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Land
In this article, I will argue that land, one of the most important but scarce (ie finite) assets on the planet, is undervalued and over-exploited. This is one of the key reasons we face continuing degradation of the biosphere, damaging the long-term sustainability of ecological systems and therefore threatening our own ability to survive and thrive in perpetuity. But I will also point out that some of the key building blocks for addressing this set of challenges are already in place. All we need to do is link up the disciplines of sustainability, ecology, accountancy and economics in a quest to place proper values on the assets and obligations associated with land ownership. But let’s start by looking at definitions. There is a high degree of consensus, in language dictionaries, on the definition of land, as shown by the following two examples: “The surface of the earth that is not covered by water” (Cambridge English Dictionary) “The part of the earth’s surface that is not covered by water” (Oxford English Dictionary) Although quite simple, these definitions are helpful in some ways, but unhelpful in others. Defining land by what it is not (not covered by water) helps to some extent with a ‘first approximation’ when assessing a part of the earth’s surface. We can ask “is it covered by water?” If the answer is “no” then it is, by definition, land. On the other hand, how far does the “land” extend below the surface (down through the soil and rock) or, for that matter, above the surface (up through the atmosphere and into space)? And does it include the living organisms that inhabit the land, the soil, the non-oceanic water and the air? Wikipedia gives us a rather more descriptive (if more wordy) definition, based on economics, and some inkling of key challenges surrounding ownership: “In economics, land comprises all naturally occurring resources as well as geographic land. Examples include particular geographical locations, mineral deposits, forests, fish stocks, atmospheric quality, geostationary orbits, and portions of the electromagnetic spectrum. Supply of these resources is fixed ... Because no man created the land, it does not have a definite original proprietor, owner or user. “No man made the land. It is the original inheritance of the whole species.” (John Stuart Mill) As a consequence, conflicting claims on geographic locations and mineral deposits have historically led to disputes over their economic rent and contributed to many civil wars and revolutions.” There follows a quite typical current “economic” view on land and how it is treated in most economic calculations. Excerpts from: https://www.investopedia.com/terms/l/land.asp -------- excerpts start ------------------------- Land By JAMES CHEN Updated Jun 4, 2020 What Is Land? Land, in the business sense, can refer to real estate or property, minus buildings, and equipment, which is designated by fixed spatial boundaries. Land ownership might offer the titleholder the right to any natural resources that exist within the boundaries of their land. Traditional economics says that land is a factor of production, along with capital and labor … Land qualifies as a fixed asset instead of a current asset. ... More Ways to Understand Land In Terms of Production The basic concept of land is that it is a specific piece of earth, a property with clearly delineated boundaries, that has an owner. You can view the concept of land in different ways, depending on its context, and the circumstances under which it's being analyzed. In Economics Legally and economically, a piece of land is a factor in some form of production, and although the land is not consumed during this production, no other production - food, for example - would be possible without it. Therefore, we may consider land as a resource with no cost of production. [I’ll provide a criticism of this interpretation below] Despite the fact that people can always change the land use to be less or more profitable, we cannot increase its supply. Characteristics of Land and Land Ownership Land as a Natural Asset Land can include anything that's on the ground, which means that buildings, trees, and water are a part of land as an asset. The term land encompasses all physical elements, bestowed by nature, to a specific area or piece of property - the environment, fields, forests, minerals, climate, animals, and bodies or sources of water. A landowner may be entitled to a wealth of natural resources on their property - including plants, human and animal life, soil, minerals, geographical location, electromagnetic features, and geophysical occurrences. Because natural gas and oil in the United States are being depleted, the land that contains these resources is of great value. In many cases, drilling and oil companies pay landowners substantial sums of money for the right to use their land to access such natural resources, particularly if the land is rich in a specific resource. … Air and space rights - both above and below a property - also are included in the term land. However, the right to use the air and space above land may be subject to height limitations dictated by local ordinances, as well as state and federal laws. … Land's main economic benefit is its scarcity. The associated risks of developing land can stem from taxation, regulatory usage restrictions … and even natural disasters. ------- excerpts end ---------- I would take strong exception to Chen’s statement that “we may consider land as a resource with no cost of production”. This treatment of land would be to grossly abuse it and under-value it, both in pure economic terms but also in terms of encouraging accelerating environmental degradation. In direct contrast to Chen’s description of land’s role in production, I would argue that land needs to be restored and maintained in a sustainable state that not only supports any economic production that relies upon it, but also so that the land performs, in perpetuity, its proper role as part of earth’s living biosphere. Accounting Guidance The International Financial Reporting Standards (“IFRS”), and the International Accounting Standards (“IAS”) set the international frameworks guiding all accountants around the world in what is deemed to be acceptable ways of accounting for everything that appears in a balance sheet or a profit and loss statement. An example is the way assets are valued and reported. There are a number of accepted ways of attributing, or calculating, a value for an asset, including “land”. In accounting guidance, land is included in “property, plant and equipment”, being a particular type of “property”. Excerpt from IAS 16 ---------------------------- Property, plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period. The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if: (a) it is probable that future economic benefits associated with the item will flow to the entity; and (b) the cost of the item can be measured reliably. If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is depreciated over the period of benefits obtained by incurring those costs. Excerpts end ---------------------- From the excerpts above, we can build on what I have said about the obligation to maintain land to fulfil its role as part of a sustainable living biosphere. All that is required is to establish, and enforce, the principle of holding owners of land to account for maintaining the land sustainably. This needs to be backed up by national and international governance mechanisms (eg national and international laws and environmental regulations). When those governance measures are in place, then the asset value of any piece of land an owner wants to hold will reflect that sustainability obligation on the current owner. If the land’s current state is a long way below that which would be considered biospherically sustainable, then the value of the land might even be negative, because although the owner has an asset that will produce some positive economic value, for example from agricultural produce generated from it, there could exist a large obligation (liability) to set against that, representing the amount the current owner needs to spend to restore the land to a biospherically sustainable state. If the liability is larger than the value of the economic productivity of the land, then the land (asset) net value will be negative. It follows that the market price of any piece of land an owner wants to sell will reflect that sustainability obligation on the current owner and also the same obligation on the new owner. It is probably quite clear that, in the paragraphs above, I’ve based my arguments on a definition of strong sustainability when using the terms “sustainable” and “sustainability” etc. Can cryptocurrencies ever be recorded in a World Balance Sheet? Let's look at some of the key features of Bitcoin, as an example of a cryptocurrency:
According to wikipedia:
Although Bitcoin is (in theory) decentralised, wikipedia also says: "As of 2013 just six mining pools controlled 75% of overall bitcoin hashing power.[134] In 2014 mining pool Ghash.io obtained 51% hashing power which raised significant controversies about the safety of the network. The pool has voluntarily capped their hashing power at 39.99% and requested other pools to act responsibly for the benefit of the whole network.[135] c. 2017 over 70% of the hashing power and 90% of transactions were operating from China." Bitcoin isn't backed by any assets in the real world. Therefore, even though it is said that their design and implementation will result in a maximum of 21 million Bitcoins ever being created, they are only ever going to have a value determined by owners' and users' perceptions of value, not any related underlying value of real assets in the real world. This makes them even more ethereal than any national currency anywhere in the world, which at least has the benefit of some asset backing (albeit on a fractional banking ratio) underwritten by a real-world institution such as a national central bank. The risks associated with recognising the value of Bitcoins should be fairly obvious from this. There can be no confidence that their supposed value will continue to exist, and at any point they might become valueless. There is no authoritative body that can be called upon to take any action to stabilise the value of Bitcoins. Indeed, there is a risk that any such putative body that purported to be able to do so could be a fictitious body, or a legitimate body acting fraudulently or negligently. Exchanging any real-world national currency, or other assets, for Bitcoins represents, therefore, nothing more than pure speculation on the future value of an imaginary asset. For this reason alone "I'm out!" and I will not be recommending inclusion of any cryptocurrencies in the World Balance Sheet. I don't see it as being contradictory to any significant extent to have multiple identities, each of which comes to the fore in different strengths at different times depending on the circumstances. I'll say a little about my identities as an example.
Mostly, my identity as a worker comes to the fore during the working day, and my identity as a family member and carer come to the fore when at home or out and about with my family. But at other times (such as when writing this blog) my identity as a global citizen comes naturally to the fore. It also appears at other times, for example when with work colleagues who have similar dreams for a better future for global humanity. I also have an identity as a financial professional - the sort of person who many people look to for advice on the state of the organisation's finances. The Planetary CFO role holds a particular fascination for me because it lies at the intersection of almost all these identities. And where there are minor conflicts between identities, I find it leads to a creative process, and a source of diverse thoughts in trying to reconcile the interests of each identity in conflict. Some might see a risk here of lacking stability, of becoming a chameleon and changing to suit each circumstance, through resolving the identities in favour of the one that most effectively blends into the surroundings it finds itself in. However, I prefer to see it as learning to change and adapt, through one's experiences and responses to those experiences. We need more change in human systems if we're to solve the massive environmental and social justice challenges we all face. We can do a lot worse than reflect on our own capacity to change and to challenge the status quo in our own lives. In the mythological battle between the immovable object and the irresistible force, my money's on the irresistible force, every time. We hear a lot about efficiency, but not enough about circular economy. Which is strange, because circular economy is a no-brainer in my view. Starting a conversation with efficiency is starting in the wrong place, in a use-it-up and throw-it-away kind of place. Starting a conversation with circular economy starts it in a better place.
First we had recycle, when we knew we had to reduce the amount of stuff being "thrown away", usually into landfill. Then we had repair and recycle. Why throw it away at all if you could repair it, delaying the inevitable moment when it would have to be thrown away? Then we had reuse, repair and recycle, when we could turn an existing object to a new use, or repurpose it, when it was no longer suitable for its previous use. Then we had reduce - use less of something - less in equals less to throw away at the end. All these were about efficiency - reducing the amount thrown away for each unit of material that was an input to produce a thing we first started to use. So we had reduce - reuse - repair - recycle. Now we need to reconceive - to re-imagine the whole. Not just the inputs and outputs from a process, but a holistic approach to our need/want and how it is satisfied (or redirected) between self and surroundings. That's what will bring a circular economy. When the first question is about the relationship between self and non-self. Between Me and Us and All (all living things, all material things and the only world we will ever fully experience - the planet). In this re-imagining, we are not only served by the circular economy, but we are also a servant to it as well. In the same way that there are numerous symbioses in nature, we are part of the circular economy, contributing to it as well as receiving from it. This is a new mindset. One that will help us find a sustainable future together, rather than a narrow, efficient but ultimately unsustainable one. The pace of modern life in the mainstream is something most have become accustomed to. It has become 'the new norm' and it's part of the system with immense inertia driving us through sustainability boundaries.
This is like our perception when driving. When we drive fast, our brains get accustomed to that speed. It's as if our brains make decisions on less and less information from each object we pass, but turn their attention more to movements and 'strategic' matters such as the next junction or changing conditions. If we're not careful, we maintain this 'mode' even when we slow down, eg to enter a 30- or 20 mile an hour zone. As a result, everything seems to be moving so slowly when we do this, and sometimes it feels like we're going at 10 instead of 30. The natural inclination, if we weren't taking notice of speed limit signs, would be to still be travelling at 40 or 50 but thinking we were travelling at 30. I read about this effect a few years ago, and then consciously looked out for it, checking myself against speed limit signs before arriving in the next speed zone, and realised that it was a real effect. Without having been primed to look out for it, I might never have noticed it. Unsustainability is a little like this. Unless we check ourselves against it, the tendency is for the speed of modern 'developed/advanced' existence, built on efficient systems of exploitation of natural and ecological resources, and grown largely on the back of fossil fuels and a growth model of the economy, to be something we become accustomed to. Any 'slower', more sustainable existence feels too slow to even contemplate. So the mainstream juggernaut ploughs on ... At a social event recently, someone who works for an automotive manufacturer asked me If I could only change one thing, what would it be?
I had to think for what seemed like a few minutes but which must only have been tens of seconds. I'm grateful that he gave me that time. It wasn't that I didn't have something to say. It took that long to sift through a long list of things and try to work out what would be the key thing - the thing that would unlock everything else. I set out here a more extensive version of my answer than I gave at the time. I’d change the prevalent world culture from one of the self-interested individual to a benevolent collectivism. An ideal culture would not deny the rights of the individual to excel and achieve. But it would strike the right balance between the individual and the common good. The current socio-economic paradigm conspires against the development of this culture. Through economic slavery in many parts of the so-called developed world, people are kept under control. People are subservient to the overall goals of the state and big business, which include generating economic growth ad-infinitum and maintaining societal status-quo. People are compelled to be part of an immense and powerful machine that despoils the Earth’s seemingly bountiful minerals and ecological assets. They feel powerless to challenge the machine’s current form because they depend on it for sustenance in terms of the wages it provides and the systems it contains that deliver food, security, healthcare, education and so on. Although many people see the damage this system causes, they’re unable to imagine a viable alternative. Or perhaps they paint a mental image of a broken state and chaos combined with lack of social order. And they’re afraid of changes that might lead to this scenario. Unfortunately, in not taking action now to question the status quo, these people, who I suspect comprise a large part of the mainstream, are continuing to contribute to an ever-increasing probability that this very scenario unfolds. This is because of the continuing environmental unsustainability of the human systems they are propping up by their complicity with and in it. Perhaps they think the state will make all the right changes in time on their behalf to achieve sustainability “just in time” and protect their standards of living in the process. But they are wrong in thinking this, because it’s in the nature of the political system in most developed nations to ignore the long-term unless to do so would damage short-term political popularity. This is the inertia of the unchallenging majority. This is what prevents real change from occurring until a crisis point comes along which can no longer be ignored. One of the challenges for sustainabilitarians is to set out a compelling vision of a sustainable future and to help people in the mainstream to identify with it, to want it to happen (or at least their own version of it), to make their own minds up about how far we are away from it and the things that are currently keeping us on course for unsustainability but which could be changed if there was sufficient popular support. The prevalence of a more collective culture would be the key to providing fertile ground for this vision to take root and eventually flourish. The UK has decided to leave the European Union.
I hope that, in the ways this decision is carried out, those who do it draw on British values and identities that are admired by many around the world - tolerance, compassion, innovation, open-mindedness, free expression, love of diversity and opportunity, humility, respect for others, a spirit of both adventure and co-operation in seeking to solve world problems. This ushers in a period of renegotiation of the relationship between the UK and the rest of Europe. I hope that relationship, even if rocky in the short-term, emerges better - to the mutual benefit of all countries and peoples, in the context of our shared responsibilities for the Global Commons and each other. Climate Change is one of the most important challenges ever faced by humanity. It is by no means the only challenge in creating a sustainable future. But it is one that many people are already acting on. Renewable energy, circular economy, economic justice. These are all topics that are gaining traction and action. But the trajectory is still worrying – with annual carbon emissions to the atmosphere still huge, increasing the cumulative carbon with each year that passes. Cumulative carbon that is overwhelming the capacity of the carbon cycle to convert it into useful forms of carbon rather than damaging ones. Not only that, but it has the potential to trigger tipping points that result in the planet “switching” to a new equilibrium, with much higher carbon concentrations in the atmosphere and consequently even more extreme global warming than 2 degrees.
COP21 is not, as many people are saying, a unique opportunity. This is the continuation of a process. That process is the transition to a sustainable future for all peoples. COP21 is a chance to accelerate that transition. To increase the harmony, the cooperation, the compassion that builds the sort of future most people want to see happen. To reduce the chances of hitting those tipping points. To reduce the disruption, the suffering and the economic damage that many respected and credible experts predict will happen if global warming is allowed to rise above 2 degrees. I use the word “allowed” advisedly, because all of us, through shortage of concerted action, are allowing that future to unfold in front of us if we don’t do enough now to prevent it. What is unique about COP21 is that it is designed to bring you all together – you who have the power and authority to make things happen. To make a binding agreement on limits to carbon emissions. To create, in effect, a carbon budget for the planet. Climate Change is a global problem. It does not respect national boundaries. In seeking a global agreement, I (and millions like me – perhaps even billions) hope that you will be able to put the greater good of the whole of the world population above parochial national interests. Look to the long term. Think about how you would like to be remembered by the generations yet to come. Do you want to be remembered as having been part of the solution or part of the problem? As Planetary CFO, I would urge you to use finance as a lever to effect the right kinds of change at global scale. Think of the financial mechanisms that work well in the particular country you lead, and look to implement those across the globe. Taxes that impact on consumption, emissions and environmental damage, welfare payments that provide safety nets to people who are struggling (but failing) to support themselves, welfare insurance that spreads the costs of those safety nets, subsidies that encourage investment in desirable industries and fines that encourage divestment from undesirable ones. These are all tried and tested methods in many countries. I challenge you to set a global carbon budget and to use this as the first of many unified global financial and economic mechanisms for creating a fair, compassionate and truly lasting legacy for future generations. I'm Planetary CFO. CFO is short for Chief Financial Officer. I look at the whole of the planet, all its inhabitants, infrastructure, resources and ecosystems. I use the lens of finance to see what we can do together to create a sustainable future capable of supporting a peak human population of, say, 10 billion people while maintaining a healthy balance between us and other plants and animals.
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