The Service and Flow Economic Model

In Natural Capital: Creating the Next Industrial Revolution, authors Amory Lovins, Hunter Lovins, and Paul Hawken discuss the concept of a “service and flow” economy as a key strategy of a transition to an economic system that accounts for the limitations of access and availability of resources. In a service and flow economy, companies liquidize a service rather than a product. To do so, manufacturers of devices, like air conditioners, loan their physical equipment to houses and other buildings, and consumers pay for the maintenance of the service rather than for the machine itself. The authors of Natural Capital suggest that this revision of the traditional producer-consumer relationship would encourage a change in how Americans view the acquisition of goods from an indicator of status to the investment in the most reliable and sustainable goods present in the market.

In encouraging companies to produce higher quality products, the concept of a service and flow is ingenious, as production of poor quality products would force companies to spend more money paying technicians to fix malfunctioning devices. However, what of the companies that respond to the incentive to, “keep their assets productive for as long as possible” (Lovins, 11)?

Innovation is a necessary component of any dramatic improvement to devices or the service of devices within a market. Essential to the promotion of innovation in any sector is the introduction of new technologies and concepts over time. If a select group of companies that respond to the service and flow economy incentive to produce quality, long lasting products, will innovation diminish?

Chances are that it might after a peak period of ingenuity. Aiming to gain a competitive advantage over other producers of similar services, a given producer would likely invest significant funds and time into the first products they would produce using a service and flow model. Depending on the relative success of each machine, certain companies would go on to dominate the market in the service that they provide. With less competition and assumed high levels of customer satisfaction with the high quality product and efficient servicing that the service and flow economic model would support, many companies could become content with the service they currently provide, creating an economic climate in which innovation is disadvantageous and advances in the efficiency of their technologies falls victim to cost benefit analyses.

A potential solution to this problem would be a mandate stipulating that companies set service contracts of a relatively short length. Using this system, companies would be forced to innovate to compete with other companies’ service improvements made over time.  Unfortunately, this solution negates one of the advantages the service and flow economy has over current economic models by it recreating a situation in which long term dependability becomes a detriment to companies that opt to offer quality service, because consumers would have an option to choose a competing service that spent more on developing improvements to their existing service than on maintenance of the survey the currently provide.

In the end, deciding between our current economic model and the service and flow model proposed by the authors of Natural Capitalism differentially support dueling desires of reliability and constant innovation. Because we cannot have one without the other, a radical shift in our economic thought to that of a service and flow economy is unlikely to produce a society of the type the authors suggest it will. It is a nice idea though.

Daly and the Poverty Question

In the introduction of the book Growth: The Economics of Sustainable Development, Herman E. Daly poses a simple question: “How do we lift poor people out of poverty?” (pg. 7) The question comes up in a discussion on the relationship between sustainable development and the issue of poverty. Throughout the book, Daly makes a point to distance himself from the common postmodern economic assumption that economic growth, variously defined, is a universal panacea for poverty, rather suggesting that a concentration on decreasing physical growth will result in qualitative improvement in global livelihood. While Daly ‘s point that smaller, stable populations generally provide a greater quality of life is a valid one, evidenced by the high quality of life index values for countries in like Italy (rated number 8 in quality of life index values), where the population is actually decreasing, his assertion that the poor may be lifted out of poverty through a deprioritization of physical growth and a renewed focus on qualitative improvement is flawed for one major reason:  Daly fails to define poverty in a manner that describes its sociogeographical function, and in so doing, does not account for the impact of natural forces on what is considered valuable (http://www.nytimes.com/2008/06/29/magazine/29Birth-t.html?pagewanted=all).

Simply put, poverty, or much else for that matter, cannot exist as a concept without alternative states of being. In this example, poverty cannot exist without one of either total equality or wealth. Daly challenges such analytic logic on page 2 of the book, where he distinguishes between the “black and white” rationalization of analytic thought and the acceptance of coexistence that defines dialectic logic. While he makes an excellent point of using the distinction between analytic and dialectic thought to explain how sustainable development may be separated from the jargon of growth, his use of analytic logic to critique the 1992 World Bank sponsored Development and the Environment report’s non-stance on the question of whether the it is “better or worse for the South if the North continues to grow on its own resource use”, suggesting that answers to the question “cannot both be right”, is more apt for the consideration of the state of poverty (pg. 8).

Technically, a person, particularly one in the middle class, may find that they are considered wealthy by a lower class citizen and impoverished by a member of the upper class. This technical viewpoint is dialectic, in that it acknowledges the possibility of multiple, coexisting and interrelated states of being. However, it ignores the source of the distinction. From the beginnings of civilization, humans have sought out living locations most advantageous to their survival and the survival of their offspring. As cultural institutions have evolved, this desire to reside in advantageous locations has manifested itself differentially, from early industrial era riverside estates that excluded those who could afford them from the squalor of the city to high property values in residential areas with highly functioning schools, providing offspring with a greater chance to become successful.

In all cases, a common theme has been the impact of environmental and geographical features on settlement patterns. These environmental and geographical features give a physical definition to wealth and poverty, one that cannot be erased through any improvement to the environment. Consider the following hypothetical as an example: urban planners were able to conceive of an urban form of remarkable sameness, contained within a purely Marxist government. Would the concepts of wealth and poverty disappear? I doubt it. Why? Because this urban form would not exist in an ecological vacuum. Just as Daly describes the economy as a subsystem of the environment, our urban forms interact in endless feedback cycles with the ecosystems they reside within. These feedback loops create the attractive vistas and other natural features that have attracted the privileged to specific portions of metropolitan areas since antiquity. The same logic is what causes urban renewal projects, that beautify blighted and often impoverished neighborhoods, to result in escalated property values. Even without such environmental forces, humans naturally seek to differentiate their condition from others. This innate desire to stand out, or stand against something would be likely to manifest in certain places of residence becoming more desirable than others, despite having the similar physical condition and setting.

So to answer his question on how to “lift poor people out of poverty”, the answer is that we do not. Rather, we strive to improve our infrastructure, limit further growth, and depend less on foreign resources to limit the poor-wealthy divide as much as our physical environment and human instinct will allow.