Sunday, October 16, 2016

Deepwater Horizon and our emerging 'normal' catastrophes

While watching the recently released film "Deepwater Horizon" about the catastrophic well blowout in the Gulf of Mexico that caused the largest oil spill in U.S. history, I remembered the term "fail-dangerous," a term I first encountered in correspondence with a risk consultant for the oil and gas industry.

We've all heard the term "fail-safe" before. Fail-safe systems are designed to shut down benignly in case of failure. Fail-dangerous systems include airliners which don't merely halt in place benignly when their engines fail, but crash on the ground in a ball of fire.

For fail-dangerous systems, we believe that failure is either unlikely or that the redundancy that we've build into the system will be sufficient to avert failure or at least minimize damage. Hence, the large amount of money spent on airline safety. This all seems very rational.

But in a highly complex technical society made up of highly complex subsystems such as the Deepwater Horizon offshore rig, we should not be so sanguine about our ability to judge risk. On the day the offshore rig blew up, executives from both oil giant BP and Transocean (which owned and operated the rig on behalf of BP) were aboard to celebrate seven years without a lost time incident, an exemplary record. They assumed that this record was the product of vigilance rather than luck.

And, contrary to what the film portrays, the Deepwater Horizon disaster was years in the making as BP and Transocean created a culture that normalized behaviors and decision-making which brought about not an unavoidable tragedy, but rather what is now termed a "normal accident"--a product of normal decisions by people who were following accepted procedures and routines.

Today, we live in a society full of "normal accidents" waiting to happen that will be far more catastrophic than the Deepwater Horizon tragedy. One of those "accidents" is already in progress, and it's called climate change.

People in societies around the globe are doing what they are supposed to be doing, what they routinely do, to stay alive, produce and enjoy what they produce. They do not think of themselves as doing something which is bringing about the biggest "accident" of our time, climate change. No one set out to change the climate. And yet, this is the result of our normalized behavior.

Climate change still appears to many to be building slowly. This summer was hotter than last summer and the one before that. But we've coped. We stay inside in air-conditioning on especially hot days--ironically so, as the fossil fuels making the electricity for the air-conditioner are adding to the warming itself.

It is as if we are all on the Deepwater Horizon just doing our jobs. We notice there are a few things wrong. But, we've dealt with them before, and we can deal with them again. The failures and the breakdowns are accepted as just part of how we do business. And we've managed to avoid anything truly bad up to now. So, we conclude, we must be doing things safely.

Part of the normalization of our response to climate change is the spread of renewable power sources. I have long supported the rapid deployment of renewable power, suggesting that we need the equivalent of a warlike footing to deploy enough to bring about serious declines in fossil fuel use. And, while renewable energy is growing by leaps and bounds, it is not growing nearly fast enough to meet the challenges of climate change.

And yet, society at large has relaxed into the idea--promoted by the industry--that renewable energy is well on its way to creating a renewable energy society despite the fact that more than 80 percent of our energy still comes from fossil fuels. We have normalized this response as adequate in the public mind. There remains no generalized alarm about climate change.

Certainly, there are scientists, activists and others who are genuinely alarmed and believe we are not moving nearly fast enough. But this alarm has not translated into aggressive policy responses.

The argument that things have worked just fine in the past so there is no reason to believe they won't work out in the future is a well-worn one. And, it seems to be valid because so many people say it is. (Steven Colbert might even say that this assertion has a certain "truthiness" to it.)

But there is a reason that financial prospectuses say that past performance is no guarantee of future results. Likewise, no bad accidents in the past are not a guarantee of no bad accidents in the future. It is in the structure of how we behave that the risks build. The tipping point finally reveals that we have been doing risky things all along.

If you play Russian roulette with a gun having 100 chambers, you won't think that skill had anything to do with the fact that you aren't dead after five pulls. But if you don't know you are playing Russian roulette (hidden dangers with hidden connections), then the fact that you aren't dead after 50 pulls (50 repetitions of the hidden dangerous conduct) won't seem like luck, but simply the result of sound procedure.

Climate change, of course, isn't the only place where we have normalized procedures which appear to be reducing risk, when, in fact, we are increasing it. Our monocrop farms and the small variety of major crops grown on them using modern industrial farming methods are supposed to reduce the risk of major crop losses and thus of famine. In fact, these methods are depleting the soil and undermining its fertility in ways that will ultimately lower farm productivity. And monocrop farming is an invitation to widespread crop loss. Polyculture tends to prevent the spread of devastating plant diseases while monoculture tends to promote that spread.

We can talk about the normalization of industrial fishing as well. It is designed to increase our harvest of food to feed growing human populations thereby reducing our risk of food shortages and giving us another source of nutrition. In fact, industrial fishing practices are threatening the viability of practically every fishery around the world.

In addition, temporarily cheap oil and natural gas are lulling us into a complacency about our energy supplies. Energy depletion that just two years ago seemed to be indicated by high prices is rarely discussed now. We are projecting the current moment into the future and believing that the rising energy price trend of the last 15 years is meaningless.

Practically everything we do to reduce risks to human populations now creates broader, longer term risks that could turn catastrophic. The Slate article linked above references the "high-reliability organization." Such organizations which seek to avoid catastrophic failures share certain common characteristics:

1) Preoccupation with failure: To avoid failure we must look for it and be sensitive to early signs of failure.
2) Reluctance to simplify: Labels and clich├ęs can stop one from looking further into the events.
3) Sensitivity to operations: Systems are not static and linear but rather dynamic and nonlinear in nature. As a result it becomes difficult to know how one area of the organization’s operations will act compared to another part.

For our global system as a whole to act like a high-reliability organization, we would have to turn away from technopian narratives that tell us we will always come up with a new technology that will solve our problems including climate change--while forcing us to change our lives very little.

Instead, we would anticipate and scan for possible failure, no matter how small, to give us warning about perils to our survival. There are plenty of signs flashing warnings to us, but we have not fully comprehended their gravity.

When it comes to energy supplies, we are often faced with the simplifying assertions as mentioned above that are designed to prevent us from examining the topic. People in the oil industry like to say that the "resource is huge." They don't tell you that "resource" simply refers to what is thought--on sketchy evidence--to be in the ground. What is actually available to us is a tiny fraction of the resource at today's prices and level of technology.

The effects of the recent bankruptcy of one of the world's largest ocean freight companies have given us a window into the outsized effects of a failure of just a small portion of our complex system of worldwide logistics.

If we had run our society as a high-reliability organization, we would have heeded warnings made decades ago. I like to tell people that the American public first learned that oil was a finite resource when Clark Gable told them so near the end of the 1940 film "Boom Town," a remarkable speech for the time.

American leadership found out that we would have to make a transition to a non-fossil fuel economy way back in 1954 in Harrison Brown's widely read The Challenge of Man's Future--and, that such a transition would be fraught with peril if not begun early enough.

Other warnings included Limits to Growth in 1972, a book widely misunderstood as predicting rather than modeling our predicament. More recently there was Jared Diamond's Collapse.

In general, what we as a society have chosen to do is to create narratives of invincibility, rather than heed these warnings. We are, in effect, normalizing highly risky behavior.

Perhaps our biggest failure is noted in item three above. We think of the world we live in as static and linear rather than dynamic and nonlinear. That has given us a false sense that things move gradually and predictably in our world, the same false sense that led to the Deepwater Horizon disaster.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now, The Oil Drum,, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at

Sunday, October 09, 2016

OPEC production cut: Just another Saudi head fake?

What do you do when everyone is bugging you to do something, but you don't want to do it? The simple answer is that you make it look like you are doing something in order to get others off your back.

It is not always easy to tell what people's intentions are. But we can look at what they have done in the past. The main thing that the Kingdom of Saudi Arabia has done over the past year in response to pressure from other OPEC members is talk about steps it would take to raise oil prices. But in the end the kingdom doesn't actually do them, or it does things which have no practical significance. (Saudi Arabia, the world's largest exporter, is the OPEC member with the greatest flexibility in its production. Any OPEC production cut without Saudi leadership would lack credibility.)

We should keep all this in mind when evaluating the latest reports that OPEC has agreed to cuts. Bloomberg tells us right up front that OPEC has merely agreed to the "outline of a deal" that will be taken up at its November meeting.

One of Saudi Arabia's partners in its yearlong public talkfest has been Russia, the number one or number two oil producer in the world depending on what month it is. The Russians said in early October 2015 that they were ready to discuss oil prices with OPEC. Later that month it was leaked that the Russians had no intention of cutting their own production. In late January of this year, the oil price catapulted after Russia's energy minister said he was "ready to meet with OPEC and Saudi Arabia to discuss a production cut," the Financial Times reported.

When the Russians did meet with Saudi Arabia and also with representatives from Qatar and Venezuela in late February, the group proposed a freeze in production, but no production cut. Only the uninitiated may be forgiven for not understanding that a freeze would change nothing. Oil production would simply continue at the current level, hardly a strategy to achieve higher prices.

In early March the Russians announced that their oil companies agreed to a freeze in production. In late March the Saudis announced that they, too, would be freezing production even if Iran would not commit to a similar freeze. The Iranians, of course, have been keen to get back into the export market in a major way after having been crippled by trade sanctions for years, sanctions which have been lifted in the wake of an international agreement governing Iran's nuclear program.

The stated intention of the Saudis and the Russians was to raise oil prices. But, given that the practical effect on production was zero, they must have had some other method in mind. One possibility is that they have been working together simply to jawbone the price of oil higher without having to reduce production. If that's the case, it seems to have worked reasonably well as all the announcements of meetings and rumors about what might happen at those meetings seem to have coincided roughly with a rising price.

It's also possible that the Saudi-Russian tag team has been trying to kill two birds with one stone. These producers might also have been seeking to keep market participants guessing about the future of prices so as to dampen investment in U.S. shale-based operations, operations which have helped to create an excess of oil on the market. Uncertainty breeds fear, and fear keeps investors away. By making periodic announcements about cuts and freezes followed by rumors or statements that undermine the original announcements, they are creating the requisite uncertainty.

In April OPEC and other producers discussed a freeze, and then the very next day failed to implement one. In mid-August, the Saudi oil minister was quoted as saying that OPEC members would consider "any possible action" at a meeting the following month. This rather mild statement was followed by a 4 percent rise in crude prices.

The record of Saudi announcements and actions suggests they are not serious. In fact, shortly after the recent announcement that OPEC would be cutting production, Saudi Arabia lowered prices for its crude, a move not consistent with its stated aims. The OPEC agreement to cut production, the first in eight years, may not actually deliver any results given that Iran is exempt, that a production range was adopted, and that OPEC members routinely cheat on quotas.

But, of course, the Saudis know all this. The question is whether they care. It turns out that the Saudis have not finished the job they set out to do, a job which few commentators have properly understood. The kingdom has been seeking not merely to lower the production of oil from U.S. shale deposits--a goal which they've already achieved--but also to cripple funding for new projects.

As oil hovers around $50 per barrel, investors continue to plow additional funds into shale drilling, particularly the Permian Basin in Texas. There may indeed be wells there that will be profitable at this level, but not an unlimited number. Other shale areas such as North Dakota have seen drilling activity slow to crawl.

What the Saudis want is for investment money to dry up. In order for that to happen investors in U.S. shale have to feel more pain--so much pain, in fact, that they won't be eager to jump in again even as prices rise.

That's why I don't believe the announced oil production cuts will ultimately have any noticeable effect on production--because I think the Saudis don't want them to. While some commentators contend that Saudi Arabia is surrendering in its war on shale, I believe the kingdom is merely giving everyone another head fake just as they and the Russians (and now the Algerians) have been doing all year.

They got a 5 percent bump in the oil price on the day of the recent production cut announcement and total of about 11.5 percent through Friday, October 7--all without actually cutting production by one barrel.* Now, that's a pretty effective head fake. What I can't figure out is why more people aren't on to this.


*The mechanism that explains this is that speculators and users tend to increase inventories ahead of anticipated price hikes, thus temporarily increasing demand for both physical and paper crude. That anticipation becomes a self-fulfilling prophesy as various actors in the market rush in together to add to their physical or paper positions.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now, The Oil Drum,, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at

Sunday, October 02, 2016

Donald Trump and the impossible destination of globalism

In a recent column, The New York Times columnist Thomas Friedman shows himself to be as good a spokesman for the world's elites (with whom he often communes) as anyone on Earth. He asks one simple question about Republican presidential candidate and billionaire real estate magnate Donald Trump: How?

Friedman's column-length answer is a catalogue of Trump's puzzling views about NATO and ISIS, his poor command of the major issues, his contradictory statements and his strange embrace of tax avoidance.

What's missing, of course, is the centerpiece of Trump's appeal: his criticism of major trade deals which have devastated entire industries in the United States and destroyed the middle-class jobs that go with them. To the defenders of globalism--and Friedman is one of globalism's fiercest defenders--Trump's criticism is nothing short of heresy.

But the billionaire's bluster embodies the anger that people affected by those deals feel every day. Not a few of them have previously been consistent Democratic voters. Of course, there are plenty of Republicans who are voting for Trump because he is the party's candidate. And, there are plenty of evangelicals and so-called "values voters" supporting him (despite his profligate ways) because his party has traditionally opposed abortion, supported prayer in schools, and fought same-sex marriage.

But disaffected, downwardly mobile American workers are the ones keeping the race very close, a race that few thought would ever be close just a few weeks ago. So strong is the fear of globalism and all that it represents among a certain class of Trump supporters that they readily dismiss mainstream media critiques of his fitness for office and his understanding of policy. Those supporters want to protect what little they have left. And, some want to go back to retrieve what they and their communities--often small and rural ones--have lost to the globalist onslaught in the last two decades. In this desire they are not being irrational.

Now here's the dirty secret about the top four U.S. presidential candidates who regularly appear in national polls. None of them actually rejects globalism. (I'll come back to this later.) At this point I'm finally obliged to say what I mean by the amorphous term "globalism." A friend recently put it into historical perspective and included the resource angle that regular readers must have already suspected I would mention.

With the discovery and then exploitation of fossil fuels on an ever growing scale, societies everywhere were faced with figuring out how to govern a world with ever increasing energy surpluses. Those surpluses made so many new things possible and in doing so led to rapid social and technological change.

We tried laissez-faire capitalism, communism, fascism, democratic socialism and finally globalism which I'll define as the management of worldwide economic activity and growth by large multi-national corporations which have no particular allegiance to any one country or people. Our belief has been that this arrangement is the most rational and efficient. Therefore, trade deals which bring down barriers both to international trade and to the movement of capital and technology across borders are believed to encourage global economic growth. That growth supposedly will ultimately lift the world's poor into the middle class and enrich everyone else while doing it.

Around the time that the fall of communism made possible the uniting of the world's economies into one great global system, we were also discovering that this system was doomed to failure for environmental reasons. Climate scientist James Hansen's testimony before the U.S. Senate in 1988 presaged the many "thousand-year floods" which are hitting the United States and other places around the world, and that is just one of the many emerging and dangerous consequences of climate change. And, climate change is just one of a thicket of interrelated threats including resource depletion, pollution and overuse of groundwater, ocean pollution, overfishing, soil degradation, and toxic pollutants in the air, water and soil.

Contrary to what the apologists for globalism suggest, scale actually matters. One million humans living as we do today would not likely undermine the habitability of the planet, for humans at least. When 7 billion live in this way, our combined effect has made us the dominant force on the planet so much so that we have created a new geologic age named after us: the Anthropocene.

It is now clear that globalism as an engine for an ever growing world economy will lead to catastrophic climate change and other untoward results that will destroy the underpinnings of modern society. In other words, globalism is a suicide pact.

The idea that we can expand globalism to any size we choose was discredited long before now. One version of this fantasy was that the Earth would be able to accommodate U.S.-style consumerism worldwide. But we know that if all residents of the planet consumed like Americans, we would need four Earths to sustain them. Therefore, the destination offered by globalism no longer features prosperity and stability for all, but a ruinous decline. And yet, our politics and our public discourse speak as if we can still go there.

Trump in his rejection of current trade treaties is saying that we need to go back to something else. He says he wants to "make America great again," which, of course, means America's greatness is somewhere in the past. As another friend quipped, implied in Trump's platform is the idea that we can get into a time machine and go back to a past that is more to our liking.

So, it's no surprise that Trump's critics are saying he is backward-looking. The future, those critics say, is an ever more connected global society. But, in such a discussion we are left with only two destinations: We can try to go back to a past which we cannot hope to reconstruct and which, even if we could, would send us in a direction which is considered the opposite of progress.

Or, we can go forward toward globalism's dream of a connected worldwide sphere of material prosperity (and the inevitable ruin this trajectory implies). In our broad public discourse there is no third non-globalism destination for which we have a description and a justification because any such attempt at describing that destination is labeled backward-looking, as merely going back to the past. And, who wants to be accused of that? The accusation tends to end the discussion.

In truth, Trump is not actually proposing a retrograde movement. He merely proposes to renegotiate America's trade deals. That means he embraces the globalist system whether he admits it or not. Hillary Clinton has now said she will oppose the so-called Trans-Pacific Partnership trade agreement. And, she has supposedly told one union leader she will reopen the North American Free Trade Agreement. She, too, continues to embrace globalism, merely wishing to alter its terms.

Libertarian presidential candidate Gary Johnson wants to lay the groundwork for "massive job growth across the entire country." He believes in reducing regulation to encourage that growth. And, he believes in free trade which is a codeword for embracing globalism.

Jill Stein, the Green Party presidential candidate, has a lot in her platform that working people should like. But her call for increased spending on renewable energy, drastic cuts in defense spending and broader protection of human rights probably won't go down well with many whites whose jobs depend on the old fossil-fuel-burning industrial economy, who think military spending is synonymous with security, and who perceive non-whites as competitors in the job market.

Like Trump, Stein would replace current trade deals with new ones that are "fair." Again, we have no explicit rejection of globalism as a system. We will somehow survive that system if only we embrace the "Green New Deal" plan which she proposes.

Bernie Sanders, Clinton's opponent in the Democratic primary, sounds a lot like Stein. He would mitigate the worst aspects of globalism without really challenging its legitimacy. But Sanders did something which Clinton by temperament could not or by choice would not do. Like Trump, Sanders embodied the anger of those injured by globalism.

This is why he consistently polled higher than Clinton in one-to-one matchups with Trump. (Compare Sanders' and Clinton's polling numbers.) Sanders was the candidate who not only displayed his anger at globalism, but also (unlike Trump) had a detailed plan for addressing it. That plan appealed to many Trump voters who could not register that appeal when asked about a Clinton-Trump matchup. But they could register their approval when asked about a Sanders-Trump contest, and they account for Sanders' runaway margins in polls which show him attracting voters who would otherwise support Trump in a contest with Clinton.

It would be political suicide for any serious candidate for the presidency of the United States to announce that economic growth as we know it is over and that we will have to organize our society based on other principles. Just what those principles might be has been articulated by such people as Herman Daly, the dean of the steady-state economists. But then, Daly isn't running for anything.

Even though the idea of a steady-state economy may seem utterly foreign to us after 200 years of unprecedented economic growth, it has become a lived reality for many since even before the 2008 financial crash.

Critical to how we proceed is to understand what is actually slowing down economic growth. Climate change will certainly over time become a huge detriment to economic activity and, if unchecked, is likely to disrupt our modern technical society to such a degree (particularly when it comes to growing food) that it will not survive intact.

Many of the theories about slow growth revolve around financial and demographic constraints. What needs to become part of the discussion are energy limits (see here and here) and pollution limits, particularly on greenhouse gases.

We are now waiting for our politics to catch up to this reality. Donald Trump, the exit of Great Britain from the European Union, and threat of exit by movements in Italy, Greece and Spain, all point to the same problem. Globalism as a system has no future. The pain it has inflicted so far has been on the middle and lower classes. At some point, that pain will spread to the highest reaches of society. Will we have to wait for that in order to get definitive movement toward a third destination?

Jared Diamond in his book Collapse pondered our predicament. Elites in past societies that have collapsed insulated themselves from the consequences of environmental and resource constraints so that they perceived no need for drastic changes.

If Thomas Friedman's column represents the thinking of today's elites, then they are truly well-insulated. Even Friedman who is more broadly informed and nuanced in his thinking shows how he himself is insulated when he writes that "income gaps are actually narrowing, wages are rising and poverty is easing." A minor beneficial move in the statistics after so many years of moves in the opposite direction is hardly the stuff that matters to people who are hurting.

The elites and Friedman can't understand Trump's appeal because they don't have much contact with those who are suffering from globalism's many side-effects. Whether or not Trump actually understands those injured by globalism, he successfully embodies their rage. And, it is that rage which is propelling his campaign to the amazement of elites out of touch with America's middle and lower classes.

Unfortunately, the answer to globalism's dead end cannot be found in the current U.S. presidential campaign. But the loud cries of its victims are audible to all those who are willing to hear them. And those victims may end up deciding who will be America's next president.


P.S. I am indebted to Bruno Latour, the French philosopher, anthropologist and sociologist of science for his recent lecture "Why Gaia is not the Globe" which inspired this piece.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now, The Oil Drum,, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at

Sunday, September 25, 2016

Taking (another) a short break - no post this week

I'm taking another short break. A temporarily overwhelming workload has prevented me from writing a post this week. I expect to post again on Sunday, October 2.

Sunday, September 18, 2016

Taking a short break - no post this week

I'm taking a short break and expect to post again on Sunday, September 25.

Sunday, September 11, 2016

Why 'overregulated' California is leading the way

Ideologues hate it when the facts get in the way of their theories. California's Gov. Jerry Brown signed trailblazing legislation last week that commits the state to audacious greenhouse gas emission reductions by 2030 of 40 percent below 1990 levels. Not surprisingly, longstanding critics from the business community were howling once again about how California's business climate will deteriorate as a result.

The law extended efforts under California's previous cap-and-trade bill which set emission targets for 2020 to match 1990 levels.

Predictions of doom for the California economy are a perennial staple of California politics. But is there any truth to them?

First, here are the bald facts. Growth of California's 'overregulated' economy has frequently exceeded the U.S. economy as a whole since 1998. Annual growth in gross domestic product shown in the linked graphs is not a perfect measure of economic vitality, but it shows that fears that California is somehow stunted by its so-called excessive regulatory and tax burden isn't supported by the growth numbers.

Moreover, states that rank highest in typical business-oriented think tank ratings such as North Dakota and Wyoming saw their economies shrink by 6.7 and 2.9 percent respectively in 2015 as California led the nation with an expansion of 4.2 percent. Of course, North Dakota and Wyoming were hit hard by the decline of oil prices as their economies are largely extractive. California's economy is far more diverse.

It's probably true that carbon emissions intensive industries will now think twice about expanding their presence in California. But those industries aren't really the future that California is seeking.

Instead, the state is becoming a leader in solar and wind energy and energy efficiency technology and policy. These are cutting edge industries that other states should envy California for. One has to look no further than the coal industry to see what's in store for the fossil fuel industry as a whole and the economies that rely on them. As carbon emission rules grow more stringent, the sun is setting on those industries that don't adapt.

That puts California in the vanguard of adaptation forcing California businesses to adapt and innovate--yes, innovate. Regulatory pressures actually spur business innovation and investment, creating jobs and new wealth. And, that innovation makes California a magnet for business investment as it extends its leadership as a worldwide provider of cutting-edge technologies, energy-related and otherwise.

The classic business example of regulation leading to leadership in the past has been U.S. government regulation of pharmaceuticals which made drugs developed by American companies acceptable worldwide because of the reputation of U.S. regulators. (That reputation has been tarnished in more recent times, but that's another story.)

So, it turns out that adapting to lower carbon emissions is moving jobs and investment into California and giving it an edge.

There are, of course, many reasons California has prospered so much despite its often cited reputation as anti-business. First, people like living in the state's pleasant climate. That attracts a lot of smart people who want to live someplace nice. Second, California has some of the world's top private and public universities at the center of technology research and development. Third, California's public services and infrastructure attract people who want to live in a state that values these. The state also attracts industries that need the well-maintained ports, roads and public services that make businesses prosper.

Fourth, the state's ethnic and cultural diversity is part of what attracts what researcher Richard Florida calls the "creative class" that drives innovation. This class is drawn to locales by his three "T's": talent, tolerance and technology. California has all these in abundance.

Success begets success. The factors that make California such an economic success story are not easy to emulate. A comfortableness with diversity is a cultural trait that develops over time, but only in areas that are open to newcomers who are unlike current residents. Top-notch universities and research cost money, often a lot of public money--as do infrastructure and public services. High taxes are required to support these public expenditures.

Some advantages, of course, can't be emulated. North Dakota can't offer the beauty of the California coastline, nor California's mostly mild winters.

There are certainly things one can complain about in California--the smog, the traffic in large urban areas and the regulation of many aspects of California life and business not found in other states. And, it is true that some of California's extensive public infrastructure needs repair, updating and replacement. But, that's true of every state in the union.

And still, people keep moving to California and entrepreneurs keep forming businesses there and prospering. They must see something that business-aligned think tanks just don't get.


P.S. In what I believe is an emerging slow-growth or no-growth economy, it appears that those locales which emphasize meeting our climate and resource challenges head on with innovative social, political and technological measures are more likely to experience what little growth there is to be had.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now, The Oil Drum,, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at

Sunday, September 04, 2016

Hanjin shipping bankruptcy: 'Efficient' just-in-time delivery not so efficient after all

We are about to learn once again that lack of resilience is the flip side of efficiency. The world's seventh largest shipping firm, Korean-based Hanjin Shipping Co. Ltd., failed to rally the support of its creditors last week and was forced to file for bankruptcy.

Retailers and manufacturers worldwide are in a bit of a panic as the fate of goods on Hanjin ships shifts into the hands of courts and lawyers for creditors intent on seizing Hanjin assets in order to ensure payment of outstanding bills. Much of Hanjin's fleet is chartered, that is, owned by others, and those owners want to make sure they get paid their charter fees or get their ships back pronto.

The result has been that half of Hanjin's container vessels are currently blocked from the world's ports for fear that the ports will not be paid for their loading and unloading services. Other shippers which include trucking companies which carry containers to their final destination are reluctant to take on Hanjin freight for fear of not getting paid. (You are perhaps seeing the main theme here.) Meanwhile, the sudden drop in available shipping containers and ships has caused shipping rates to soar as businesses scramble to make other arrangements for items still to be shipped.

U.S. retailers are so panicked that they have asked the U.S. Department of Commerce to step in to help resolve the breakdown which is likely to hurt those retailers during the upcoming Christmas shopping season.

Let's take a step back to understand how this all happened. Clever business owners have learned to run so-called "lean" operations to compete with their equally lean competitors. One way to be lean is to reduce idle inventories which just sit in expensive warehouses by arranging to have what the business needs delivered practically every day. The approach is often referred to as a warehouse on wheels and also as just-in-time delivery.

With little or no inventory of essential goods and raw materials retailers and manufacturers are subject to disruptions all along their supply chains which reach around the globe. A breakdown at any step can quickly bring activity to a halt on the factory floor or on the sales floor.

Just-in-time is very efficient financially (until, of course, it isn't). Little money is tied up in inventories or the space to warehouse them. But just-in-time is not very resilient. It used to be that businesses stockpiled goods and critical resources to ensure against disruptions. But the advent of computerized tracking combined with more efficient shipping practices worked to end the stockpiling of inventories.

I wrote about the vulnerabilities of just-in-time delivery systems back in 2006, 2008 and updated the 2006 piece in 2011. My suggestion back in 2006 that just-in-time systems were likely to recede in the wake of repeated shocks has proven to be premature. But the wisdom of running hospitals, for instance, on just-in-time supply principles seems foolhardy. It seems logical for hospitals as emergency facilities to be prepared for a mass catastrophe (earthquake, hurricane, etc.) with substantial medical supplies. Along these lines, does a three-day supply of food now available in most metropolises seem like wise planning?

The Hanjin bankruptcy also calls into the question the wisdom of allowing so much freight--7.8 percent of all trans-Pacific U.S. freight--to be handled by one carrier. And yet large size and just-in-time systems create what economists like to call economies of scale. Goods and services are provided more cheaply.

But such systems are not resilient. Resilience often requires redundancy and that spells inefficiency in today's business climate. It is, however, what we see in nature. Humans have two kidneys, but can survive with just one. Some genes are redundant, able to perform the same functions. There are 4,186 known species of diving beetles, lots of redundancy to ensure survival and biodiversity.

Two organizations worldwide practice redundancy on a major scale. Space exploration agencies build multiple redundant systems, especially for manned flight, to ensure the survival of spaceships, probes and people. Space exploration is so hazardous that even these redundancies don't always ensure survival as the loss of two space shuttles has shown.

The world's militaries also practice redundancy to ensure survivability and deterrence. The United States, for example, continues to maintain a trio of nuclear armaments on land, on and under the sea and in the air at all times on the theory that in order to maintain a credible nuclear deterrent, the U.S. military must have nuclear arsenals that are difficult to destroy in a first strike. If some of those arsenals are deep in the oceans in nuclear submarines or on bombers in flight, some of those will likely survive to strike back--though sane people will ask what of human civilization will be left after such an exchange.

And when it comes to oil, the lifeblood of the world economy, countries across the globe now have what are called strategic petroleum reserves, oil reserves controlled by or mandated by governments to ensure against disruption of oil deliveries.

All of these redundancies would be considered "inefficient" in the business world. But they create much more resilient systems. Tightly networked systems with little redundancy such as the worldwide logistics system we now live under are highly efficient but vulnerable to widespread breakdowns from small hiccups. What seems rational on the surface is deeply irrational underneath.

The Hanjin bankruptcy is unlikely to bring down the world logistics system. At most it will shutter some factories temporarily and result in store shelves that are a little less diverse this fall. But the Hanjin affair will make clear that efficiency does not always come cheap, and that efficient systems are only efficient if they function continuously.

Should the pressures we saw in 2008 return, we may wish that just-in-time systems had been abandoned or least modified so as not to create the large and cascading disruptions that are an inevitable cost of such "efficiency." And should the financial uncertainty experienced at the end of 2008 after the financial crash return, we may find far more Hanjins filing for bankruptcy and far more serious disruptions occurring than we are experiencing today.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now, The Oil Drum,, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at