executing the projects, operating and maintaining them for government. The advantage, as we would often tout, has a lot to do with the efficiency of getting private sector with experience to do it. At the same time, it reduces need to use direct state budget for financing such projects, and reduce the need for government to get involved in the complexities of hiring specialists, working on those technical subjects that will not support other areas of government work.

We called these infrastructure projects public-private partnerships or PPPs. It has somehow unlocked lots of private sector financing into the market and supported infrastructure investments. That is all good but it made me wonder whether marketization infrastructure is necessarily a good thing. For one, collecting fees on a piece of infrastructure in order to maintain it sounds right; and that fee will somehow have to be regulated since the private sector party would try to extract all the surplus with its monopoly position. So what should the regulator allow? Average cost pricing or marginal cost pricing? There is a ‘right answer’ in economics but in practice it is always hard to really work out what is the long run marginal cost involved. Particularly if the amount of service you render in each time period varies with demand.

And who is to prevent the monopoly from trying to extract more surpluses by pushing the regulator to allow it to charge certain prices by gaming the criteria or the measurement methodologies that the public sector develops. So the cat and mouse game starts. Is this what we expect when we try to marketize infrastructure? And should we not expect it when we do go ahead to privatise infrastructure? Eventually the tax payers have to fund both the cat and the mouse – the regulator and the monopoly or the private shareholders’ profits. Does that really make sense in terms of overall economic efficiency?

And finally, can such a set up really deal with change? Especially with the energy and climate transition. A lot of infrastructure need to build in resilience, consider the climate impacts on not just their infrastructure but also their customers and the way their demand base will be evolving, whether that is going to impact existing business models. All that is not even accounting for the decarbonisation ambitions of their customers. Meanwhile, can these all become an excuse for extracting further surpluses?

The monolithic system

What if the sun could give us all our power and energy, to drive everything we need to power our economies, perform our activities and live life? Or what if we can afford everything that we ever want and need? What if money can buy us everything? What if this one thing can solve all your problems?

If all that hypothetical questioning sounds like a bunch of marketing crap or storytelling, they are actually fantastic devices that somehow appeals so much to our psyche. But they can simultaneously be truth with caveats and also complete bullshit.

In case you are curious, I provide the solutions:

The sun does power a lot of things and is capable of providing sufficient energy for all of our activities and more but capturing it and channeling them properly is had.
We, as a collective earth, already is able to afford everything we produce and will be able to satisfy all of our needs – wants on the other hand are completely manufactured by ourselves and can be managed.
Money can buy us everything that can be bought (or sold).
One thing that can solve all your problems is a mental reframe to see them not as problems but challenges to help you grow.

There is always some kind of rhetoric to get you out of those conundrum but doesn’t really address the actual psychological appeal of those questions. The thing is that we naturally gravitate towards some kind of monolithic system or idea where we want a single solution or something that becomes a common denominator for everything else. Money comes close to becoming that. Yet that has probably demonstrated that such a system do not actually deliver what you think it would.

Likewise, the market economy and market system isn’t going to be the one that delivers us all from the problems around energy, climate change, innovations and poverty elimination. The market system needs to be rightly placed for what it is good for just as we should see wind and solar power in their place within the energy system rather than expecting them to deliver all our needs. Even oil and gas was not able to power all of our world’s energy needs even if they came close to that. Monolithic systems reduces resilience even if they provide scale economies.