Open Letter to Klaus Schwab & the WEF Delegates@Davos - Jan 2018

As the stated aim of 48th World Economic Forum Annual Meeting, that starts on 22 January in Davos is "to rededicate leaders from all walks of life to developing a shared narrative to improve the state of the world", I recommend a more thorough investigation of the evolving human eco-system.

In order to do this, a deeper understanding of Reality 1.0 is required first. Whilst the WEF Programme acknowledges many severe challenges, it still assumes growth, albeit at lower rates, due to declining productivity and skills gaps.

Admittedly it is an Economic Forum, not a Natural Resources forum, but since physical reality constitutes the framework in which all human activities take place, it is important to understand these framework conditions. Also it would be good if WEF would make explicit which assumptions - notably on population, energy & resource density and interest rates - underpin its Fourth Industrial Revolution. 

Fragmented understanding & Lacking sense of reality

For your Fourth Industrial Revolution you call for "the need of a new type of 'systems leadership' to addresses overall governance and to display different values". I agree and would suggest in order to do this, we have to start by addressing the fragmented understanding and to strengthen our sense of reality. Let’s address 3 misunderstandings :

1 - It’s density - not availability - that drives what’s economically possible

You argue that "in the future, technological innovation will lead to supply-side miracles and other factors that will drive economic growth".

How could that be possible in view of the reality of declining natural resource density? As result of our past efficient behaviour, we went for the easiest and most concentrated supply sources first. We are now chasing supplies of ever lower density. The distribution of resources over the planet is an exogenous force over which humans have no control.

Few people seem to understand the ‘catch 22’ nature of this challenge : we need more natural resources for the future we aspire to, including an energy revolution. However, due to the ever lower density, the acquisition of these resources require ever more energy. And energy itself is getting more difficult, requiring more energy to produce (ref ever lower Energy Returns on Energy Invested (ERonEI). We are approaching the end of the economic availability of nicely condensed (density again) prehistoric solar power, and will have to find a way to run society with lower density energy sources.

2 - Moore is no more

You refer to the Fourth Industrial revolution evolving at an exponential rather than a linear pace, referring to the unprecedented speed of current break-throughs. This of course was to be expected as result of the wider availability of IT in the world. But what about the follow-throughs in the form of scale-ups to make these break-throughs societally relevant?

You’ll know that Moore’s Law no longer applies for IT developments, and costs no longer decline. Which is obvious, as in a finite environment, infinity cannot exist. In the end, all J-curves run into marginal diseconomies and then become S-curves. Possibly followed by new J-curves of new applications or technologies.

3 – STORAGE of surplus renewable energy is the greater challenge

The understanding of the energy challenge ahead of us, is remarkably shallow. Even reputed publications regularly mix up 'capacity' and 'output' for renewable energy or compare and treat them as the same thing. Probably because with fossil energy it is the same. Energy from stochastic variable renewables is completely different. For example the capacity utilisation rate of solar panels at night is zero, meaning the energy output is zero. That is why renewables need a factor 5-10 overbuild in capacity - for each unit of output - and why storage is of such crucial importance.

In spite of all the waxing about alleged battery potential revolutions, electric storage is essentially constrained by the Periodic Table and the choice of materials with the most freely exchangeable electrons between them to alternate as cathode & anode during charging & discharging. Controlable electric storage will never achieve the density of chemical storage, as long as we want them to serve a batteries and not as bombs.

It is encouraging to see initiatives, such as power to gas (surplus solar/wind -> surplus electricity -> hydrogen + CO2 -> renewable gas) which in essence is technological photosynthesis. Large scale chemical storage will be needed, not only to keep running our 24/7 economies, but also to transition our economy from largely fossil driven to the renewable energy supply. An added bonus here is that 'renewable gas' could use the same, already existing, infrastructures of 'fossil gas', and thus allow a seamless transition, without burdening society and environment with the costly and enormously resource & energy intensive need to construct new electric super-charger infrastructures.

Here is a quick 5 step 'REALITY 1.0 for WEF Delegates' course :

Full REALITY 1.0

Everyone notices the products & services available today (far right arrow). Some people are even aware of the various transformation processes behind them to supply these. This refers to the right half with the white background of below graph.

Very few people are aware of the physical resource & energetic dimensions which are indispensible for these processes and which underpin today's society - as is shown in the left half of this picture.

Simplified REALITY 1.0

WEF Delegates are busy people, with little time, so lets focus on the essence of energy reality. The following graph below has three parts.

1 - Left part is the past. Photosynthesis - and hence plant life - has taken place for the last 500 mio years, during which Mother Nature conveniently condensed & stored prehistoric solar power in various forms of hydrocarbon molecules. Economic activities were driven mostly by muscle and firewood. Later supplemented by wind captured by windmills and sailing ships.

2 - The peak part in the middle is the present, is the current era since the industrial revolution, driven mostly by fossil energy. Experts estimate we have used up about half, or 250 million years worth, of stored prehistoric solar power, over the 200 year period since the beginning of the industrial revolution. On average that is about 1 million years of prehistoric solar power per calendar year. As energy consumption continuously increase, in 2016 alone, we consumed the prehistoric solar power of about 4.5 million years, which is about 22 times the period that the home sapiens has roamed this planet.

3 - The right part of the graph with the '?' is the future. So for the debates at WEF about the Fourth Industrial Revolution it would be good to check whether Davos assumes if and how we can regulate physics, such that with a 'single year of current solar power', we can run an economy that we used to run with '4.5 million years of prehistoric solar power'.

Yes, we have more know-how and technology, but we also have 6x more people on the planet than on the left side of the peak and the energy needs of our economy are many more times bigger than in pre-fossil era.

But our brains still function pretty much the same. And No, we cannot regulate physics!

What's Next? What should the Fourth Industrial Revolution deliver ?

Let's look what WEF's Fourth Industrial Revolution would have to deliver in terms of an adequate sustainable energy supply:

First hard truth is that "renewable energy input is ’stochastic’". That means that sometimes there is a lot of energy, sometimes there is little energy, sometimes there is nothing. This poses 2 important challenges :

• On average we have to build between 5-10x as much renewables energy capturing capacity as we need in terms of usable energy output. In many articles these two are not distinguished or worse, mixed up as being the same!
• We need to build storage capacity equivalent to several weeks of consumption, not just diurnal storage between day and night.

Are you clear about what it takes to overcome the stochastic input and to build sufficient storage?

Second hard truth is that we are chasing ever lower densities of much needed natural resources (cobalt, copper, etc). This means, in spite of better technology, we will have to make more effort and spend more energy in getting these natural resources. Where will that ever growing energy requirement come from? What would be the implications for the rest of the economy? This YouTube animation further clarifies this dynamically : https://www.youtube.com/watch?v=MKR925xz_R4

The share of renewables in the world currently stands at about 6% of current energy supply. In order to be fossil free, the renewable capture build out has to be 600% of require output. This is not true for hydro and bio, but these are less scaleable. We are very far away from that goal. A lot of natural resources will be require to even get half way to that. As the animation clip showed, the dwindling densities means, the size of the world economy will shrink. Physics and chemistry don't support otherwise.

Even when we would continuing with fossil, besides the global warming problem, the marginal fossil would get so (energy)expensive, that the global economy would shrink as well. What is important here is to be real and to be honest about it!

Leaders in governments and industry alike, must take the challenge of storage much more seriously. Up till now, condensing & storage came courtesy of Mother Nature, who packaged prehistoric solar power in high density, easily storable hydrocarbon molecules. In addition to having to pay for capturing the sun (or wind for that matter) we also have to pay for storage. And we need a lot of natural resources for that. Whilst there maybe plenty, the issue is the ever lower density, which means ever more effort and more energy. Of which we will have less. An exponential challenge, we poorly understand!

Getting Real about Reality & Getting Honest about how real Growth is

The growth people experience is defined by GDP growth minus inflation. The 21st century fairy-tale is that there still is growth. However, inflation as reported by CPI is only experienced by the middle income quintile, whose consumption includes travel, IT and household equipment, which over time has become cheaper.

All other quintiles experience higher inflation than GDP growth. The lowest quintile because of the high share of food, basic needs, energy and health insurance where it has to be paid privately, expose them to much higher inflation than CPI. As a result they experience disposable income decline.

Also the top incomes have seen price rises for prime real estate, collectibles, art, etc that far exceeds CPI inflation rates.

The reality is that in the EU, US and Japan the majority of people have experienced shrinking incomes for 9, 15 and 20 years respectively. Thus the incorrect growth narrative from (WEF) leadership is creating doubt about their trustworthiness and is fostering a breeding ground for populism, making our future more volatile and uncertain

From the 'New Clothes of the Emperor' to an 'Honest Way to (ad)Dress the Future'

It’s time for Davos (wo)man to get real about reality and to get honest in communicating about reality. More over they have to get on, as urgency is needed as peoples choices for Brexit and Trump have shown.

Unless the World’s leadership will adjust its narrative to match the reality of a shrinking economy, that the majority of people already experience, it will further exacerbate the Crisis of Trust. Due to the decreasing density of natural resource reserves and the end of condensed prehistoric solar power, we are at the cusp of a tipping point.

It is physically unavoidable that the next generation will experience a smaller GDP, which the majority of people expect. This makes them even more suspicious of today's leaders.

It may surprise people that even a 30-50% drop in GDP would not be Armageddon. It would 'only' set us back to the 1980’s, which was not a bad time.

If Davos (wo)man can embrace reality, think more deeply and realistically about the assumptions for the future with regards to important parameters (interest rates, energy and resource costs) and if they would focus on well-being rather than GDP, the transition can happen peacefully and civilized. If they cannot, their 'growth gospel policies' will clash with 'physical limits'. For sure the latter will win. But populists will exploit the ensuing turmoil and frustration even though they are even more clue less about reality. The outlook for the 21st century would then take a turn for the worse. 

Conclusion

These are merely a few sySTEMic aspects about physical reality. Since man cannot regulate physics, it is best to deepen our understanding of physics and respect reality.

I am afraid Klaus, there will be no supply side miracles. ‘To Sustain’ and ‘To Grow’ are mutually exclusive, making ‘Sustainable Growth’ an oxymoron. The world’s elite is too ‘short-sighted’ in that it does not look back far enough in time. In many aspects, the last few decades have been demonstrably exceptional. Taking these 'abnormal' few decades as framework for 'what is normal' or for 'what the future will be like' is seriously flawed thinking. A more 'long-sighted' view would provide a better sense of normality and hence a more realistic basis for a new combination of a desirable & possible future.

Education to enable better sySTEMic thinking in society is the greatest asset our future can hope for. If the 48th World Economic Forum Annual Meeting, can contribute to helping the Leaders of the world to gain a deeper understanding/sense of reality together with an honest narrative about how – without unsustainable economic growth – we could begin to shape a pathway towards increased well-being, that would be the best a Fourth Industrial Revolution could bring us.

Learning this lesson of Reality 1.0 may be the difference between a livable 21st century, albeit with a smaller economy, or new dark age, with an even smaller economy, but even less equitably distributed. Davos (wo)man, Are you ready for the challenge ?

Hans van der Loo is Chairman of the Advisory Board of the Institute of Integrated Economic Research (IIER). He studied at Nyenrode Business School in Breukelen, ESCP in Paris, Oxford and Düsseldorf and at Sophia University in Tokyo. He has had a 30 year career working for McKinsey, Royal Dutch Shell and WBCSD. He has lived in 9 countries and worked in some 50 countries all over the world. He has authored several articles and co-authored a book about 'Resilience'. He is a frequently asked speaker at international fora such as the Bilderberg Conference, the COP21 Paris, the European Business Summit, the World Economic Forum and lectures at various Universities.

He is an advisor to the European Commission on promoting STEM Education www.stemcoalition.eu to strengthen sySTEMic thinking in society, non-executive director of a number of companies, Chairman of a Family Foundation in Munich and is member of the Advisory Board of the Sieboldhuis-Japan Museum in Leiden.

Institute for Integrated Economic Research (IIER) is a non-profit research organization focused on developing an unbiased view of global economic processes. IIER tries to re-focus economic research away from individual subsystems, towards a broader understanding of the larger forces driving overall progress or retreat in the human eco-system. The global economic crisis that began in 2008 is a good example of why this is necessary - traditional economic science neither provided the ability to predict the current downturn, nor does it sufficiently explain the mechanisms at work. For more information : www.energyandstuff.org

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