Bitcoin is not a good fit for renewable energy. Here’s why.

Recent research suggests that Bitcoin network is using an appreciable fraction – 0.1% – of the world’s total electricity use and is projected to use up to 0.5%, or about what all the solar panels in the world produce, by the year’s end. These troubling developments have been met by claims that Bitcoin is actually a good thing, since increased demand promotes investments in new renewable energy technologies and in any case Bitcoin miners would “soon” convert to low-carbon, renewable energy anyway.

These claims belie a lack of understanding of how energy systems actually work, and why the fundamental economics of Bitcoin mining make it, in fact, one of the least renewables-compatible industrial processes on the planet today. In reality, in most jurisdictions Bitcoin mining most likely promotes increased and continuing use of coal. In the following, I try to explain as briefly as possible why this is so.

Let’s start by examining the economics of Bitcoin mining. As is well understood by everyone with more than a passing interest in Bitcoin, mining these days is the domain of specialized ASIC mining rigs. These mining rigs are relatively expensive investments that have no other profitable use, except as very expensive electric heating elements. As a result, a miner will try his utmost to make the most of the investment in the time available, meaning that the goal is to keep mining rigs in operation 24 hours per day, seven days a week, until they become obsolete.

All this consumes considerable quantities of electricity, so the miner has significant incentives to locate where this 24/7 electricity supply is available as cheaply as possible. We see the results in the concentration of miners in China, where coal power stations and lax environmental rules provide plentiful cheap electricity.

Now, in theory the miners could provide their power, or at least some of it, from renewable energy sources like wind power or solar photovoltaics (PVs). Proponents of this theory note the fall in the price of renewables and the fact that in many situations, the cost of electrical energy produced by these generators – usually expressed as Levelized Cost Of Electricity or LCOE – is already lower than the LCOE of fossil fuel fired plants.

However, the problem with this theory is that these promising renewable energy sources produce only intermittent, or variable, power. For reasons that ought to be obvious, both types of renewable energy are available only when weather conditions are favorable. Typically, the availability of variable sources is expressed as “capacity factor”, meaning what is the actual energy output relative to “nameplate” capacity. For wind power, typical capacity factors range from 25-30% for land-based wind to little more than 45% for the largest offshore wind farms in particularly suitable locations; for solar PV, capacity factors tend to fall between 8 to 15 percent.

What this means in practice is that variable renewable sources are and will always remain a poor fit for industrial processes where maximizing returns to the investment requires steady 24/7 operation. This problem has been understood and acknowledged by most existing industries, and even smelters are these days redesigning their technologies to better cope with variable production of electricity. For example, Swedish steelmaker SSAB is experimenting with hydrogen reduction techniques, where a major component of the steel plant would be a hydrogen storage tank that is filled when excess power is available and withdrawn for the process when it is not. (Additional benefit: no need for coal in the process, saving CO2 emissions in that way as well.) Bitcoin mining, however, cannot adapt easily, because there is no method for “saving” any energy-intensive component of the produce for less energy intensive processing in periods of low production.

It needs to be stressed at this point that the LCOE figures, which are the most commonly cited figures for the cost of renewable electricity, by definition do not account for this problem. LCOE simply means what it costs to produce an unit of electricity by a given source: whether or not that unit of electricity is produced when it is actually needed is a question LCOE figures cannot answer.

Of course, these problems can be mitigated to some extent by various solutions and combinations of solutions. One solution would be to construct large interconnector networks so that renewable generators somewhere would always produce at least some power. This helps to some extent, but it is not a panacea, and increases costs significantly: in effect, the total cost is the cost of all the generators required plus the cost of interconnectors. In energy researchers’ jargon, this is known as “overbuild” and various studies suggest a 24/7 energy system would require overbuild of something between 2 to 5 times of nominal capacity – in other words, at 2 to 5 times the nominal LCOE cost of electricity from a single renewable energy generator. Furthermore, there are significant political problems involved: local opposition to transmission lines is already a bottleneck to renewable energy increases in Germany, and constructing a grid that would markedly help Europe with solar PV’s inherent tendency to produce only during daytime would require installing the demand’s worth of solar panels along every longitude between Moscow and the Canary Islands.

For these reasons, energy researchers don’t see grid expansion as more than a partial solution to the problem. Energy storage methods, ranging from pumped hydro stations to synthetic gas to vast battery banks, are another partial solution. Again, these solutions entail additional costs that are not captured in the LCOE figures, and again, for various technical and economic reasons, these are nevertheless unlikely to amount for anything else than a partial solution at best as well. A basic problem here is that fossil fuel sources, which are the baseline against which all other solutions have to compete, are at the same time a source and a very convenient store of energy: a lump of coal stores energy very effectively until such a time as it is needed.

This leaves the third option: demand flexibility. If energy demand were to flex according to production, the problems with low-carbon production not quite matching the demand would diminish significantly. Therefore, literally every energy scenario produced during the last two decades concludes that switching the world’s energy supply from easily controllable (or “dispatchable”) fossil fuel supplies to energy sources whose drawbacks don’t include a probable collapse of human civilization requires a combination of vast interconnector networks, energy storage, and demand flexibility – and that the latter is extremely important. Google any energy report you want, and you will see that it stresses the essential importance of increasing demand flexibility. This means, simply, that we should shun processes that cannot be or are not easily throttled in response to variable supply.

Which brings us back to Bitcoin. Unless a way is devised to cheaply “store” hash rates achieved during periods of peak electricity production, Bitcoin mining will continue to require steady, inflexible 24/7 supplies of power. Theoretically, Bitcoin miners could certainly invest in battery banks or other energy storage methods to produce such energy services: in practice, this would very greatly increase the cost of electricity used.

For the foreseeable future, the cheapest source of steady 24/7 electricity supply will be coal or gas, except in few locations that are blessed with extremely abundant hydropower reserves. Bitcoin mining creates a stable, predictable demand coal power stations in particular love: throttling coal power up or down is generally difficult, and in fact one of the main reasons why renewables sometimes can shut down coal power plants is because coal plants have problems coping with flexibility demands. The more there is Bitcoin mining, the less need there is for coal plants to close, the more revenues they can collect, and the more political clout they have. In fact, there have already been news of shuttered coal plants being opened to power Bitcoin mining.

So for the foreseeable future at least, Bitcoin mining will promote and extend coal use in most places, most certainly in China. More inflexible demand is not great for renewables, and in general, inflexible uses should be shunned, not promoted these days.

Bitcoin enthusiasts might have a better case if they claimed that Bitcoin mining promotes the use of nuclear power, whose characteristics match more closely those of coal plants. However, I at least haven’t seen such a case made yet, and somehow I doubt the people who claim to be decentralizing everything are that enthusiastic about large, centralized power plants.

PS. Before anyone asks: yes, hydro and geothermal power plants could produce steady 24/7 power. However, 1) building more hydro plants in particular is very problematic, 2) geothermal electricity is competitive only in places where there is significant volcanic activity, 3) there are many other industrial processes where flexibility is difficult to increase, and dispatchable low-carbon power sources like hydro would be more gainfully employed either there or in smoothing out variable production.

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Practical policies for transition towards post-capitalist, post-scarcity society

One question I get asked a lot is that post-capitalism and post-scarcity sound like good ideas in theory, but how do we get from here to there in practice?

In other words: What are the actual, concrete political projects we should be advancing?

This is a good question and I don’t have as many good answers as I’d like to have. While I’m working on it, I’ll outline others’ suggestions for practical policies that could, in the long run if not in the short, make a difference.

This is a living document and I’ll append more examples as I find and get around to typing them. Please, feel more than free to leave suggestions!

Mason’s transition to a post-capitalist society

First off are Paul Mason’s five principles of transition from his worthy book, Postcapitalism: A guide to our future (Mason, 2015). The book includes a discussion of potential large-scale postcapitalist project called “Project Zero” (for zero-carbon energy system, the production of machines, products and services with zero marginal costs, and the reduction of necessary labor time as close as possible to zero).

Five principles

In Mason’s opinion, this transition needs to involve five principles (pp. 266–269:

  1. Understanding the limitations of human willpower in the face of a complex and fragile system. The solution to this problem, which hobbled the previous revolutionaries, is to test all proposals at small scale and model their macro-economic impact virtually many times before attempting them on a large scale.
  2. Ecological sustainability: transition and its technologies need to be designed to be sustainable.
  3. The transition is not just about economics; it needs to be a human transition. New networked economies create new kinds of people with new kinds of insecurities and new priorities. Any project cannot be simply about economic and social justice (important though they are), but needs to be a democratic one where people will see their lives improve meaningfully.
  4. Attack the problem from all angles. Meaningful action is not limited to a certain place or at certain levels; grassroots activism is just as important as high-level negotiations, particularly so because we need new kinds of regulation and governance to manage a zero marginal cost society. Solutions should be looked for through a mixture of small-scale experiment, proven models that can be scaled up, and top-down action by states.
  5. Maximize the power of information. Use social technologies, the internet of things, and whatever you can. The goal is to decentralize economic control; Internet could be the perfect tool for that.

Top-level goals (or “victory conditions”)

A list by Mason, not in any order of importance! (pp. 269–270)

A Precaution: WHENEVER POSSIBLE, TEST EVERY PROPOSAL VIRTUALLY WITH SIMULATION TOOLS BEFORE IMPLEMENTATION.

  1. Rapidly reduce carbon emissions so that the world has warmed by only two degrees Celcius by 2050, prevent an energy crisis and mitigate the chaos caused by climate events.
  2. Stabilize the finance system between now and 2050 by socialising it, so that ageing populations, climate change and the debt overhang do not combine to detonate a new boom-and-bust cycle and destroy the world economy.
  3. Deliver high levels of material prosperity and wellbeing to the majority of people, primarily by prioritizing information-rich technologies towards solving major social challenges, such as ill health, welfare dependency, sexual exploitation and poor education.
  4. Gear technology towards the reduction of necessary work to promote the rapid transition towards an automated economy. Eventually, work becomes voluntary, basic commodities and public services are free, and economic management becomes primarily an issue of energy and resources, not capital and labor.

References

Mason, P. (2015). Post-Capitalism: A Guide to our Future. London: Allen Lane.

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Post-scarcity: a research review (in progress!)

I’ve been slowly going through research literature on post-scarcity and so-called scarcity, abundance and sufficiency (SAS) school of thought.

TL;DR version: post-scarcity economy, where the economic problem of production has for all intents and purposes been solved and all the basic needs are met for all the people, seems to be a much more feasible proposition than many people believe. However, it will require development of new institutions to govern the new commons and political action to end the inequalities that threaten the world.

My presentation at the Finnish Political Science Association’s 2018 conference, 8.3.18:

(click here to go to Google Slides; feel free to comment!)

Paper will follow once I get it to some sort of shape.

 

 

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Pragmatic, inclusive energy discussion works

Here’s one data point for the debate about communicating nuclear power: The approval rating of nuclear power in Finland has risen by a whopping seven percentage points in a year. In Pyhäjoki, where the Russian Rosatom is building its highly-contested reactor, the approval of nuclear power hovers around 75 percent despite all the media attention given to the very real problems with the project and the way it was handled.

At the same time, the Finnish Ecomodernist Society has been more and more active in calm, measured discussion about energy and climate issues and the positives of including nuclear power as one energy option among others. While it would be an overstatement to say that the work of Finnish ecomodernists is responsible for this increase in public approval, at the very least it shows that thoughtful, balanced approach does not prevent the increase in popularity of a contentious energy source.

For some years now, I’ve firmly believed that all maximalist energy plans are mistakes on both practical and political levels. While plans and ideas that call for 100% renewable or 100% nuclear energy to decarbonise the world may be physically possible, I don’t think they represent the most reliable, nor the fastest, nor the cheapest ways to required near-total decarbonisation. Furthermore, I don’t believe we can know with any certainty the details of the energy system of the 2050s; therefore, arguing that one route or the other is clearly superior seems to me a case of hubris.

Instead, I believe that we ought to encourage all approaches that have the potential to reduce emissions to the atmosphere, or draw down greenhouse gases that are already there. I also believe that at this juncture, we don’t have the luxury of opposing any major low-carbon energy projects, unless for very good and fairly specific reasons.

We need to remain critical of energy technologies and, in particular, energy projects. There are no unproblematic technologies, and despite the obvious need for vast amounts of low-carbon energy, no technology or project should go unchallenged. But there is a fine line between being a critic, and coming off as an arrogant, obsessed devotee. Coming off as a latter – even if one is technically speaking correct – is a surefire way of alienating people who might actually be otherwise open to a discussion. Being obnoxiously certain of the superiority of one’s chosen solutions is just another way of being a jerk. (Note that I don’t claim to be innocent here, but I do try to make amends.)

And since we also need a lot higher public approval for all low-carbon energy and climate mitigation projects, we all ought to focus on promoting what we like instead of bashing what we don’t like. By all means, be critical – just don’t overdo it. The Finnish example shows, in my mind, that thoughtful discussion goes a lot farther a lot faster than bashing the opposition.

(As an aside, we’ve benefited from having a previous example. Back in 1993, the Finnish Parliament voted for a permit for the fifth nuclear reactor in Finland. The permit was denied, and latter post mortems noted that a major (though not the only) reason was the smug, alienating approached used by the promoters of the fifth nuclear reactor. They came off as arrogant, technocratic know-it-alls who disparaged every other idea and solution, called the opposition unscientific and irrational, and managed to alienate even some dyed-in-the-wool nuclear supporters. In contrast, the 2003 decision was lobbied very differently, with an approach that envisioned nuclear power as one solution among others and was by far more courteous to the critics. Since I read those post-mortems, I’ve done my best to cultivate similar approach in my advocacy.)

Thanks to Rauli Partanen for the idea for this post, and particularly for his hard work in energy advocacy. You should follow Rauli in Twitter, @kaikenhuippu, and check out our book, Climate Gamble.

Posted in Ecomodernism, Energy, Nuclear energy & weapons | Tagged , , , , | 6 Comments

Why I believe we ought to build a spacefaring civilisation

The successful launch of the Falcon Heavy is a milestone, and it has raised again the important question: should we humans try to create a spacefaring civilisation, even if we could?
 
This is a philosophical question, and answers to it are ultimately subjective. However, for those who are interested in such matters, I solved it to my own satisfaction quite some time ago. My conclusion, which obviously is a subjective one, is that we ought to at least try.
 
For all we know, we are the only tool-making, potentially spacefaring intelligence in the galactic neighborhood, possibly in our galaxy (there is a recent Bayesian estimate that suggests this might have as high as 40 percent probability) and maybe even in the visible universe, though I doubt that. Furthermore, as far as we know, complex life does not exist anywhere except on Earth.
 
Furthermore, we know for certain that cosmic disasters that are capable of wiping all complex life and possibly all life on Earth are a mathematical certainty. It’s not if they happen; it’s when they happen, and what can be done to prevent or mitigate them.
 
Normally, most people would agree that letting even one species go extinct if we could prevent it is an environmental wrongdoing, possibly even a crime.
 
What sort of crime it would be to let all life on Earth go extinct, if we had the opportunity to save at least some of it? To me, this would be a monstrous crime indeed. Even if the nearby stars teem with life, all life is unique and letting Earthlife go extinct from our neglect would be akin to letting an ecosystem on Earth die off. And if life is rare, then letting Earthlife go extinct could even mean the death of life itself.
 
This is the largest single reason why I don’t see environmental protection here on Earth and a vigorous space program as separate choices, but as complementary approaches to ensuring the longevity of life, experience and memory. The universe may not need curious creatures that are in awe of its wonders, but I still think this is a better place because such critters exist.
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My professional opinion as a blockchain researcher: I don’t see the point (yet)

I’ve spent the last 15 months researching the implications and possibilities of blockchains and related “distributed trust technologies” from a business and societal point of view. Sadly, I have to say that I don’t quite get the hype, as much as I’d love to believe in a technological revolution that democratises the world economy.

(NOTE: I’ve edited this text a bit to be clear that I’m talking about public blockchains. Private blockchains are a different matter, and they will have applications in e.g. automating many transactions. That said, the effects are hardly revolutionary, at least in the short term.)

As it stands, public blockchain is very much a kludgy solution looking for non-existent problem, namely lack of trusted intermediaries in finance and accounting.

Unfortunately for this central value proposition of blockchain, there is no lack of trusted enough intermediaries in the financial/accounting sector.

Very few people outside so-called crypto-anarchist community are opposed to trusted intermediaries as a matter of principle, and outside this (admittedly vocal) minority and those who for their own personal reasons want to believe in this scheme, I seriously doubt there is going to be a huge market of people who are willing to pay a premium (in time, effort or actual valuables) just for the sake of avoiding one sort of intermediary, only to trust the transactions to a code that may or may not be transparently accounted for.

For who among us can honestly say “yes, I am capable of reviewing the code behind blockchain applications I’m using and I have personally done so to make sure I’m not being scammed?”

How can the people who are now willing to trust their savings to blockchain technologies  be sure that the code and its underlying governance structures (that is, how it is being developed and modified) are in any way better than at least nominally democratically governed systems – with at least some possibility for recourse if things go sour – they want to replace?

To me, it all seems another gold craze, stoked not only by the usual crowd of techno-babblers keen on latching on the latest buzzword, but also by certified wingnuts from the long-discredited hyper-libertarian Austrian school of economics, kept buoyant by half-baked comparisons to “unreliable” “paper money” (which is nevertheless very effectively backed by the government’s universal tendency to require said paper money for taxes, not to mention the inconvenient fact that if societal trust erodes sufficiently for paper money to lose its value, it’s highly unlikely an arbitrary string of ones and zeros in an arbitrary hard disk somewhere would fare much better), spotty comparisons of current economic system to few exceptions where hyperinflation was allowed to run rampant, and perhaps most of all, by simple wishes that the persons currently propping up the belief in blockchains will not be the last ones who are blinded by the latest buzzword and get-rich-quick scheme.

Please do not get me wrong. I believe that in the long run, crypto-enabled distributed trust technologies could possibly have significant role in enabling micropayments and microinvestments, effectively by reducing transaction costs related to distribution and bookkeeping. There may also be some very interesting applications in governance and organisation of human work, and these initiatives ought to be followed more closely. Furthermore, private, permissioned blockchains are already quite useful for e.g. automating transactions.

However, the crypto-enthusiastic community loudly ignores that 1) there are absolutely no reasons the current banking system couldn’t reduce its own transaction costs enough to compete very effectively in these lucrative sectors, and 2) the bog standard public blockchain with its Proof of Work scheme (e.g. how Bitcoin burns electricity) is certainly not going to cut transaction costs enough, as throughput rates are simply not even within two orders of magnitude from what is needed. Case in point: a Bitcoin developer conference just announced it won’t be accepting Bitcoin as a means of payment, because it’s too slow and the transaction fees are too high. 

So we will inevitably end up with some variation of Proof of Stake protocol – where we will simply have to trust some users more than others – just because Proof of Work, where we don’t have to know or trust other users, is absolutely ridiculous waste of resources and will always have trouble scaling up.

See, for example, how Directed Acyclic Graph (DAG) “tangles” are proposed to work. And once we go down that route, it will become increasingly hard to avoid asking the question: since distributed computing in this sort of record-keeping is always going to be less efficient than centralised computing, what are the precise reasons we should not go the whole route and designate certain nodes as … trusted intermediaries?

So we’ll end up with what is basically a buzzword-enhanced database solution with some redundancy and consensus algorithms built in. These are not new, PAXOS consensus algorithms debuted in 1989 – and there are Reasons why they haven’t been used very much. Namely, performance, and the fact that there is no pressing problem these would solve.

Crypto applications will certainly be useful for verification of various things (again, these are not exactly new ideas) and I could foresee a micropayment and alternative finance systems that could well take off, provided the backbone is something else than blockchain as it is. (My money at the moment would be on DAGs, as both Bitcoin and Ethereum still seem to have grave problems scaling up – but it’s even more likely that someone will come up with something better than current DAGs.) This could develop into a microinvestment vehicle of some sort, and unlocking the investment potential of the world’s poor could well make some people very, very wealthy indeed.

However, there are also Reasons why such “penny stocks” have been regulated everywhere for decades if not centuries: they have always been fantastic vehicles for scamming the credulous. Cryptography is not some magic free lunch that totally changes the rules in investing and finance.

Feel free to call me a luddite or whatever. It’s just that I’ve been studying the possibilities of blockchains for business for over a year now, and while it is certainly possible that I simply lack the imagination (or chutzpah) necessary for bold proclamations, I just don’t see the possibilities the marketers seem to see.’

My advice to all those who are interested in blockchain systems is this: think very carefully whether the problem you are interested in solving will truly be easier to solve, or can be solved better, by distributing the database to the users of the database. If the answer is yes, and if you can also remain fairly confident that the solution will not infringe on privacy or financial regulation, and if you have money to spare, then by all means go ahead and experiment with blockchain technologies – though keep in mind that at this stage, everything is so rudimentary that systems will have to be built from scratch (not a good idea, usually) and that technologies can change abruptly. At this moment, there are already some fairly well established private blockchains, though.

Interesting things are more likely to appear in the smart contracts field, and technologies like blockchain are almost certainly going to be used both to enhance existing systems and to develop new kinds of services that are still hard to envision in detail. Some interesting developments that may point a direction to the future include automating some aspects of insurance markets, such as automating claims processing in more straightforward cases (e.g. when a flight is cancelled and customers need to be refunded) or even selling of insurances automatically based on mutually shared financial data. However, these technologies are still very much immature, and while early adopters could potentially benefit, the risks are also significant.

Very good reads on the topic are becoming more numerous than it is possible to keep track of, but here are some of the best ones I’ve come across lately.

Preston Byrne: The Problem with Calling Bitcoin a “Ponzi Scheme” (“This is no pyramid scheme – our model is the trapezoid!”)

Preston Byrne: The bear case for crypto, part I (the other parts are good too)

Webb Reports: Bitcoin: The world’s first decentralized Ponzi scheme

Someone wants to create “legally binding agreements” for consensual sex, and store them in … blockchain, because of course they would. 

One company found its valuation quadruple simply by adding “blockchain” to its name. No bubbles here, nossiree!

Governments are finally beginning to do something, and it doesn’t bode well for the prices of cryptocurrencies

Posted in Innovation, Notes in process | Tagged , , | 20 Comments

Necessity is the mother of inventors: my PhD lecture

The following is the traditional Lectio praecursoria a doctoral candidate in Finland gives to the audience before his/her PhD defence. This one is mine, delivered on 12th December 2017.

Esteemed custos, esteemed opponent, ladies and gentlemen!

You all are probably familiar with an old saying, “necessity is the mother of invention.” Many may also remember stirring tales of ingenuity, where poorly equipped underdogs come up with brilliant inventions or insights that permit them to succeed against the odds. In fact, those of us who have happened to be born in Finland have been positively marinated in such stories.

What these tales and that old wisdom are telling us is that sometimes, less can be more. Tales of ingenuity tell us that human creativity can overcome formidable obstacles, and that the rich and the powerful do not always win in the end. As such, these stories are important if only from an educational perspective: we certainly need to remain optimistic and dare to attempt even the impossible, or otherwise most things we today take as granted would never have been achieved. Triumph over adversity makes for a good story, and we all enjoy good stories.

Furthermore, the connection between resource scarcities and creativity is not merely a question for academics, but increasingly, for the whole society. As the world population is heading towards ten billion or so individuals, and as the exponential growth of extractive economy shows few signs of slowing down, more and more resources are likely to become contested, if not altogether scarce. While the greatest scarcity is likely to be the capacity of the atmosphere to act as a sink for carbon dioxide, according to some reports we may face even scarcities of sand. Yet, if necessity is reliably the mother of invention, we can rest easy in the knowledge that the invisible hand will always save us in the end.

However, as researchers, our task is to remain professional skeptics. Just how well founded is the belief that necessity, via increased demand and hence increased prices, begets innovation that restores the equilibrium? If necessity is indeed the mother of invention, shouldn’t it follow that poverty is the most effective tool of innovation policy? If less is more, shouldn’t us PhD students simply be grateful that our stipends are so low?

When confronted with dilemmas like these, the usual human response is to believe the truth can be found in the middle of two extreme viewpoints. Perhaps getting the “just right” amount of scarcity produces the best results? Such an answer would be very convenient for today’s society, especially for those who control the purse strings. It would normalize the societal mechanisms that make necessities scarce in the first place, treating scarcities not only as inevitable consequences of inevitably endless demand but also as positive forces that prod humans to even greater productivity. If we live in a world where human ingenuity can overcome all obstacles, scarcities and scarcity-inducing policies are to be welcomed as a force for inevitable progress.

Unfortunately, research findings suggest that as a rule, we do not live in such a world.

Since it is ultimately individuals and product development organizations that would need to come up with solutions to scarce resources, it is useful to look into what research says about individual and team creativity under constraints. Prior research[1] has found that some constraints that limit the options available to the designers are likely to be beneficial to individual and team creativity. These findings confirm a well-known axiom in design business: creativity requires constraints, because constraints help you concentrate. However, once we begin to talk about organizational ingenuity, the beneficial effects of constraints seem to be heavily moderated by situational factors, such as attitudes and interpersonal dynamics prevalent within organizations.[2] In short, members of a well-functioning development team that relishes a challenge may well find themselves invigorated by the challenge posed by constraints, but a dysfunctional team is more likely to simply give up.

That said, given the pressing reality of environmental degradation, one oversight of existing constraint and scarcity research is its focus on financial constraints. Most research so far has studied how organizations cope with lack of money, time, or personnel. Few studies give deep insights into how organizations act when some other resource, such as raw materials or energy access, are in danger. My research seeks to respond to these questions.

In my thesis, I examine closely two historical accounts of technological innovation that resulted to important technological changes in an industry. The first and most important of these case studies is the study of so-called flash smelting furnace, while the second concerns the development of radical jet engine cooling technology.

Both of these innovations had considerable impact in their respective industries. Flash smelting technology, developed immediately after the Second World War, was a breakthrough in energy efficiency in copper manufacturing. It was also a commercial success that at one point responsible for as much as 60 percent of world’s primary copper production.[3] The engine cooling concept examined in the thesis would’ve permitted the wartime German Luftwaffe to build cheaper jet fighters. Fortunately, the Second World War ended before the invention came into widespread use. Both of these innovations are believed to be direct results of a scarcity of some important resource: electricity in the flash smelting case, and nickel metal in the jet engine case.[4]

In both of these cases, I found that the technologies themselves were almost ready to be taken into use when the scarcity occurred. Furthermore, scarcity did not appear to have significant impact in creativity of the solutions. In both cases, competing development teams had considered the exact same ideas, but abandoned them because their chosen solution offered superior performance. In other words, it would be more accurate to say that in these cases, scarcities at most slightly accelerated the adoption of almost ready technological solutions.

Two conclusions follow. First, scarcities may sometimes prod industries into using novel technologies. However, second, there are absolutely no guarantees that scarcities can be reliably overcome through human ingenuity. There may well be goods and ecosystem services we simply cannot substitute, and even if we can ultimately find substitutes, there may be no telling how long the technologies require to develop. Technological development is not a black box where planners pour money and out comes innovation on demand: instead, what can be invented at any given time depends on what knowledge and what components are available at that time.[5]

Since it is extremely difficult to predict just which components are needed for the breakthrough discoveries, it is also very difficult to use simple demand mechanisms to stimulate radical innovation. For example, in my case studies, some of the technological knowledge required for breakthroughs came from entirely unrelated fields – from coal power stations in the flash smelting case, and from manufacture of cups and ammunition cartridges in the jet engine case. Demand for less energy intensive methods for smelting copper or for methods for cooling jet engine turbines could not create incentives for the development of coal burning technology, nor for the development of cartridge manufacturing machines. No matter how large the incentives to develop a breakthrough, these developments could not happen unless the time was ripe. On the other hand, when the time is right, it is more than likely that multiple inventors will be able to realize the idea simultaneously.[6]

Now, an economically literate person could object to my research, stating that so far we’ve overcome all scarcities. After all, we have been able to survive, both as a species and even as a developed society, from a variety of shortages and constraints, even though some have been extremely serious. This is true, but depends on how we define the words “scarcity” and “overcome”. There may also be some selection bias: the businesses and societies that have faced scarcities they couldn’t overcome have ceased to exist.

Even if the business or the society adapts to a scarcity of some resource, the society often needs to change as a result. Change is of course not necessarily bad in itself, and this brings us to what I believe is the more interesting and important question than the periodic, somewhat fruitless and often apocalyptic debate about possible resource crises. This is the question “what kind of specific impacts can result from scarcities we may be facing?”

Perhaps the most pressing scarcity at the moment is the scarcity of nature’s capability to deal with carbon dioxide our society spews into atmosphere. Limiting the production of pollution is going to be mandatory, if we are to survive as a species. However, many existing industries such as fossil fuels industry could not operate under necessary restrictions, and many others, like aviation, would be severely constrained. At the moment, the employees of these industries would pay the highest cost of any serious attempts to curb environmental damages. Even though tight carbon budgets would cause an average person to suffer only very modest reductions in well-being, employees in endangered industries would lose their jobs. Since workers who would lose jobs are also voters, meaningful reductions in carbon dioxide emissions remains difficult, if not impossible. The problem is likely to remain intractable as long as we approach the issue mostly from the viewpoint of standard economic theory, which continues to argue that environmental improvements should bring net benefits to the society. While this is true, the theory fails to appreciate just how much pain and suffering these improvements can cause to the losers.

One reason for this lack of vision may be in the economic theory’s lack of distinction between different types of scarcities. I find some theoretical and empirical reasons to suggest that meaningful talk about scarcities should include at least three distinct types of scarcities.[7] These are, first, relative scarcities, which refers to the so-called normal situation in economic theory where resources are not unlimited and have competing uses; second, absolute scarcities, which refer to resources that cannot be realistically substituted by other resources, such as breathable air; third, quasi-scarcities, which refer to resources that may exist in abundance but which cannot be accessed by the needy, most often because they are not entitled to access.

I believe that most actual situations of scarcity could be usefully conceptualized as quasi-scarcities, or lack of entitlement to give full credit to Amartya Sen’s groundbreaking work[8] which lies at the root of the concept. In our world, resources are more often abundant than they are not. However, for various good and not so good reasons, our access to those resources is limited. Environmental regulation, not physical realities, actually limit how much our factories can release pollutants. Lack of access, not lack of food production, is a major contributing factor behind famines. And lack of political or financial power, not productive capability, is the reason many people even in so-called rich countries have to live without even basic fundamentals of life, from shelter to medicine to healthy food.

In both of the cases I studied, the supposedly hard resource constraint turned out to be something that could very well have been amended through exercise of political power. In both cases, it seems that the key reason the developers did not exercise political power was belief in technology. The developers believed that the technologies would be so useful so soon that political action to increase access to the scarce resource would not be needed. Particularly in the case of flash smelting, it is very difficult to imagine that the company in question – Outokumpu in Finland – would’ve been unable to secure access to more electricity, if flash furnace had appeared to be infeasible. After all, failure to deliver copper the Soviet Union demanded for war reparations payments might have been used as an excuse to occupy Finland.

To sum up my findings, my research cautions against relying on technological miracles to solve the problems caused by diminishing natural resources. Technologies are certainly helpful, but sooner or later we will face a situation where some previously abundant resource is simply not available any longer. Even though our societies may be resilient and unlikely to collapse as a result, the adjustment periods are likely to cause hardships to many. Even though the hardships are usually local, they are not less real to those who experience them. Furthermore, I believe that questions of power and power relations need to gain more attention in research and debate about economic relations, organizations, and the society. Questions such as political power wielded by an organization should no longer be ignored in economic debate simply because measuring political power is difficult, because otherwise we risk obtaining a very biased view of the world we live in.

Finally, far as creativity and ingenuity are concerned, I wish to point out that the solutions developed to these resource constraints were not really novel ones. Similar development was happening elsewhere, and the adopted solutions suffered from problems that caused less constrained developers to use different approaches. However, there is no reason to believe that Outokumpu, for instance, would have developed its flash furnace and gained worldwide commercial success, if the electricity shortage had not forced its hand. In this manner, I believe the answer to the original question motivating this thesis could be formulated as follows:

Necessity is the mother of inventors, not of inventions.

Download my PhD thesis, Constructed Solutions to Constructed Constraints, here.

Footnotes and references

  1. See e.g. Rosso, B. D. (2014). Creativity and Constraints: Exploring the Role of Constraints in the Creative Processes of Research and Development Teams. Organization Studies; Joyce, C. K. (2009). The blank page: Effects of constraint on creativity.; Moreau, C. P., & Dahl, D. W. (2005). Designing the solution: the impact of constraints on consumers’ creativity; Goldenberg, J., Lehmann, D. R., & Mazursky, D. (2001). The idea itself and the circumstances of its emergence as predictors of new product success.
  2. Weiss, M., Hoegl, M., & Gibbert, M. (2013). The Influence of Material Resources on Innovation Project Outcomes; Hoegl, M., Gibbert, M., & Mazursky, D. (2008). Financial constraints in innovation projects: When is less more?
  3. Moskalyk, R. ., & Alfantazi, A. . (2003). Review of copper pyrometallurgical practice: today and tomorrow.
  4. Särkikoski, T. (1999). A Flash of Knowledge; Habashi, F. (1998). The Origin of Flash Smelting; Gibbert, M., & Scranton, P. (2009). Constraints as sources of radical innovation? Insights from jet propulsion development; Schubert, H. (2004). Turbine – The Hollow Metal Blade as Solution for Material Shortage.
  5. See also Arthur, B. W. (2009). The Nature of Technology: What it is and how it evolves.
  6. For simultaneity in invention, see e.g. Ogburn, W. F., & Thomas, D. (1922). Are Inventions Inevitable? A Note on Social Evolution; Brunk, G. G. (2003). Swarming of innovations, fractal patterns, and the historical time series of US patents; Cole, S. (2004). Merton’s Contribution to the Sociology of Science; Sarafoglou, N., Kafatos, M., & Beall, J. H. (2012). Simultaneity in the Scientific Enterprise; Lemley, M. A. (2012). The Myth of the Sole Inventor.
  7. For prior work, including the concept of quasi-scarcities, see Daoud, A. (2011). Scarcity, Abundance and Sufficiency: Contribution to social and economic theory.
  8. Sen, A. (1982). Poverty and Famines: An Essay on Entitlement and Deprivation.
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