The Blockchain’s Role in Resource Independence
Introducing the economic construct of Universal Natural Assets.
Universal Basic Income has been introduced in select geographies as a mechanism to provide a stipend to people for their basic needs.
UBI has many flaws; among them: It actually perpetuates a reliance on the state, along with a reliance on resources that are not controlled or owned by the people themselves, mainly because people are not incentivized to participate in the development and regeneration of those resources.
Universal Natural Assets follow two core principles:
- For people to own and control resources, they must have a structured way to participate in their development, regeneration and redistribution;
- For those resources to sustain their value as natural assets they must be ledgered for their amortized risks such that all externalities (side effects) are accounted for, and efficiency gains are kept in balance commensurate with the capabilities of a market and its surrounding geography.
92% of supply chains around the world have been decoupled, post-COVID.
Meanwhile, 92% of companies still create all the asset wealth in the world.
All the while, 100% of companies and organizations must design positive social and environmental impact parameters into their product and service offerings if we are to restore the biosphere, nurture mature societies, and maintain a healthy planet.
Most traditional economists and policymakers now endorse the idea that growth can be “decoupled” from environmental impacts — that the economy can scale without using more resources and exacerbating environmental problems.
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This is a problematic idea, on a variety of levels, namely that what people are observing as decoupling is only partly due to genuine efficiency gains. The rest is a combination of three illusory effects: substitution, financialization and cost-shifting.
Substitution involves replacing one resource with another resource in order to provide cost efficiency. Financialization involves the bundling of resources as assets, most commonly in the form of debt or securities. Cost-shifting is what happens when capital used for a resource or against an asset (measured as a cash-to-asset ratio) shifts or moves so that its value can be adjusted to account for or surpass the debt owed on that capital.
These changes result in “partial” decoupling — that is, decoupling from specific environmental impacts (like carbon emissions). But substituting carbon-intensive energy, for example, with cleaner or even carbon-neutral energy does not free our economies of their dependence on finite resources. That is, resources that are currently available, or more pointedly, unavailable, to us.
It is important to remember that all economies in the current paradigm are based on the control, management and financialization of natural resources. The point is that we want to change this paradigm, but we need to do it sensibly.
With technology, we now have the problem of transactional deflation, meaning that remittances are quickly approaching zero. In other words, you need less and less financial middlemen getting in the way (friction) when you can exchange goods and services between peers, and with cryptocurrencies or digital currencies that are single, verified units of account.
Alongside of this, we have some new precedents that must be considered, which affect the ways we produce, transact and ledger assets for self-sustainability as well as security.
The first is that technological deflation creates a bubble in terms of how goods and services are exchanged.
If Peter sells product X to John with a middleman in between them (a bank, PayPal, escrow services, etc.), it still isn’t clear that the quality of product X is verified through provenance, nor is it guaranteed that product X can hold its value in the marketplace. Conversely, if Peter is sold product X by a large manufacturer, these factors apply, and it is likely that John can get a better price on product X for better quality if he looks hard enough.
The second precedent is that the potential costs on the environment are not automatically offset by technology, not unless that technology accounts for externalities in the supply chain.
In other words, the way a manufacturer produces a good and sells a good is contingent upon how that good can be responsibly made, such that both efficiency and resource gains are had. Now Peter and John have the choice of making the good themselves, and (re)selling that good for a profit.
The third precedent involves the real-time amortization of risk. The risk of manufacturing product X, distributing product X and (re)selling product X can be responsibly managed if all externalities are accounted for on a ledger (like a blockchain or a DLT). Managing this risk is precisely where the advantages of decoupling the inefficiencies of the supply chain come into play, while providing an opportunity for all market players to use resources wisely.
The rejoining of assets is a process in which assets can be valued for their true needs, as they are needed. This is where companies succeed in a peer-to-peer capacity, and governments can regulate properly, if and when regulation is actually needed.
Here is a breakdown of the primary physical asset classes that can be rejoined.
Now we can see the protocol gaps in how these resources are misrepresented digitally and in the real economy, and how we might bridge those gaps in enabling resources to become regenerative commodities, or assets that can naturally sustain their value over time.
UNIVERSAL NATURAL ASSETS
Now that we can reach a somewhat refreshed understanding of the critical role natural resources play in any economy, let’s explore the notion of what we can describe as universal natural assets.
The idea of a universal basic income is not a bad one, it’s just that its mechanics relegate it to not much more than advancing welfare. As history has shown us, any significant reliance on the State for financialized income results in disaster.
The main problem with any welfare state is not so much its issuance of money (although that does create systemic monetary and social imbalances), but the removal of any incentivized participation that would enable an individual to potentially advance his or her opportunities within a resource pool. In other words, a way for someone to actually use a resource to create new opportunities.
In speaking with the architects of Canada’s Mincome program, policymakers for Switzerland and Finland’s basic income programs, and those associated with Alaska’s Permanent Fund Dividend, this author was able to uncover some fundamental challenges involving the allotment of funds as well as critical resource management that would sustain those funds.
First, without a fixed resource pool tied to allotments, it is nearly impossible to regenerate funds. Taxes on income alone cannot do this. This is especially the case if there is an uptick in migration that cannot support this taxation commensurate with the portion of the population that is actually working.
Keep in mind that migration problems ensue when resources are depleted from the geographies from which people originate. This is why voters in Switzerland rejected the continuance of UBI, and in Finland, policymakers have had a hard time reconciling the loss of tax revenues. In the case of Mincome, high inflation rates literally wiped out the funds, since the costs to capital exceeded the outflow of dollars going to program recipients.
Second, when funds are affected by things like hyperinflation or net energy decline, the resource pool itself suffers. Nordic oil subsidies, which are affixed to a limited supply within a carefully managed resource pool, allow for dividends to be paid out to citizens in perpetuity.
In this scenario, the dividend occurs in a private-public capacity, and the payouts are made to naturalized citizens who contribute directly to the labor in producing and managing the resources. In the case of Alaska’s dividend fund, payouts dry up if external factors such as oil pricing on trade or internal factors such as a weakened labor force are unable to draw out productivity to meet demand, or to properly manage supply.
Third, without amortized assessments on the value of natural resources (aka natural capital), critical externalities (deficiencies or side effects in production and supply) cannot be accounted for, thereby devaluing both the labor and exacerbating the throughput costs associated with production and management of supply.
In all cases, these factors have not been mitigated to contain ecosystemic risk. Much of this circles back to not establishing sufficient parameters for the use of capital in natural modalities, such as when debt overbears the infrastructure it intends to support.
With the construct of universal natural assets, the idea is to solve both the monetary problem of cyclical income taxation, while making taxation a non-personal income function of resource regeneration.
In this scenario, resources that generate revenue in a carefully managed ecosystem do so cyclically, without incurring costs to taxpayers, and at the same time, providing incentives for participants to steward those resources per the measured results of their labor.
Similar to how the Nordic dividends work, or how industrial subsidies were distributed in Kalundborg, Denmark, all allocated resources would be affixed to a standard whereby the responsible management of the resource pool provides tiers of ownership and/or dividend payouts.
This removes a reliance on the State, and also makes for interesting partnerships between private companies and public entities who can get creative in the ways they manage resources responsibly, and multi-laterally.
This would be particularly useful in the development of renewables, which have suffered under more unilateral, debt-laden models for financing, and have not provided enough mechanisms for incentivized labor force participation.
THE PIGOUVIAN HAS LEFT THE BUILDING
To develop incentivized labor participation, we need to address taxation, or more specifically, pigouvian taxation.
Pigouvian taxation is tax on any market activity that generates negative externalities. The tax is intended to correct an undesirable or inefficient market outcome, and does so by being set equal to the external marginal cost of the negative externalities.
Social costs include private costs on goods and services, and external costs on production, which are typically found across supply chains, and are passed through as significant costs down to the retail levels.
Historically, it has been difficult to measure the external costs of producing/consuming goods. For example, the external costs of driving a car include exhaust pollution, asthma, congestion, and the risk of accidents. The external costs of producing crops can include poor tilling, topsoil erosion, soil and plant toxicity, water toxicity, and various other ground and air pollution with things like spraying harmful pesticides.
Now that we have technologies such as blockchains and distributed ledgers to not only account for all resources used in the supply chain but for the labor and external uses of those resources, we no longer need taxes to “backfill” the economic and environmental damages we create in our supply chain processes.
One way to do this is the application of what is known as a yieldco corollary. This model has been used for large investments such as green funds, and for other infrastructure investments in renewables that require a mechanism to leverage liquidity, albeit with mixed results.
In short, the idea is right, but it needs to be applied at the resource or asset level, such that all externalities can be tracked and so that risk can be mitigated at every step in the supply chain, or, at every step in a production process.
Our group created Smart Ecologies as a framework to mitigate resource risk, structure labor pools for specialized incentives, and to regenerate assets per the above.
Now that many real estate and housing developments have gone into default, asset inflation is expected to reach 20% or higher in the coming months, yet Opportunity Zones are available for smart development, it seems that the time has come to implement this approach on a much wider scale.
The approach is actually quite straightforward: Identify a distressed property, convert it into a development, regenerate the resources available, and build new skills among local workers to steward those resources.
In working on various projects using this approach, we have explored lots of variations on the local resource economics of said geographies. The point being that we can adaptively design these solutions such that there is no exploitation of the resources, nor the labor used to manage them.
Further, people are incentivized to participate in the development of resources in ways that align with their specific skills and interests.
We see Universal Natural Assets as a viable way forward in creating local economies that are durable and resource independent.
The blockchain along with other distributive systems play a critical role in this phase shift towards building ecosystems that support people on their own terms, and in building natural value without incurring costs to the environment.
For more information on how we think and how we work, please visit our websites.
Novena | Blockchain & DLT
We are an award-winning innovation group that transforms financial + environmental assets with blockchain & distributed…