16. Waste: The ‘Free Lunch’ of Wealth Creation

Is there any such thing as an economic free lunch? Economists will tell you there isn’t. Everything, including lunches, have to be ‘paid for’ by the resources (such as time, energy, materials) used in making them.

It’s true. But seen from a different perspective, there are free lunches all around us. Why? Because so much of what we do is so wasteful; because so much of what is supposed to be wealth creation is actually waste creation.

Take food. Each year (according to the UN Food and Agriculture Organisation) around 30% of all the food produced in the world is wasted. 1.3 billion tonnes of it.

The waste happens at different stages in the process. In developing countries it’s mostly at post-harvest and processing levels caused by, for example, poor storage and refrigeration facilities. In developed countries it’s mostly caused by retailers and households. It varies across food categories (close to 50% for root crops, falling to 20% for pulses and seeds). And it varies according to region. Sub-Sahara Africa hardly wastes any food. Per capita, the populace of North America and Oceania waste about as much as the people of South and South East Asia actually eat.

Whichever way you look at it, it’s a scandal. But it’s a scandal that shows just how much more we can achieve without actually having to ‘use up’ more; how many free lunches are available if only we can find better ways of doing things.

Where do these free lunches lie and how do we got hold of them? With food, the waste is obvious. You can see it rotting, getting thrown into waste bins and landfills. But often, it’s not so obvious — invisible to the naked eye as it were, if you don’t know you to look for it. And often, as with food, even if the wasteful outcome is obvious, the solutions aren’t.

Let’s take another example: energy.

Efficiency

Candles convert just 0.01% of the available chemical energy in tallow or wax to light. The incandescent light bulbs made possible by electrification were orders-of-magnitude (100 times) more efficient. By 1900, they were turning around 1% of the energy they used into light. But that still meant 99% waste. Around the world today, around 60% of the energy used In coal-fired powered electricity generating plants is dissipated as heat. In addition, the lights using this energy go on to dissipate 93% of it as heat. That’s seven times better than in 1900, but still not very good.

So, on the one hand we’re making massive strives forward in terms of energy efficiency. But on the other hand, we’re still only really scratching the surface. Consider this: just one hour’s worth of the total solar energy absorbed by Earth’s atmosphere, oceans and land masses contains more energy than the world uses each year. One year’s worth of the solar energy reaching the surface of the planet represents about twice as much as will ever be obtained from all of the Earth’s non-renewable resources of coal, oil, natural gas, and mined uranium combined. So, room for progress in terms of energy capture and usage? You bet! But as yet, we don’t have the technology to do it.

Quality

Yet more waste is caused by poor quality products and processes. When we make something that doesn’t work properly we create waste in two ways: first in the time, energy and materials used up in making the faulty item and second in having to invest even more time, energy and materials to fix its faults.

Simple unreliability is a major cause of waste. The filaments in the first electric bulbs often lasted less than half an hour. The valves used in early computers didn’t last much longer. The first aero-engines had to be grounded for maintenance after just fifty hours of flight. Modern lighting, computing or aviation couldn’t exist without dramatic improvements in reliability: light bulbs that last 10,000 hours, aero-engines that need maintenance once every 50,000 hours of flying time.

In each case, the waste reduction came from technical innovation: new technologies. The ingenuity (and sheer hard work) that goes into these inventions is wondrous. But it’s a common mistake to think that all improvement depends on new technologies. Very often, the biggest free lunches come from finding better ways of doing things.

Alignment

Mountains of waste are created by processes and activities that are disorganised, uncoordinated and unaligned. Consider, for example, just how many ways misaligned activities can generate waste in making a simple thing like a loaf of bread.

Here are just a few examples:

• making too much, so that some bread doesn’t get eaten
• make the wrong mix: say, too much sourdough and not enough sandwich loaf, so that some demand is not met while part of what has been made gets wasted
• distributing to the wrong place: we make the right amount of the right bread, but we send it to the wrong place, where it isn’t needed
• wrong time: ‘we wanted it yesterday. It’s too late now’

Such challenges of wrong thing, wrong amount, wrong time, wrong place have dogged every production and distribution process since the year dot, and they will continue to do so. If parts or raw materials don’t arrive at a factory when they should, the production line grinds to a halt. If the factory stockpiles these raw materials and parts to avoid stoppages, it creates another form of waste: all the time, money and effort taking the stock to a place where it can be stored, providing the space and facilities to store it, plus the time and effort needed to retrieve it — three extra layers of waste, all of which could be avoided if the process was well aligned and the right amount stock arrived at the right place ‘just in time’.

Everything we depend on today — the food we eat, the cars we drive, the mobile phones we carry around with us — are fruits of immense feats of planning, organisation, coordination and logistics. Yet, as with energy efficiency, there are still massive free lunches to be had from even better alignment of these activities — better alignment which depends largely on better information, which I’ll return to later.

Standardisation

Another classic driver of waste is disconnects caused by parts not ‘talking’ to each other. In an earlier blog I talked about early craft production of motor cars. Because each single part was made by hand, none of them simply ‘snapped’ together. To make them fit, further work — re-work — was needed. To complete a motor car, such re-work had to be done to every single part at every single step of the assembly process — mounting up to a massive proportion of the total final cost. The reason Henry Ford could reduce the cost of making a motor car by over 90% was because his use of standardised parts (and the moving assembly line to efficiently fit them together) eliminated huge amounts of the re-work involved in craft production.

You can see similar examples about the power of standardisation all around us: making railways operate on the same gauge; requiring electricity supply systems to adopt standardised voltages and frequencies, building software systems that can ‘talk’ to each other.

Just one more example: ocean freight. For centuries, it was made up of things like barrels, sacks and wooden crates which were loaded off land transport, on to ships, and off again. This process was slow and labour-intensive. By creating containers that could pick up large quantities of such barrels, sacks and crates in one go and move them directly from ship to lorries, shipping companies could move much larger volumes of freight in much shorter periods of time: yielding a 40-fold productivity increase. It was this fall in freight costs (and related rise of shipping volumes) that made today’s ‘globalised’ economy possible.

Infrastructure

Yet more opportunities for waste reduction lie in eliminating unnecessary re-work via the right sorts of infrastructure.

In many ways, investing in infrastructure is counter-intuitive. Need to fetch some water? What’s the best way of doing that? By not fetching any water and focusing your efforts on something else entirely? Such as digging a well, building a dam, or laying pipes under ground?

Doing that doesn’t fetch you any water at all … in the short term. But once the infrastructure is built, every single time you need water you no longer have to trek for an hour, as so many African women have to do to this day. Building such infrastructure might involve high levels of up-front cost, but once done, by eliminating re-work day in, day out, year in, year out, decade in, decade out, it delivers a free lunch that just keeps on giving.

Finding the free lunch

When it comes to wealth creation, wherever we look we find waste creation as well. The upside of this is that wherever we look, there are free lunches to be had — free lunches that enable us to do more with the same resources or even less, to make what is achievable available and affordable. If, that is, we can find ways to avoid and eliminate this waste.

There are many different ways to do this. Improved efficiency (e.g. increasing the ratio inputs to final output). Designing in quality and reliability. More aligned processes. Standardisation of key components. Provision of enabling infrastructure.

But how to seize this opportunity? While some waste, such as throwing food into a bin or landfill site, is painfully visible, most waste is invisible to its perpetrators. That’s because it is institutionalised: embedded into how things are currently set up and run. Craft producers of car parts didn’t look or feel like they represented a form of wasted effort. But Henry Ford’s production lines exposed them as such. The factory logistics manager firefighting a special delivery of urgently needed raw materials doesn’t look like waste. She looks like a saviour. But once a disciplined programme of ‘just in time’ deliveries is up and running, the waste becomes obvious.

So while it’s true that waste happens whenever resources are used up unnecessarily, it’s often very difficult to discern what’s necessary versus what’s not necessary. That’s partly because institutionalisation often renders waste invisible and partly because the borderline between what is necessary and what is unnecessary is always shifting. Before Ford’s production line, craft production was the only and best way of making cars. Before Toyota’s lean production system, logistics firefighters — expediters, chasers — were a vital cog in the machinery. Many people only realised the boundary of unnecessary versus necessary waste had shifted after it had happened.

This is largely what wealth creation’s constant quest to remove obstacles, lift constraints, clear hurdles and transcend trade-offs is all about. It is one of the important cutting edges of real wealth creation where improvement — making things better in better ways — happens.

A few more things.

None of this is about ‘setting markets free’, to unleash some mystical ‘hidden hand’ (magic wand) that miraculously makes good things happen. Quite the opposite. It’s all about extensive planning and the effective execution of such plans via efficient administration.

It’s not about ‘making’ or ‘spending’ money either. When push comes to shove it’s got nothing to do with money. It’s about real world uses of real world resources: work done by human beings, raw materials and energy used, time spent, and so on. Which also means it’s not about better measuring and manipulation of money. Disciplines like economics and accountancy have very little to do with finding the free lunch of waste reduction because they only deal with distorted symbols, not the underlying reality. To look for progress look elsewhere, to less glamorous professions such as engineering, logistics and administration.

And it’s not just about technology. Technology is very important of course. But it’s not the whole picture. Ultimately, wealth is created when people do the work necessary to turn inputs into more useful outputs … which requires organisation: better processes and better coordination of activities. Where does better organisation come from? That is the subject of my next blog.

Next in this series: 17. Organisation: The Key to Effective Wealth Creation

Previous: 15. Transcending Trade-Offs: The Engine of Improvement

Bibliography

Books and articles I found particularly useful researching this blog include:

• Simon Winchester, Exactly: How Precision Engineers Created the Modern World, William Collins, 2018
• Robert Friedel, A Culture of Improvement: Technology and the Western Millennium, The MIT Press, 2010
• Vaclav Smil, Energy and Civilisation: A History, MIT Press, 2018
• David Edgerton, The Shock Of The Old: Technology and Global History since 1900, Profile Books, 2019