It will be a great loss to the US if the lessons learned from the failure of the US investment in Solyndra are not developed beyond the predictable partisan debate that characterizes US politics. Certainly, in an election year the word ‘Solyndra’ will be used to conjure up emotional responses by candidates in voters, but that only makes it more imperative to examine the total phenomenon of the Solyndra investment failure, and elevate some of these lessons for future guidance. The lessons may be painful but are not always intuitively evident. Getting beyond the first blink or two, and the emotional reactions overall calls for a strategy often described as Root Cause Analysis.
Lessons Learned - After Action Reports - Root Cause Analysis
Failure has a vocabulary all its own. Engineers describe various types of failure - ‘test to failure’, ‘critical failure’, ‘failure rate studies’, etc. Unfortunately, nothing like this exists in the rest of our culture. ‘Success has a thousand fathers while failure is an orphan’ is the phrase that characterizes our naïve approach to failure. As consequence we will do almost anything to cover up or cede away responsibility for failure, often in a partisan arena, rather than own the failure, learn from it and overcome it. Solyndra’s collapse highlights the need to treat the financial impact essentially as tuition. We should study the root causes, all of them, and work to make the lessons learned effective teaching tools for our future course of action.
One Root Cause – Solyndra’s Factory was designed to Save Real Estate Agents
For several generations, the United States built communities around manufacturing; starting with factory towns and moving on to planned communities after WW II, the underlying social contract depended on a steady source of work in manufacturing for community stability. This was the foundation for extending home ownership – families knew that they would have a steady job, often with union-protected wages, and it was fairly easy calculus to see that new home buyers with middle class credentials would be good risks in the housing market.
The housing development, construction and housing finance institutions have had an enormous benefit that developed out of the stable manufacturing and factory environment of the mid-20th century. The US housing industry has been a vital force in building the infrastructure for the consumer economy, but their benefits to the country have waned as the saturation point has been reached in home ownership, and the mobility of manufacturing and jobs has undermined entire communities from Detroit to Las Vegas. A severe problem that reached its apex in 2008 has been the US industrial arc that has changed with the markets, while the domestic real estate industry stayed mired in an illusion of it’s halcyon days of the 20th century.
Manufacturing is Mobile – But Homeowners are not
The easy mobility of Boeing’s 787 manufacturing from Washington State to South Carolina, or General Motors manufacturing from Michigan to Mexico, highlights the phenomenon that Solyndra was really trying to overcome – jobs migrating where people cannot. American communities thrive on a notion that a couple can move to a town as newlyweds, buy a home, start a family and raise that family in relative stability through a large part of their lives. This concept of American nuclear family development is founded on home ownership, which in turn in is found on stable jobs within the community.
The Department of Energy and political supporters of Solyndra fed into the desire to use a factory as a community stabilization strategy without going all the way into also stabilizing the price of the units manufactured by Solyndra, and even further, creating a market for the units manufactured by Solyndra. Solyndra’s first mistake may not have been their choice of a technology, but their choice of a community to build their facility. But a guaranteed market is clearly not the course that Americans are taking or should take with some exceptions.
Real Estate Agents, Mortgage Brokers and Buggy Whips
The easy mobility of manufacturing and jobs contrasts starkly with the rapid losses in home values and the ongoing debacle of the foreclosure crisis. The low mobility of homeowners in the job market, and the volatile swings in home value both positive and negative, works against the interests of communities and the homeowners themselves. The continual drive of housing developers and banks to go back to the old days of the housing industry fails to recognize that those days are gone, that ship has sailed and we need to develop housing and community structures that are just as mobile as the jobs needed to fill them.
Mobility in Housing Needs to Match Mobility in Manufacturing
Housing needs to evolve beyond the simple equation of, (A) rental and (B) owned. Coops, shared housing environments and host of other housing alternatives need to be developed to keep pace with changing times. The nuclear family has changed radically over the decades, and multigenerational housing choices need to be available. Zoning laws can be at the forefront of this change, but communities will need to pull their zoning boards out of the hands of developers and put them back in control by the community at large if they want to make headway.
Housing needs to become a utility, and communities need to prepare for a radically different tax structure to maintain themselves sufficiently in this century. Just as gas taxes will be inadequate for maintain roads when a sufficient number of people have electric cars, or use alternative transportation, housing, both rental and owned, will not be adequate to fund a community that uses it.
Finally, this may seem to be a long way from the Solyndra failure, but it is completely in line with a Root Cause Analysis. Root Cause Analysis may result in several reasons for failure in review, but it is nevertheless a useful tool to get beyond the ordinary mayhem of partisan fighting and find a useful insight into the real reason for a failure. Success may have many fathers, but failure shouldn’t be an orphan – it should be the mother of invention.
Sunday, October 2, 2011
Wednesday, September 21, 2011
What Can a State Government Do to Increase the Pace of Job Growth?
What can Colorado do at the government level to help the state rebuild an economy that has now been stagnant for more than a decade?
First, recognize the limits, and understand what NOT to do.
Colorado has limits on its ability to directly affect the job market, and this has to be clearly defined. Although government sponsored utility and infrastructure construction can result in short term direct employment befits, the long term capability to generate growth through infrastructure alone is limited. Almost certainly the government should not attempt to boost employment through expansion of the government. Partisan drum-beating aside, bureaucratic growth does not truly represent an increase in productivity, and expansions of the state government should be carried out for need, and not for maintaining employment.
Next, plan around what the government can do in practical terms. Recognize that net growth can only arise from per capita increases in productivity, or increases in population, or both. Many ephemeral descriptions of the economy exist, but if legislators and economic development offices lose sight of the sources of net growth, they will fail to work toward effective job creating solutions.
Firmly understand that the state is not a qualified investor in new technology and startups; the lesson all around the world is that direct investment by the government sector in new technology does not work. CTEK is the latest example locally, but there are many other cases, and all of them point to keeping governments out of direct investment.
Limit tax breaks for new businesses, such as film industry subsidies or aid to new aircraft firms (both have been suggested in Colorado recently). Many of the subsidy programs have proven over time to be bad business, working as investor and tax avoidance schemes but not resulting in measureable tax revenue or job benefits to the states that have used them.
Finally, stop believing the EDO prevailing wisdom on the unexamined value of their efforts. Many of the personnel in EDO (economic development office) positions in Colorado have never worked in the private sector, and have no idea of the effort or strategies required to build business. They often default into developing business support for political objectives and will fail to separate business value from partisan expediency.
So what is to be done?
First and foremost is to take an approach that treats bilateral efforts as one of the key objectives of a state level economic development program. Anything worth doing is worth doing with support from both parties, and usefully moves the discussion from partisan politics to pragmatic effectiveness. Within this proposed pact is the need to establish planning horizons that reach beyond election cycles.
Second is to understand that the most that the government can do in most cases is to provide a favorable climate for development and growth. The private sector then needs to step up and do the rest of the job, and the government will need to live with the pace and scale of the private sector efforts.
Third is that the government can possibly accelerate its efforts by aiding other institutions such as universities, some non-profits, and developing relationships with other governmental organizations that are outside of the direct sphere of influence for the private sector.
One Specific Remedy- Enabling Access to the Capital Market
The state of Colorado has one crucial area where legislation and the state government can make a difference, and that would be enabling legislation that would encourage development of a new small cap stock exchange along the lines of the TMX. Small cap stocks hit the skids in Colorado in the wake of the Blinder Robinson scandal of the 1980s, and a promising source of capital for new and small companies disappeared from the Rocky Mountain West.
Building a mature and well regulated market takes time, experienced managers and a dedicated effort on the part of the legislature and Colorado's leading financial institutions. Potential abuses would need to be headed off with experienced and reliable non-partisan regulators, and the regulatory authority would need to be able to give their seal of approval ( or not) in a way that leads investors to count on investments in a regulated equities market based in Colorado.
Recognize that the equity markets are now largely electronic, and that many equity markets are developed now as franchise operation of larger markets. Make the market unique, and able to offer investors and specific types of businesses special features that aid investors in gaining access to good new investment opportunities, and give new business easier and more efficient access to the capital they need.
This one suggestion for a bi-partisan focus on economic assistance to small business does not engage the government in picking winners and loser, but instead provides for an enabling tool to help businesses help themselves – and the state.
First, recognize the limits, and understand what NOT to do.
Colorado has limits on its ability to directly affect the job market, and this has to be clearly defined. Although government sponsored utility and infrastructure construction can result in short term direct employment befits, the long term capability to generate growth through infrastructure alone is limited. Almost certainly the government should not attempt to boost employment through expansion of the government. Partisan drum-beating aside, bureaucratic growth does not truly represent an increase in productivity, and expansions of the state government should be carried out for need, and not for maintaining employment.
Next, plan around what the government can do in practical terms. Recognize that net growth can only arise from per capita increases in productivity, or increases in population, or both. Many ephemeral descriptions of the economy exist, but if legislators and economic development offices lose sight of the sources of net growth, they will fail to work toward effective job creating solutions.
Firmly understand that the state is not a qualified investor in new technology and startups; the lesson all around the world is that direct investment by the government sector in new technology does not work. CTEK is the latest example locally, but there are many other cases, and all of them point to keeping governments out of direct investment.
Limit tax breaks for new businesses, such as film industry subsidies or aid to new aircraft firms (both have been suggested in Colorado recently). Many of the subsidy programs have proven over time to be bad business, working as investor and tax avoidance schemes but not resulting in measureable tax revenue or job benefits to the states that have used them.
Finally, stop believing the EDO prevailing wisdom on the unexamined value of their efforts. Many of the personnel in EDO (economic development office) positions in Colorado have never worked in the private sector, and have no idea of the effort or strategies required to build business. They often default into developing business support for political objectives and will fail to separate business value from partisan expediency.
So what is to be done?
First and foremost is to take an approach that treats bilateral efforts as one of the key objectives of a state level economic development program. Anything worth doing is worth doing with support from both parties, and usefully moves the discussion from partisan politics to pragmatic effectiveness. Within this proposed pact is the need to establish planning horizons that reach beyond election cycles.
Second is to understand that the most that the government can do in most cases is to provide a favorable climate for development and growth. The private sector then needs to step up and do the rest of the job, and the government will need to live with the pace and scale of the private sector efforts.
Third is that the government can possibly accelerate its efforts by aiding other institutions such as universities, some non-profits, and developing relationships with other governmental organizations that are outside of the direct sphere of influence for the private sector.
One Specific Remedy- Enabling Access to the Capital Market
The state of Colorado has one crucial area where legislation and the state government can make a difference, and that would be enabling legislation that would encourage development of a new small cap stock exchange along the lines of the TMX. Small cap stocks hit the skids in Colorado in the wake of the Blinder Robinson scandal of the 1980s, and a promising source of capital for new and small companies disappeared from the Rocky Mountain West.
Building a mature and well regulated market takes time, experienced managers and a dedicated effort on the part of the legislature and Colorado's leading financial institutions. Potential abuses would need to be headed off with experienced and reliable non-partisan regulators, and the regulatory authority would need to be able to give their seal of approval ( or not) in a way that leads investors to count on investments in a regulated equities market based in Colorado.
Recognize that the equity markets are now largely electronic, and that many equity markets are developed now as franchise operation of larger markets. Make the market unique, and able to offer investors and specific types of businesses special features that aid investors in gaining access to good new investment opportunities, and give new business easier and more efficient access to the capital they need.
This one suggestion for a bi-partisan focus on economic assistance to small business does not engage the government in picking winners and loser, but instead provides for an enabling tool to help businesses help themselves – and the state.
Sunday, February 21, 2010
Too Small to Succeed?
Three common fallacies in American business in general and in Colorado’s economy in particular are: (A) most jobs are in small business, (B) most new jobs will be in small business, and, (C) we need to support small business as a key to renewed economic success. Within this set of assumptions are several fundamental errors, some of which are embedded in the field of economics, and the rest of which are part of modern American economic folklore.
To begin with, most small businesses are single proprietorships, including many consultants, real estate brokers, truck drivers, cab drivers, farmers and ranchers. This group is reinforced with armies of accountants, attorneys, therapists and multi-level marketing personnel swelling the cohorts of small business enterprises, but not contributing to the economy in substantive productivity gains and unable to supply new jobs with meaningful benefits. Unfortunately, these jobs are all in the service sector; they cannot significantly add to their current level of productivity, and as sole proprietorships, they are unlikely to add employees.
Nevertheless, the myth persists of small business as a major engine of our economy. Why? Small business appeals to our pioneer spirit. From the solo mountain trapper and the cow poke on the cattle drive, to the inventor tinkering in his garage, we see ourselves as a collection of independent spirits, each one boldly striking off into new territory in energetic creative efforts. This mythology conveniently forget the thousands of combined hands that it has taken to build mills, mines, railroads, highways and farms. We like the first version of the story much better, but what we are missing here is the understanding is that in order for a small business to have a meaningful impact on the economy, it needs to grow into a large business, adding to it’s efficiency and performance and it’s payroll.
Small businesses that remain small are not going to make any of this happen. Service businesses are frequently unable to grow and create the excess value needed for long term economic growth. There are of course examples of services businesses that are growing, but they have done so by outsourcing jobs to India, the Philippines and elsewhere; hardly a formula for long-term job growth in the United States. As a rule of thumb, if a sole proprietor is billing on an hourly basis, they cannot contribute to productivity increases; they can only increase their billing rate – or add to their billable hours, generally on a temporary basis.
Further, small businesses are unable to afford the health care, 401k plans and other benefits that are generally within the capabilities of larger businesses. Without sufficient profits and efficiency for providing these benefits, Colorado’s reliance on ‘small business’ brings a hollow benefit to the state with employment, but without benefits. Absent the jobs with benefits, these workers are left on their own to find benefits from the public sector or on their own, or to do without them.
Large business development requires a big business attitude, beginning with an environment that attracts investment capital and knowledgeable investors. This will not happen as long as we deceive ourselves into believing that Colorado has a sufficiently effective business approach. At the moment, Colorado is generally twelfth out of 50 states in attracting venture capital; according to the latest Price Waterhouse survey, at the end of the 3rd quarter of last year, Colorado had attracted just 1% of all the new venture capital expended in the entire United States.
In order for job growth and productivity to converge, Colorado needs to make renewed efforts to increase manufacturing and simultaneously increase investment attraction and management. Manufacturing is a clear source of increased productivity; investment infrastructure is the critical tool for propagating that productivity. None of this critical investment will be drawn to Colorado as long as the state has an approach that fails to recognize the need for large business.
Colorado is mired in the small business mythology, and it is time to get real, and to get serious, about what constitutes an effective business for the state. It is not a non-profit, and it is not small business. It is big business; sophisticated, complex, and competent large business firms.
To begin with, most small businesses are single proprietorships, including many consultants, real estate brokers, truck drivers, cab drivers, farmers and ranchers. This group is reinforced with armies of accountants, attorneys, therapists and multi-level marketing personnel swelling the cohorts of small business enterprises, but not contributing to the economy in substantive productivity gains and unable to supply new jobs with meaningful benefits. Unfortunately, these jobs are all in the service sector; they cannot significantly add to their current level of productivity, and as sole proprietorships, they are unlikely to add employees.
Nevertheless, the myth persists of small business as a major engine of our economy. Why? Small business appeals to our pioneer spirit. From the solo mountain trapper and the cow poke on the cattle drive, to the inventor tinkering in his garage, we see ourselves as a collection of independent spirits, each one boldly striking off into new territory in energetic creative efforts. This mythology conveniently forget the thousands of combined hands that it has taken to build mills, mines, railroads, highways and farms. We like the first version of the story much better, but what we are missing here is the understanding is that in order for a small business to have a meaningful impact on the economy, it needs to grow into a large business, adding to it’s efficiency and performance and it’s payroll.
Small businesses that remain small are not going to make any of this happen. Service businesses are frequently unable to grow and create the excess value needed for long term economic growth. There are of course examples of services businesses that are growing, but they have done so by outsourcing jobs to India, the Philippines and elsewhere; hardly a formula for long-term job growth in the United States. As a rule of thumb, if a sole proprietor is billing on an hourly basis, they cannot contribute to productivity increases; they can only increase their billing rate – or add to their billable hours, generally on a temporary basis.
Further, small businesses are unable to afford the health care, 401k plans and other benefits that are generally within the capabilities of larger businesses. Without sufficient profits and efficiency for providing these benefits, Colorado’s reliance on ‘small business’ brings a hollow benefit to the state with employment, but without benefits. Absent the jobs with benefits, these workers are left on their own to find benefits from the public sector or on their own, or to do without them.
Large business development requires a big business attitude, beginning with an environment that attracts investment capital and knowledgeable investors. This will not happen as long as we deceive ourselves into believing that Colorado has a sufficiently effective business approach. At the moment, Colorado is generally twelfth out of 50 states in attracting venture capital; according to the latest Price Waterhouse survey, at the end of the 3rd quarter of last year, Colorado had attracted just 1% of all the new venture capital expended in the entire United States.
In order for job growth and productivity to converge, Colorado needs to make renewed efforts to increase manufacturing and simultaneously increase investment attraction and management. Manufacturing is a clear source of increased productivity; investment infrastructure is the critical tool for propagating that productivity. None of this critical investment will be drawn to Colorado as long as the state has an approach that fails to recognize the need for large business.
Colorado is mired in the small business mythology, and it is time to get real, and to get serious, about what constitutes an effective business for the state. It is not a non-profit, and it is not small business. It is big business; sophisticated, complex, and competent large business firms.
Tuesday, January 19, 2010
Colorado Demographics - From 5 to 7.3 million - in 20 years
Economists love crunching numbers, so it seemed like a good time to get a few out there for discussion. The implications for Denver and for the State of Colorado could fill a few books, so in this post I’m just putting up the numbers and references from the DOLA fact sheet. The demographic statistics contained here are conveniently available from the Colorado State Demography Office at: http://www.dola.state.co.us/dlg/demog/components.html
In future posts I will refer back to these numbers and URLs as a shorthand reference for discussion purposes.
The population of Colorado was estimated to have reached 5 million in June of 2008. Colorado’s population has been growing at 2% per year since 2005 which translates to between 92-95,000 new residents each year. Colorado’s recent growth is the result approximately 40,000 in natural increase (births minus deaths) and 55,000 in net migration. Growth in the state varies dramatically by county with some counties growing as fast as 5.9% per year and other counties losing population.
Denver, Colorado’s most populated county, was estimated to have a population of 593,000 in July of 2007. The seven county (Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson) metropolitan area population is estimated at 2.7 million and is home to 55% of Colorado’s population. Denver and the metro area have been growing around 2% per year since 2005. However, Douglas County in the southern metro area is Colorado’s fastest growing county reaching annual average growth rates above 6% since
the mid 1990s. www.dola.state.co.us/dlg/demog/pop_colo_estimates.html
Colorado is forecast to grow to 6.2 million by 2020 and 7.3 million by 2030 (see forecasts www.dola.state.co.us/dlg/demog/pop_colo_forecasts.html) This translates to an annual average growth rate of 2.0 through 2010 slowing slightly to 1.9 percent per year through 2020 and then 1.5 percent per year through 2030.
The Western Slope continues to be the fastest growing region in the state with expected annual growth rates averaging 2.8% between 2005 and 2010. This is compared to the 1.9% growth rate expected statewide. The North Front Range and Central Mountains are also expected to have above average growth rates, while the Eastern Plains and San Luis Valley are expected to continue growing at rates near 1% (similar to the Nation).
Denver County is forecast to grow to 606,000 by 2010 and 660,000 by 2020, an annual average rate of approximately .9% which is slower than the state rate. The entire Denver Metropolitan area is forecast to grow to 2.8 million by 2010 and 3.3 million by 2020, an annual average growth rate of 1.6%, slightly lower than the growth rate expected statewide.
The largest single factor affecting the demographic trends in Colorado is the aging of the “Baby Boomers” (those born between 1946 and 1964)
Between 2000 and 2010, Colorado’s population 55 – 64 will grow at 5.9% per year vs. 3.9% for this U.S. age group, and 1.8% for Colorado total population, increasing by over 75% from 342,000 in 2000 to 607,000 in 2010.
Between 2000 and 2030 the population over 65 is forecast to triple from 400,000 to 1.2 million.
In future posts I will refer back to these numbers and URLs as a shorthand reference for discussion purposes.
The population of Colorado was estimated to have reached 5 million in June of 2008. Colorado’s population has been growing at 2% per year since 2005 which translates to between 92-95,000 new residents each year. Colorado’s recent growth is the result approximately 40,000 in natural increase (births minus deaths) and 55,000 in net migration. Growth in the state varies dramatically by county with some counties growing as fast as 5.9% per year and other counties losing population.
Denver, Colorado’s most populated county, was estimated to have a population of 593,000 in July of 2007. The seven county (Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson) metropolitan area population is estimated at 2.7 million and is home to 55% of Colorado’s population. Denver and the metro area have been growing around 2% per year since 2005. However, Douglas County in the southern metro area is Colorado’s fastest growing county reaching annual average growth rates above 6% since
the mid 1990s. www.dola.state.co.us/dlg/demog/pop_colo_estimates.html
Colorado is forecast to grow to 6.2 million by 2020 and 7.3 million by 2030 (see forecasts www.dola.state.co.us/dlg/demog/pop_colo_forecasts.html) This translates to an annual average growth rate of 2.0 through 2010 slowing slightly to 1.9 percent per year through 2020 and then 1.5 percent per year through 2030.
The Western Slope continues to be the fastest growing region in the state with expected annual growth rates averaging 2.8% between 2005 and 2010. This is compared to the 1.9% growth rate expected statewide. The North Front Range and Central Mountains are also expected to have above average growth rates, while the Eastern Plains and San Luis Valley are expected to continue growing at rates near 1% (similar to the Nation).
Denver County is forecast to grow to 606,000 by 2010 and 660,000 by 2020, an annual average rate of approximately .9% which is slower than the state rate. The entire Denver Metropolitan area is forecast to grow to 2.8 million by 2010 and 3.3 million by 2020, an annual average growth rate of 1.6%, slightly lower than the growth rate expected statewide.
The largest single factor affecting the demographic trends in Colorado is the aging of the “Baby Boomers” (those born between 1946 and 1964)
Between 2000 and 2010, Colorado’s population 55 – 64 will grow at 5.9% per year vs. 3.9% for this U.S. age group, and 1.8% for Colorado total population, increasing by over 75% from 342,000 in 2000 to 607,000 in 2010.
Between 2000 and 2030 the population over 65 is forecast to triple from 400,000 to 1.2 million.
Saturday, November 14, 2009
Non-profits, Consulting and the Service Sector
How many non-profits are too many? Is there a point of diminishing returns in the number of non-profit firms created? Do all non-profits benefit the public well enough to warrant treatment as tax exempt organizations? Are non-profits competing with each other for scarce dollars? What are the metrics for non-profit organization performance? Do non-profit firms take personnel and resources away from the private sector?
Non-profit corporations have grown at an astounding rate; there are now twice as many non-profit US corporations as there were as recently as 2005, and the number is now approaching two million. At first it would seem that the non-profit public sector would be taking jobs away from the private sector, and that there would be a direct, correlating drop in income from the for-profit sector; but the growth of non-profits does not directly correlate with a decline in productivity.
Why not?
The enormous growth in the service sector offers an explanation for the negligible effect of non-profits on the economy. Nearly all non-profits find their employees and founders in the service sector, and it is an exceedingly rare event for a person to come from the manufacturing sector to join or create a non-profit. Instead, it is usually a person coming from the field of consulting, a service sector activity, that joins or creates a non-profit firm.
Consulting over time has morphed into something very different from the post-war efforts of the RAND corporation and McKinsey and Company. The logic has been that if these large firms are profitable by selling human talent, then shouldn’t every small firm and individual have an equal opportunity to do the same? These smaller firms are definably small business, and as we tell ourselves endlessly, most jobs are created by small business.
Now, every unemployed college graduate likes to describe him or herself as a consultant, using consulting to dignify under-employment and unemployment. Underlying this phenomenon is the move to a service sector economy, and an inability to gauge when we have reached a saturation point in that portion of the economy. It is a very short journey from being a consultant to becoming a non-profit firm. It would seem, in fact that a significant reason that we see so little measureable effect from the efforts of the non-profits is that the damage to the economy has already occurred with the expansion of the service sector.
Non-profits have a clear and compelling role in our society, championing many worthy causes that are in the public interest. The question in our minds should be how many no-profits firms are too many.
And here is why:
At their present rate of growth, all firms will be non-profit firms - in less than 20 years.
Non-profit corporations have grown at an astounding rate; there are now twice as many non-profit US corporations as there were as recently as 2005, and the number is now approaching two million. At first it would seem that the non-profit public sector would be taking jobs away from the private sector, and that there would be a direct, correlating drop in income from the for-profit sector; but the growth of non-profits does not directly correlate with a decline in productivity.
Why not?
The enormous growth in the service sector offers an explanation for the negligible effect of non-profits on the economy. Nearly all non-profits find their employees and founders in the service sector, and it is an exceedingly rare event for a person to come from the manufacturing sector to join or create a non-profit. Instead, it is usually a person coming from the field of consulting, a service sector activity, that joins or creates a non-profit firm.
Consulting over time has morphed into something very different from the post-war efforts of the RAND corporation and McKinsey and Company. The logic has been that if these large firms are profitable by selling human talent, then shouldn’t every small firm and individual have an equal opportunity to do the same? These smaller firms are definably small business, and as we tell ourselves endlessly, most jobs are created by small business.
Now, every unemployed college graduate likes to describe him or herself as a consultant, using consulting to dignify under-employment and unemployment. Underlying this phenomenon is the move to a service sector economy, and an inability to gauge when we have reached a saturation point in that portion of the economy. It is a very short journey from being a consultant to becoming a non-profit firm. It would seem, in fact that a significant reason that we see so little measureable effect from the efforts of the non-profits is that the damage to the economy has already occurred with the expansion of the service sector.
Non-profits have a clear and compelling role in our society, championing many worthy causes that are in the public interest. The question in our minds should be how many no-profits firms are too many.
And here is why:
At their present rate of growth, all firms will be non-profit firms - in less than 20 years.
Sunday, October 18, 2009
Colorado’s Underground Economy
It’s too bad Coloradans don’t look underground.
Underground technology in drilling and mining has been ignored in our pursuit of sustainable solutions in energy and transportation. We need to look at these old technologies creatively, with a new set of reference points. The ‘Geolithic Thermocline’ can provide reliable sustainable energy; transit tunnel construction offers weatherproof transit paths lasting for centuries. The early leaders of Colorado, who foresaw the need for water resources, would be disappointed that we have not capitalized on everything we know how to do in mining and tunneling.
Energy First – The Geolithic Thermocline
Humans have understood the ‘Geolithic Thermocline’ since they lived in caves. Adobe and other types of earth construction are modern analogs of living in caves, using earth construction to manage interior temperature for heating and cooling. Ground Source Heat Pump (GSHP) technology uses the earth as a resource for heating and cooling by using water pumped through pipes or drilled wells to collect the ambient temperature of the earth. GSHP (the above ground portion) concentrates the collected energy to heat or cool as required.
GSHP is available everywhere that a building stands on the earth. Unlike wind or solar, Ground Source Heat Pumps work 24/7, and do not require energy storage to function perfectly. GSHP can be used in every part of the United States, and it is compatible with all existing mechanical equipment via heat exchanger technology. It is completely scalable, and can be installed in single home systems or in large mechanical system installations. GSHP has been reaching rates of installation of 12-15% primarily in new home construction in Texas and Oklahoma over the past decade. Underground collection piping can function for decades with virtually no maintenance, and could conceivably be used efficiently for a century.
Tunneling Creates Safe, Efficient Transit Paths
Tunnels are weatherproof highways for transit systems, perfect for major urban transit solutions, and good for some suburban applications. Trains can be routed in nearly straight paths from station to station. Impacts with surface owners are generally by-passed. Tunnel designs can be optimized to meet the needs of every type of train from light rail through high speed rail, and even maglev. Tunnels and underground transit ways completely and safely separate all surface traffic from the trains, allowing them to run faster and perform without the risk of snow, track debris or incidents with automobiles or freight trains. Best of all, tunnels permit true last mile solutions, delivering the passenger directly to his destination with an elevator or escalator.
Two primary types of tunneling are available, cut and cover, and drilled tunnels using either Tunnel Boring Machines, or more traditional road header cutting machines. Cut and cover is more suitable for areas in open country, some suburban locations and along highway paths. It is cheaper, generally, than bored tunnels, and the first choice of underground construction should be use as much cut and cover tunneling as possible.
Real Sustainability – How Do We Get There?
Real sustainability means forever. As close as we can get to it.
Tunnels are among the most permanent and durable types of construction known to man; piping systems supporting GSHP are similarly nearly permanent. What is missing from our toolbox in the sphere of sustainable economics are the tools we have already, not the uncertain rewards of technologies not developed.
The Colorado School of Mines, CSM, has been leading generations of engineers from all over the world in underground construction. The same skills that CSM’s miners use in mining work equally well in tunneling.
Colorado is also home to dozens of drillers, large and small, with many more available in surrounding states. Drilling technology is many decades ahead of fuel cell and PV technology; shouldn’t we use that technology to pursue GSHP? We don’t necessarily need ‘Black Swan’ scientific discoveries as much as we need breakthrough thinking and organization.
Our solutions are already at hand.
Underground technology in drilling and mining has been ignored in our pursuit of sustainable solutions in energy and transportation. We need to look at these old technologies creatively, with a new set of reference points. The ‘Geolithic Thermocline’ can provide reliable sustainable energy; transit tunnel construction offers weatherproof transit paths lasting for centuries. The early leaders of Colorado, who foresaw the need for water resources, would be disappointed that we have not capitalized on everything we know how to do in mining and tunneling.
Energy First – The Geolithic Thermocline
Humans have understood the ‘Geolithic Thermocline’ since they lived in caves. Adobe and other types of earth construction are modern analogs of living in caves, using earth construction to manage interior temperature for heating and cooling. Ground Source Heat Pump (GSHP) technology uses the earth as a resource for heating and cooling by using water pumped through pipes or drilled wells to collect the ambient temperature of the earth. GSHP (the above ground portion) concentrates the collected energy to heat or cool as required.
GSHP is available everywhere that a building stands on the earth. Unlike wind or solar, Ground Source Heat Pumps work 24/7, and do not require energy storage to function perfectly. GSHP can be used in every part of the United States, and it is compatible with all existing mechanical equipment via heat exchanger technology. It is completely scalable, and can be installed in single home systems or in large mechanical system installations. GSHP has been reaching rates of installation of 12-15% primarily in new home construction in Texas and Oklahoma over the past decade. Underground collection piping can function for decades with virtually no maintenance, and could conceivably be used efficiently for a century.
Tunneling Creates Safe, Efficient Transit Paths
Tunnels are weatherproof highways for transit systems, perfect for major urban transit solutions, and good for some suburban applications. Trains can be routed in nearly straight paths from station to station. Impacts with surface owners are generally by-passed. Tunnel designs can be optimized to meet the needs of every type of train from light rail through high speed rail, and even maglev. Tunnels and underground transit ways completely and safely separate all surface traffic from the trains, allowing them to run faster and perform without the risk of snow, track debris or incidents with automobiles or freight trains. Best of all, tunnels permit true last mile solutions, delivering the passenger directly to his destination with an elevator or escalator.
Two primary types of tunneling are available, cut and cover, and drilled tunnels using either Tunnel Boring Machines, or more traditional road header cutting machines. Cut and cover is more suitable for areas in open country, some suburban locations and along highway paths. It is cheaper, generally, than bored tunnels, and the first choice of underground construction should be use as much cut and cover tunneling as possible.
Real Sustainability – How Do We Get There?
Real sustainability means forever. As close as we can get to it.
Tunnels are among the most permanent and durable types of construction known to man; piping systems supporting GSHP are similarly nearly permanent. What is missing from our toolbox in the sphere of sustainable economics are the tools we have already, not the uncertain rewards of technologies not developed.
The Colorado School of Mines, CSM, has been leading generations of engineers from all over the world in underground construction. The same skills that CSM’s miners use in mining work equally well in tunneling.
Colorado is also home to dozens of drillers, large and small, with many more available in surrounding states. Drilling technology is many decades ahead of fuel cell and PV technology; shouldn’t we use that technology to pursue GSHP? We don’t necessarily need ‘Black Swan’ scientific discoveries as much as we need breakthrough thinking and organization.
Our solutions are already at hand.
Sunday, October 4, 2009
The Utility Revenue Model Restrains Distributed Energy Development
Utilities and Their Revenue Model
Advocates for clean, renewable, and sustainable energy sources are often unaware of the reasons for utility industry opposition to renewable and distributed energy. It is useful to explore some of the factors affecting rate issues in the regulated utility industry, and to begin to formulate approaches that deal with utility opposition to distributed energy generation.
Utilities and the Regulatory Compact
The Regulatory Compact (RC) is an agreement by the utility to provide service on demand, with fines imposed for failure to maintain adequate service. Under the RC, the utilities are granted a monopoly by state regulators to supply electricity and natural gas to clients in their service area. The utilities also agree to build and maintain generation facilities and a distribution network and to pay for all initial invested capital costs (CAPEX). The utility is then allowed to operate the utility for an ‘all costs in’ operating expense (OPEX) – plus a return to investors.
The problem is with the current model for utility revenue generation
Utilities generally only make money for selling gas and kilowatts. Conservation in the present model actually encourages the utilities to raise rates because they do not earn any revenue on kilowatts and therms of gas that never get sold, and the remaining service base (CAPEX) of utility customers carries a proportionately larger percentage of CAPEX. Conservation does help reduce additional CAPEX in generation, but reducing consumption for existing generation facilities means that under current regulations, the utility is allowed to recover CAPEX across fewer units sold, which translates into a higher cost for service.
Stranded Costs & Grid Connection Fees
Not only do remaining ratepayers pay higher costs, but the utilities believe that they should be able charge distributed energy generators using renewables charges for stranded costs, i.e., the costs of plants and distribution who have costs that are not being defrayed via the normal rate structure, and connection fees related to being connected to the grid, even though they customer may be net neutral or even adding power to the grid.
The RC extends to the effect on CAPEX of mandating a percentage of generation from wind and solar power. Until a reliable and cost effective means of storing electrical power is developed, the usefulness of these two prominent, renewable, but intermittent, energy sources will be limited.
Why?
The regulatory compact requires the utility to provide power even when supplies of wind and solar are not available, and forces the utility to build redundant generation capacity that would not be required without the mandate. For example, if 20% renewables is required by legislative mandate, then the utility builds the renewable facilities equal to 20% of their demand, plus 100% normal capacity, for a total CAPEX build out of 120%. Combining reduced demand through conservation with a declining base of ratepayers due to distributed generation, means the remaining ratepayers are required to pay for the entire 120% of capital construction, according to current regulations.
Utilities, and the developers of distributed generation, need proposals regarding updating the utility revenue model to reflect conservation and distributed generation. The current iteration of the utility revenue model is a major obstacle in the path of adoption of sustainable, renewable energy.
Advocates for clean, renewable, and sustainable energy sources are often unaware of the reasons for utility industry opposition to renewable and distributed energy. It is useful to explore some of the factors affecting rate issues in the regulated utility industry, and to begin to formulate approaches that deal with utility opposition to distributed energy generation.
Utilities and the Regulatory Compact
The Regulatory Compact (RC) is an agreement by the utility to provide service on demand, with fines imposed for failure to maintain adequate service. Under the RC, the utilities are granted a monopoly by state regulators to supply electricity and natural gas to clients in their service area. The utilities also agree to build and maintain generation facilities and a distribution network and to pay for all initial invested capital costs (CAPEX). The utility is then allowed to operate the utility for an ‘all costs in’ operating expense (OPEX) – plus a return to investors.
The problem is with the current model for utility revenue generation
Utilities generally only make money for selling gas and kilowatts. Conservation in the present model actually encourages the utilities to raise rates because they do not earn any revenue on kilowatts and therms of gas that never get sold, and the remaining service base (CAPEX) of utility customers carries a proportionately larger percentage of CAPEX. Conservation does help reduce additional CAPEX in generation, but reducing consumption for existing generation facilities means that under current regulations, the utility is allowed to recover CAPEX across fewer units sold, which translates into a higher cost for service.
Stranded Costs & Grid Connection Fees
Not only do remaining ratepayers pay higher costs, but the utilities believe that they should be able charge distributed energy generators using renewables charges for stranded costs, i.e., the costs of plants and distribution who have costs that are not being defrayed via the normal rate structure, and connection fees related to being connected to the grid, even though they customer may be net neutral or even adding power to the grid.
The RC extends to the effect on CAPEX of mandating a percentage of generation from wind and solar power. Until a reliable and cost effective means of storing electrical power is developed, the usefulness of these two prominent, renewable, but intermittent, energy sources will be limited.
Why?
The regulatory compact requires the utility to provide power even when supplies of wind and solar are not available, and forces the utility to build redundant generation capacity that would not be required without the mandate. For example, if 20% renewables is required by legislative mandate, then the utility builds the renewable facilities equal to 20% of their demand, plus 100% normal capacity, for a total CAPEX build out of 120%. Combining reduced demand through conservation with a declining base of ratepayers due to distributed generation, means the remaining ratepayers are required to pay for the entire 120% of capital construction, according to current regulations.
Utilities, and the developers of distributed generation, need proposals regarding updating the utility revenue model to reflect conservation and distributed generation. The current iteration of the utility revenue model is a major obstacle in the path of adoption of sustainable, renewable energy.
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