How to Immunise an Economy

When an economy is operating using Unsustainable Economic Principle (UEP), the natural state of the economy would appear on the scale of measure like this.

But when an economy operate using Sustainable Economic Principle (SEP), the natural state of it would appear within the spectrum of measure like this.

Immunising your economy is therefore the first rule of sustainability. When your economy is fully immunised everything else falls into place. But how do you do this? You can immunise your economy in the following suggested ways :

PRICE UNCERTAINTY: Put a price tag on everything that causes the essential economic components to vary not only unpredictably but also problematically. These are your economic risks otherwise called the ‘Run Risk Ratios (RRR)’. Uncertainty = Habits(Greed, ignorance, sabotages, wars, and rogue trading) + Acts of Nature(earthquakes, floods, hurricanes, volcanic eruptions, accidents, droughts, etc). Throughout the history of the boom and bust cycles, these bags of excuses are often quoted and used to justify all types of fluctuations in the financial market, inflations, interest rates increase, stock prices, prices of assets, goods and services, labour costs,. They drive human expectations back and forth the spectrum of uncertainty. When these classes of excuses are priced, the human expectations are automatically priced as well. Summary: Uncertainty = (Habits + Nature). Price it!

INSURE UNCERTAINTY: Once you price your uncertainy, insure it. Because this fully priced uncertainty is the RRR of your business that can either make or break it, it is important that you devise, install and grow Sustainable Funding Streams (SFS) to maturity, which includes (1) the Cost of Prevention (COP) and (2) the Cost of Cure (COC). Both SFS’s need a highly disciplined Transitional Period (TP) to grow to maturity. COP reaches maturity at a level equals to or above the level of subsidies required to keep unsustainable business variants at sustainable level. If SFS exists in an economy or in a business sector, no stock broker, no service provoder, no products producer, no raw material farmer, no components or spare parts manufacturer can use uncertainey in the natural process or uncertainty in the human behviour as an excuse to drive prices of goods, assets, services and labour up or down indiscriminately as it is often the cases in various sectors of the economy. An economy or a business with a mature SFS is not only self-insured but also self-financing.

AVOID DEBTS DURING TP: During the transitional period, when you are cautiously and painfully growing your COP and COC sustainable funding streams to maturity, it is advisable to avoid debts altogether. That is, adopting sustainable economic principles such as SFS requires that you avoid debts creation completely. But if you are really pressed for whatever reasons best known to you, the risk level permitted, both in theory and in practice, is a value proportional to your current SFS value. For example, if you have £50,000,000 as your SFS target and your SFS growth level is currently at £25,000,000, then this current SFS growth level of £25,000,000 is the level at which your currently incurred business debt must not exceed. If you haven’t got any SFS installed in your organisation and start incurring debt from day one, then your business is twice as risky, as you have neither an SFS to track and keep your problematic business variants at sustainable levels nor an SFS to rescue your business from total failure. The price you pay for this is that you have a funding stream to cover your debt should it suddenly becomes necessary for you to pay it back on short notice but you are left in a highly fictional position where your organisation is pretending to have SFS but which in actual fact is without one.

AVOID CONFLICT BETWEEN BUSINESS GROWTH AND SFS GROWTH. Once you install SFS in your business and start to grow it, allow your business to grow relative to your SFS growth level. Ideally, a genuine business growth is a value over and above SFS at maturity post-TP. However, if you find it still necessary to grow your business at the same time as you are growing your SFS during the TP, then prudent and clear thinking suggests that both should be grown relative to one another at the highest operational safety level possible. That is, your business growth must be at a level equals to one third of your current SFS growth level.

For example, if you have £50,000,000 as your SFS target before it matures and your SFS growth level is currently at £25,000,000, then your current business growth level should, in theory and in practice, not exceed (∑λ x ⅓),(£25,000,000 x ⅓), (25,000,000 x .333333333) = £8,333,333.33, where ∑λ = the sum of cumulative values of SFS over TP. Is this the golden rule? No, it is just a cautious estimate of the level of risk that a business that has adopted sustainable economic principles is prepared to take with its SFS during the TP. Of course, every business is free to set its own cautions business growth level during the TP, provided the chosen level neither undermines the purpose for which SFS was designed in the first place nor the ability for SFS to actually serve that purpose, either currently or subsequently. If it does, then this is equivalent to returning your business back to square one….to a risky and unsustainable operational or functional level. Up to very recently, many business owners, investors and policy makers used to mistake the size of business or the size of an economy for sustainable financial security. "Size is security!", we used to hear comapny directors and managers brag. Well, this is no longer the case. Since Neil Leeson collapsed 125 years old British Bank under a split second leap of reckless trading madness and inevitably kick-started the process and sent a loud and clear message to the whole industry, it is no longer true that Size is Security. And the recent events of the past few weeks when the biggiest financial institutions collapsed one after another around the world, have sealed the fate of those who believe in size as a measure of growth and financial security. Size is neither a genuine growth nor security because the events of the recent times have demonstrated beyond doubt that it takes a single rogue trader to collapse a 200 year old financial institution, and it takes a handful of rogue traders to collapse the entire world market.

CALCULATE AND CONSOLIDATE THE SUSTAINABLE VALUES OF YOUR ECONOMY: Analyse all the sectors of your economy to establish their (1) Sustainable Capacities, (2) Sustainable Balances (deficits in the overall output or service capacity of each sector), and (3) sustainable values. Some sectors may be running deficits and some may be running surpluses. Sectors that run below their full capacities may create economic problems usually associated with undercapacity, and those that run surpluses may generate both economic and environmental problems associated with overcapacity. For example, overcapacity may generate both environmental and economic wastes in terms of financial costs and environmental impact. It may also be indicating or pointing to the fact the sector itself has attained its 'Saturation Point (SP)' and is about to collapse. It may also be an indication that too many producers or service providers are chasing too few customers. Sector analysis, therefore, would reveal all types of problems that each sector may be experiencing.

Sustainable Values consolidation (SVC) usually applies in situations where a problem may have several aspects to it before it is considered completely solved and declared sustainable. In this case, each aspect of the problem will be treated as possessing some qualitative intrinsic value such that when resolved the sustainable value of it will be calculated separately and expressed as a percentage value. It is treated as a separate entity or parameter with 100% solution value. Repeat the same process with the remaining aspects of the problem, calculate and consolidate their sustainable values as shown here:

Worked Example 1:

SV = Σ(μ + λ + …. n) ÷ (n x 100) x 100.

μ= Sustainable Value for aspect 1: λ= Sustainable Value for aspect 2

μ=90: λ=87: n = 2

SV = Σ(μ + λ) ÷ (100 x 2) × 100

SV = (90 + 89) ÷ 200 × 100

= 89.5%

The Value Write-off Effect occurs when an aspect of a problem turns up in a ‘Resolution Pool’ with a negative value, which is a value that is substantially less than the maximum (100%) solution value or sustainable value. The Sustainable Principle says that under normal circumstances every aspect should contribute 100% sustainable value into the resolution pool, unfortunately in real life this is rarely the case. When there is more than one sustainable value applying to one thing or event, then all the derived values can be consolidated into a single sustainable value. Such consolidation has the consequence of causing the negative values to write off the positive values in the resolution pool, hence lowering the result to unsustainable level. The next worked example shows precisely this:

Worked Example 2:

A car maufacturer, after many years of investments and continual improvement of one of their car models, eventually produced a car with 100% safety but only 33.33 percent of car drivers could afford this car. From the point of view of sustainability, the car manufacturer has produced a car with the highest intrinsic qualitative value with regards to the car's overall functionality and performance, but the car was overpericed such that only a limited number of drivers could afford it. The sustainable value of this car is naturally a relation between the overall functional performance valule and its beneficiaries. Sustainable Values calculation must take both into acount and consolidate the resulting values accordingly as shown here:

SV = Σ(μ + λ + …. n) ÷ (n x 100) x 100.

μ= Sustainable Value for the Car's performance: λ= Sustainable Value for the affordability.

μ=100: λ=33.33: n = 2

SV = Σ(μ + λ) ÷ (100 x 2) × 100

SV = (100 + 33.33) ÷ 200 × 100

= 66.67%

The negative value of 33.33% has written off or discounted a substantial value from the consolidated result. The manufacturer, if they genuinely want this 100% life-saving car to be fully sustainable, should apply sustainable methodologies to bring the price down and increase usage. The same will be true of a drug company that finds a miracle cure for any type of disease and manufactures the drug but only 20% of all the sufferers from that disease can afford the drug. Or a sweet manufacturer that manufactures a special pack of tasty sweets to help relief the busy population of hunger but which at the same time is costing the nation's health service billions of pounds in obesity and dentistry bills. In the first example, the negative value generated by the overpriced drug with 20% low usage will write off susbtantial part of the positive value of the drug from the consolidated result. Equally, if relieving the busy population's hunger with a pack of tasty sweet is going to land the health service with budget-busting obesity and dentistry bills, then the negative value generated by this will discount the postive value from their calculated and consolidated sustainable values. Both manfucaturers (drug and sweet) should consider applying sustainable economic principles to rectify these dilemmas.

NOTE: Some things or events or systems that were designed to solve a specific type of problem while in their normal functioning states may create a completely different type of problem or a set of problems without people involved knowing this. The take home lesson from this is that people should think of things and systems in a holistic way, especially at the design and implementation stages, for you may end up creating a thing or a system that causes more problems than it solves. If you do, then you are naturally obliged to quantify and consolidate the sustainable values of all aspects of the thing or system in the manner just demonstrated.

LOCALISE YOUR ECONOMY AND GROW IT TO SUSTAINABLE LEVEL: Localising your economy and growing it to sustainable level while at the same time contributing towards meeting your international economic and political obligations is probably the best way forward. This means budgeting yourself very carefully and contributing reasonably into the ‘Global Sustainability Funds’ and donating your country’s technologies, knowhow and expertise to the World Resource Bank (WRB) and World Time Bank (WTB.) Your local economy should concentrate on developing economic infrastructures to produce and meet its basic local needs (energy, water supply, clothing, footwear, food stocks items, drinks, medicines, medical equipment, mobility, transportation, communication systems and equipment etc,), with all raw materials and intermediate manufactured components and spare parts locally sourced.

SPECULATE ONLY A MEASURED PERCENTAGE OF YOUR ECONOMY. Ideally, from the point of view of sustainability, you are better off avoiding speculation altogether. However, if you do insist on going down that route, you should speculate only a tiny percentage of your economy. This is the percentage of losses that if they do occur will not damage your economy to unsustainable level. In fact, sustainable principle says that speculation is an affordable risk. If you cannot afford it, don’t speculate. It is a rich man gambling, to put it in perspective. Instead, focus on localising and growing your economy to sustainable level as suggested above

AVOID SPECULATIVE STOCK MARKET AS A FUNDING SOURCE: Avoiding speculative stock market as a source of raising funds for your business may be a wise and sustainable thing to do, especially if your business is new. The sustainable advice for all businesses is the same as in (6). Investors and business owners who wish to speculate their businesses on the stock market should speculate only a measured percentage of them. Using the stock market to raise funds for your business is not only dangerous and risky but also it is structurally and functionally unsustainable because history has demonstrated beyond doubt over and over again that the speculative components of the financial market periodically piles up negative values that subsequently bust and trigger the domino effect in a chain of business failures. One failed business triggers a chain of other failed business and eventually grinding the entire financial market to a halt as we have seen in the last few months and weeks (see the recent media archives for details).

AVOID NEGATIVE OUTSOUCING: It is perhaps a good idea to outsource only the sustainable balance (SB) of your sustainable capacity (SC) if you have to. Sustainable Capacity is the production or service capacity of a sector or business in an economy and the sustainable balance is what you need to complete or balance the deficit in the sustainable capacity of your sector or business. There is no doubt that there are still some countries these days that have not yet properly analysed their economies on a sector-by-sector basis to quantify and establish their sustainable needs. Ideally, you should fulfil the SB of your SC locally by increasing your production and service capacities, but if you really have to outsource you should do so sustainably. This means that you can outsource your SB to another economy or company with sustainable economic practices installed with surplus production or service capacity. This usually happens in economies or companies with mature SFS (COP & COC) that are now busy building up surplus savings and funds for themselves. In this case, this is regarded as an immature sustainable economy using a mature sustainable economy to grow its SFS (COP & COC) to maturity. You may also use your SB to help unsustainable economy or business to become sustainable by telling the manager or the owner that you will offer them your SB orders to fulfil if they adopt sustainable principles in their production system or service.

When you fully analyse a sector you would get a clear picture of what is really going on there. In this wheat production sector example, the table and the graph reveal (1) the number of companies in the sector, (2) the production capcity of each company, (3) the Sustainable Capacity of the whole sector and (4) the sustainable balance for the sector. After the sector has been fully analysed, it is quite clear now that the whole sector can be reorganised and rescheduled to make it more efficient. We put upper and lower ceilings to inform the analysts of the limits that if exceeded signals to them that there is an overload in the system or that there is a problem of undercapacity in the production workload of each company. In our own example, two companies

(Philocrat Co and Phantomi Co) are operating below their production capacities, that is, below the lower limit of 4mtons of wheat, so their current production capacities can be consolidated without overloading the system. In fact, we can do one of two things; either we unite the two companies into one company or transfer some of the workloads from the overloaded companies like Foliabay Ltd (10.4 mtons) and Memax Ltd (10.8mtons) to them to increase their production capacities. Either way, the whole sector would become more efficient as shown here in the second table and graph.

For the purpose of this example, I have opted for the second option, which is to relieve all the overloaded companies of their excesses and transfer them to companies with less output capacities without incuring any overloads. Please see the table for details. The graph is also automatically adjusted to this effect.

Of course, the system has a sustainable balance (SB) of 7.7 mtons outstanding. All that the analysts have to or can really do is to increase the sector's capacity by this amount via redistribution or starting a completely new company to produce and fulfil this deficit in the sector's sustainable capacity.

NOTE: For additional information see the main theory development on the sister blog SWorldTV - Theory and Practice.

• Defining the Key Terms of Sustainability
• Sustainable Economy in Brief
• The natural distinction between intrinsic value and extrinsic value
• Sustainable Value WikiAnswers
• Posted on September 2nd, 2008 in Extrinsic Value (EV), Intrinsic Value (IV), Sustainable Capacity (SC), Sustainable Economy (SE), Sustainable Principle (SP), Sustainable Value (SV), Sustainble Education by Abraham Philocrat