Achieving sustainable development : building a coherent vision and motivations for change

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Achieving Sustainable Development:

Building a Coherent Vision and Motivations for Change By

Marine B. Gerard

Master of Science (M.Sc.) in Management HEC Paris, 2014

Bachelor of Science (B.Sc.) in Mathematics McGill University, 2010

Submitted to the MIT Sloan School of Management in partial fulfillment of the requirements for the degree of

Master of Science in Management Studies

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2014

Massachusetts Institute of Technology

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June 2014

The author hereby grants to MIT permission to reproduce and to distribute publicly thesis and electronic copies of this thesis document in whole or in part in any medium now known or

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Pr. Nicholas k. Ashford Professor of Technology and Policy, School of Engineering Thesis Supervisor

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Michael A. Cusumano SMR Distinguished Professor of Management Program Director, M.S. in Management Studies Program MIT Sloan School of Management

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Achieving Sustainable Development:

Building a Coherent Vision and Motivations for Change

By

Marine B. Gerard

Submitted to the MIT Sloan School of Management on May 9, 2014 in Partial Fulfillment of the Requirements for the Degree of

Master of Science in Management Studies

Abstract

How do the different clusters (businesses, governments, civil society organizations, and individuals) behave currently? Why? And, why do these behaviors need to change?

What does a 'sustainable future' mean? What is the vision we want to achieve? What cluster behaviors are needed to create that sustainable future?

What motivations could produce these behaviors? How can we shape these motivations?

What are the necessary and sufficient conditions to change these motivational structures?

These are all the questions that this thesis seeks to answer.

Concerned with understanding how a more sustainable future can be created, the aim of this thesis is to examine the underlying structures (rationales and incentive structures) that motivate the different actors or clusters in our system, namely the for-profit private sector, the government, the civil society and individuals. Tracing back the evolution of systemic structures since the beginning of the Industrialization Era, we provide some insights into the origins of our existing system's unsustainability and paint out the nature of these actual limits. We then perform an envisioning exercise and depict the characteristics of the sustainable future we aim to achieve, building a concrete, desirable vision that has the capacity to inspire and align the motivations of the different clusters mentioned. Current motivations and behaviors of the different clusters are then exposed and contrasted with the motivations and behaviors needed for sustainability. We finish off by providing first thoughts on the mechanisms and instruments that could be leveraged to operate the desired shifts in our system's structure, as well as the necessary and sufficient conditions for these shifts to occur.

Thesis Supervisor: Nicholas A. Ashford Professor of Technology & Policy

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Acknowledgement

I would like to express my appreciation and thanks to my thesis advisor, Professor Nicholas A. Ashford of the Engineering Department at MIT, for his precious advice and support throughout the year, for encouraging me never to give up my idealisms, and for teaching me how to translate them into practical and scalable solutions.

I also wish to express my gratitude to my friends and family for their encouragement and support. Special thanks to my parents and grandparents for having sparked my interest in sustainable development during afternoon-long conversations around the family table; and for constantly encouraging me to push back the boundaries of my understanding, and aiming for the highest level of quality in my work.

I would like to finish by sharing this quote by Donella Meadows, one of the most influential system dynamists and lead author of The Limits to Growth, remarkable for her understanding of the world and human nature, and a source of perpetual inspiration.

"It is not easy to practice love, friendship, generosity, understanding, or

solidarity within a system whose rules, goals, and information streams are

geared for lesser human qualities. But we try ... Be patient with yourself

and others as you and they confront the difficulty of a changing world. Understand and empathize with inevitable resistance; there is resistance, some clinging to the ways of unsustainability, within each of us. Seek out and trust in the best human instincts in yourself and in everyone. Listen to the cynicism around you and have compassion for those who believe in it, but don't believe it yourself " (Meadows, Randers & Meadows, 2004)

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List of Tables

Table 2.1: Characteristics of the First and Second Industrial Revolutions... 21

Table 5.1: Comparison of Current and Sustainable Policy Agendas... 106

Table 5.2: Extractive vs. Generative Ownership Structure... 119

List of Figures

Figure 1.1: Global GHG Abatement Cost Curve Beyond Business as Usual, 2030 ... 13

Figure 1.2: D raw ing by Joel Pett ... 16

Figure 4.1: Nature & Impact of the Clusters' Interrelationships ... 75

Figure 4.2: Economy Productivity vs. Compensation of Workers, 1948-2013... 84

Figure 4.3: Evolution of Average Store Size (left), 1975-2005... 85

Figure 4.4: D rivers of Consum ption ... 89

Figure 4.5: Rethinking the "Triple Bottom Line"... 101

Figure 5.1: The Vision for Sustainable Development ... 105

Figure 5.2: Vision, Goals & Tools for Sustainable Development ... 108

Figure 5.3: 'Weak' vs. 'Strong' Regulation-Induced Innovation Hypothesis ... 124

Figure 5.4: Number of Underemployed Workers, United States, 2000-2014 ... 131

Figure 5.5: Nominal Hourly Earnings of Employees, USA, 2007-2014... 131

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1 Introduction

Observing our world and becoming aware of the unprecedented challenges that it faces

-noting the increasingly frequent and violent environmental, economic, social and even spiritual crises - I decided to come to MIT to learn about all the solutions (preventive and reactive) that were being designed and implemented by the current world leaders. But, there was more bad news than I had anticipated.

1.1 The challenge is BIG.

The magnitude of the different phenomenon at play is hardly intelligible. Just consider the following facts.

Economically, while the total global GDP (i.e., the world's total output of goods and services) had experienced a slowdown in the past decades to reach approximately US$63 trillion in 2010; the total value of financial assets, on the other hand, had experienced dramatic growth, tripling in the last two decades, to amount to a staggering US$600 trillion in the same year (Harris, Schwedel, & Kim, 2012). In 2010, total financial assets (i.e., legal claims against real economic activities) were nearly ten times the value of the global output of goods and services (i.e., real economic activities), and it is projected that between 2010 and 2020, a US$ 27 trillion growth in GDP will support a US$ 300 trillion increase in financial assets, at the global level (see Appendix A). This illustrates the dramatic disconnection between the financial economy and the underlying real economy. The problem here is that, as we will discuss later in more detail, a large share of this additional money is (almost) "made out of thin air", resulting from speculative financial, accounting and legal games rather than being invested or spend in actual economic activities that serve a useful social purpose.

Socially, as highlighted in the brilliant video clip titled Wealth Inequality in America (Politizane, 2012), while the top 1 percent of Americans cumulates 40 percent of all the nation's wealth', the entire bottom 80 percent shares a small 7 percent. As Nobel Prize winning economist Stiglitz explains, dramatic economic and thus social inequality undermines the efficiency of the economy, diminishes equality of opportunity, fragments society, and fosters social unrest, thereby threatening the whole future of that same society (Stiglitz J. E., 2011). While many people have long argued (and still do today) that "a rising tide will lift all boats" (i.e., what matters is the size of the economy, not how it is divided), others have righteously raised the question: "what happens if you don't have a boat?" At a global level, we should also remember the following facts: (i) the richest 300 people in the world are wealthier than the poorest 3 billion combined, (ii) every year, rich countries take over 10 times more

1 The top 1 percent of Americans brings back home almost 24 percent of the nation's income, up from

only 9 percent in 1976. Their share of income has almost tripled in the last thirty years. And, they own more than 50 percent of the country's stocks, bonds, and mutual funds; while the bottom 50 percent of Americans barely cumulates 0.5 percent of these investments, which means they are not investing. The average CEO's annual wage is now 380 times higher than that of the average employee's pay.

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money from poor countries than they give them in aid; translating in the very concrete and harsh reality of (iii) 2.5 billion people still living on less than two dollars a day (TheRulesOrg, 2013).

Environmentally, let's recall that since the 1970s, humanity has been in "ecological overshoot" with annual demand on resources exceeding what the Earth can regenerate each year (Footprint Basics - Overview, 2012). Today, our Ecological Footprint totals 1.5 planets. In other words, it takes 1.5 times our planet Earth to provide the resources we use and absorb the waste we generate. Alternatively, it takes the Earth one year and a half to regenerate what we use (and waste) in a year. And these are the results with "only" 7 billion of us on the planet, with our current level of consumption. Now taking into account that our population is forecasted to grow to 9 billion by 2050 (United Nations, 2004); and that average per capita consumption is projected to increase (for example, as people are lifted out of poverty in emerging countries), then we understand that our Ecological Footprint will likely approach 2.75 planets by the middle of the century. But, of course, we do not have 2.75 planets. Exceeding our planetary boundaries, in the way we do it today, means that we are "borrowing from the future"; irreversibly depleting the resources and damaging the biosphere, on which on which our very own lives (and those of all existing species) depend. Illustrations of these big phenomenon are the collapse of fisheries (diminishing food stocks), the reduction of forest cover (decreasing the capacity of "sinks" that absorb and neutralize anthropogenic pollution), the depletion of fresh water systems, and the build-up of carbon dioxide emissions (accelerating climate change), to name only a few. And, to be complete, we should remember that while the completion of these ecological degradations will likely occur over the long-run, they will have some dramatic human consequences in a very near term - conflicts and wars over scarce resources, mass migrations, famine, diseases, etc. Once again, these human tragedies will disproportionately affect the poor, "unable to buy their way out of the problem by getting resources from somewhere else" (World Footprint, 2013).

1.2 The challenge is COMPLEX.

"Everything is connected to everything else." The challenge is extremely difficult to solve (and this is an understatement) because it is extremely difficult to fully grasp. Most of the decision makers and leaders that (will have to) participate in designing and implementing solutions to these daunting challenges have not even been properly educated and trained to comprehensively appreciate the breadth and depth of the forces at play. (Almost) none of us have. And, as it turns out, most of our problems can in fact be traced back to that unfortunate gap in knowledge, our inability to think systemically. Donella Meadows, best known as the lead author of the 1972 book The Limits to Growth, explained in her final book, Thinking in Systems:

A Primer, that "system structure is the source of system behavior", and that "the real structure is

found in the rules of the game by which the system operates". While these principles may sound simple, properly understanding and applying them is truly an art. In his brilliant article Sustaining Sustainability: Creating a Systems Science in a Fragmented Academy and Polarized World, MIT Professor John Sterman reviews the characteristics that make complex systems, well, complex; and explains why/how these complexities are powerful barriers to understanding

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and solving the sustainability challenge. These features include: policy resistance, feedback (reinforcing or balancing), nonlinearity, tipping points, eroding goals, time delays, and stocks and flows. In the table presented in Appendix B, we present each feature, describing it in simple terms, explaining what challenges it poses to understanding and solving for sustainability; and pointing out necessary conditions and actions to overcome these challenges. Comprehensive analysis of systems is critical to spot the existence and location of "leverage points". Once leverage points have been identified, it becomes possible to design effective policies around them (e.g., increase or decrease the strength of existing reinforcing (or balancing) feedback loops, create new balancing loops, reduce time delays, shift tipping points, etc.) in order to change the "rules", the structure, and hence the behavior of the system.

The main conclusions that arise from our detailed analysis (Appendix B) is that, today, we still operate by man-made (mental) models and systems that were shaped at a time when sustainability was not a concern. By refusing to think critically and call into question these existing (thought and action) mechanisms, we are progressively locking ourselves up in an unsustainable system, destined to collapse. And, we are fooling ourselves (i) thinking that we are tackling problems, whereas most of the time we are only displacing them or delaying them; and (ii) believing that the system ultimately cannot be changed as it is vast and largely ruled by external unpredictable and uncontrollable forces. As, Sterman concludes in his paper, in order to start designing effective policies and programs aimed to achieve sustainability, we first need to integrate that "the problem is not the few who are truly uncaring. The problem is the vast mass of us mindlessly going about our everyday business, oblivious to the consequences of our actions, our behavior shaped by the systems in which we are embedded, systems we created and that only we can change. It's the belief that we are helpless, that nothing we do makes a difference, that change is not possible - a belief that alienates and discourages us but that we also find comforting because it absolves us from the responsibility to act." (Sterman, 2012). Only then will we be willing (able?) to focus on the root causes (not on the symptoms), solve for the holistic challenge (not the local, isolated concern), expand our time horizons, anticipate the 'side effects' of our solutions, get the courage to opt for "worse-before-better" solutions; and take responsibility in creating the future we truly desire for our Planet and our species.

1.3 The challenge is URGENT.

The challenge is urgent, and it is becoming more and more urgent. The main causes of this urgency - going back to the characteristics of complex systems introduced earlier - are time delays.

Time delays have intensified (and are still intensifying), day after day, the urgency of the challenge in two ways. On one hand, they delay the appearance of the negative impacts of our activities, preventing us from becoming aware of our faulty habits and taking appropriate action. Here, Sterman (2012) mentions the "wait and see" behavior and gives the example of delayed societal response to air pollution in the USA. It is because of time delays that we have only recently started to address "the sustainability challenge" in a (relatively) serious way. While

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strong environmental concerns were voiced as early as the 1960s - Rachel Carson's Silent Spring (1962) is widely associated with the birth of the environmentalist movement - it has taken decades to integrate the notion of "sustainable development" in the international agenda. And even now, sustainability is far from being universally understood and set as a priority. While successive United Nations Earth Summits (the Conferences on Environment and Development) have contributed to refine the notion of "sustainable development" and to spread the word, their outcomes have been widely criticized as being semantic, theoretical and narrowly-focused rather than action-driven and game-changing. The most recent one, the 2012 "Rio+20 Conference", was especially disappointing in this regard. No enforceable commitment on climate change was issued, no concrete action was taken; the international community missed the opportunity to rise to the 'sustainability challenge'. No matter how much and how often non-governmental and activist groups sound the alarm, as long as the highly devastating effects of our current behaviors do not impact our present lives and livelihoods (most impacts are displaced in space and/or time), we do not feel as pressed to take radical action as we should, especially if our neighbors are not doing it on their side (but this relates to "feedbacks" and "eroding goals", which we will explore in the next section).

In addition, time delays slow down the emergence or materialization of the improvements that we expect from positive shifts in our behaviors (other factors at play here are "feedbacks" and "stocks and flows", which we will also address in the next section). Due to all these complex dynamics, we often observe, in the short term, much slimmer results (if any) than what we were hoping for. Discouraged, we either cut down on our actions or change direction, thereby aborting policies that might have delivered fantastic results in the long-term. For instance, restoring the Newfoundland (Canada) cod fishery is taking much more time than anticipated. The moratorium on cod fishing was issued in the summer of 1992 as the stocks of fish were falling to zero. It was initially meant to last only two years. Today, more than twenty years later, while some recovery of the species has been observed, the current stock still only represents 10% of its pre-collapse level, the specimen are much smaller than they used to be, and the marine ecosystem has been profoundly changed (Abel, 2012). If the government levied the moratorium now, the species would still go extinct. Recovery will take time and patience (and even then, the species and the ecosystem might be changed forever). It becomes clear that taking action, drastically changing our behaviors, and opting for "worse-before-better" programs and policies, in order to generate benefits that we will not appropriate in our lifetimes, will not seem attractive to many of us. Yet, this is what needs to happen if we are to sustain the Planet for future generations.

In his book Ten Billion, Stephen Emmott, Professor and Head of Computational Science at Microsoft Research in Cambridge, UK, measures the extent of "the unprecedented planetary emergency we've created"; and reinforces the point also made by Sterman (2012) that it is no longer a matter of whether we'll reach the tipping point "where our system transitions to an unknown state", only a matter of when. And he explains throughout his book that "with the accelerating pace at which climate is changing, the answer could come much sooner than expected". To illustrate his point, he populates his pages with graphs depicting the exponential

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growth of world population, of C02 emissions, of global temperature rise, of global ocean warming, etc. and argues that "as our (population) numbers continue to grow, we continue to increase our need for far more water, far more food, far more land, far more transportation, and far more energy. As a result, we are now accelerating the rate at which we're changing our climate." Why the problem is so urgent is because any further alteration of our climate could lead us to cross that threshold or tipping point, beyond which our whole ecosystems would be unimaginably damaged, in (potentially) irreversible ways2_{. Emmott gives the example of the "2}

degrees Celsius" tipping point. The scientific community - or at least, the Intergovernmental Panel on Climate Change (IPCC) - _{agrees that global average temperature rise should be limited}

to 2 degrees Celsius. Indeed, "a rise above 2 degrees carries a significant risk of catastrophic climate change that would almost certainly lead to irreversible planetary "tipping points" caused by events such as the melting of the Greenland Ice Shelf, the release of frozen methane deposits from Arctic permafrost, or dieback of the Amazon." Unfortunately, new research has found that global climate is more sensitive to carbon dioxide than previously estimated; and thus states that global average temperatures will increase by 3'C to 5'C with a doubling of carbon dioxide by 2100 (Sherwood, Bony, & Dufresne, 2014). We are most certainly heading towards the tipping point(s) that will transition our world into an unknown state; and we are doing so at an increasingly fast rate. Yet, taking action - urgently and systemically - could help transition to that unknown state in a smoother way, one that the human species can survive.

1.4 _{We are not doing enough, REALLY NOT.}

As complex as the challenges previously enunciated are, there are solutions. Experts across fields are coming up with new solutions everyday - _{they might not miraculously solve all}

problems in one go, but they would certainly represent a good starting point. Let us take a concrete example: energy savings and emission reductions. Consider the Global GHG Abatement Cost Curve established by McKinsey (Figure 1.1). The curve is extracted from a full report that aims to measure the global CO2 abatement potential, and the costs associated with this

abatement. The key finding is that "relative to business-as-usual emissions of 66 GtCO2e in 2030, there is an abatement potential of 38 GtCO2e (that is, 58 percent) through technical measures costing below £80 per ton of carbon dioxide equivalent (tCO2e). And an additional 8 GtCO2e of abatement potential exists if more expensive technical measures as well as changes in behavior are included. [ ...] _{If all the abatement potential was fully captured across regions} and sectors, the resulting emissions development would be broadly consistent with an emissions pathway put forward by the IPCC that would see the atmospheric concentration of GHGs peak at 480 ppm and then start decreasing to stabilization levels of 440 ppm of CO2e. According to the IPCC's analysis, such a pathway would result with high likelihood in an

2 In Emmott's words, "all complex systems, such as the Earth's system are characterized by one important

feature: a very small change ("perturbation") can lead to an extraordinarily large and unpredictable impact that "tips" the system into an entirely different and unpredictable state."

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increase of the global mean temperature of just below 2 degrees Celsius above preindustrial levels." But there is even more interesting. The fact is that "increasing energy price expectations lead to more abatement technologies being net profit positive, in the 'compared to business-as-usual' cost perspective that the curve takes. The average abatement cost across all levers has fallen from + £4 per tCO2e to - _{£6 per tCO2e between 2009 and 2010. The share of net profit}

positive measures (excluding transaction costs) has increased from 29 to 35 percent in the new assessment, reducing the cost of the challenge to some extent. Another 40 percent of abatement measures costs between zero and £20 per tCO2e and the next 10 percent costs between E20 and £40 per tCO2e. Only 15 percent of the abatement potential comes at a cost of between £40 and £80 per tCO2e." (Enkvist, Dinkel, & Lin, 2010). In other words, we could abate at least 13 GtCO2e (highlighted on the figure) at no cost. In fact, we would even be generating a profit by

doing so. So what is holding us back?

V2.1 Global GHG abatement cost curve beyond BAU - 2030

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Note. The curve presents an estimate of the _was_pursued_{aggressively.} maximum potential of all technical GHG abatement measures below (80 per ICO2e if each lever tt is not a forecast of what role different abatement measures and technologies will play.

Source: Global GHG Abiatement Cost Curve v21I

Figure 1.1: Global GAftG Abatement Cost Cirve Beyontd Business as Usual - 2030

(En kist, Dinkel, & Lin, 2010)

In order to achieve sustainable development, change has to take place systematically at technical, organizational, institutional and societal levels; and actors have to not only be willing and have the opportunity to change; they must also have the capacity to change (Ashford N. A., 2011). As we will explore in detail later on, there are multiple challenges in each of these dimensions.

Challenges to willingness mainly result from existing mental models, which shape our habits of thought and action. These mental models set constraints on our ability to be

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open-minded, to question commonly-accepted assumptions, and to expand the boundaries of our vision and thinking. Consequently, we tend to design solutions, limited both in time and scope, which create unanticipated problems in other areas and/or at a much later time. A necessary first step in overcoming that challenge is to become aware of our mental models. 'Knowing that we know nothing' (to paraphrase Socrates) would at least enable us to become more humble, innovative and creative in our thinking. We should precise however that there seem to be different kinds of mental models to consider. Some are inherently 'human' such as the fear of the unknown and the resistance to change. Others are shaped by socio-economic and cultural contexts. The addiction to "Growth" is an example of a mental model inherited from the Industrial Revolution. The mental model that provides the ground for the 'tragedy of the commons' could also pertain to that second category. Indeed it results from a lack of clear ownership of (and thus responsibility for) these commons; which is in turn defined by opposition to the ownership of everything that is not a common. Since private property and ownership are socio-economic and cultural constructs; the 'tragedy of the commons' can also be considered a socio-economic and cultural phenomenon. Why does this distinction matter? It matters for one good reason, which is that models and structures that have been created by humans, can also be changed and transformed by humans. So, while evolving our mental models (in particular, our addiction to growth and the tragedy of the commons) can seem a daunting task, as they are so deeply rooted in us and in our society; realizing that they are only human constructs should constitute a significant point of hope regarding their capacity to be changed.

A major challenge to creating the opportunities to change is the existing incentive structure. In part 5, we will review existing tax and subsidies; and evidence how they are playing against the sustainable development. We will also propose modifications and alternatives in order to re-align the incentive structure with the bigger objective of promoting a society that meets the basic needs of its citizens and that provides meaningful and rewarding employment to its active population, while preserving its ecosystem. Another main challenge, that impedes both 'opportunity' and 'capacity' to change, is the "siloed" architecture and operation of our existing systems. The lack of systemic thinking and action is prevented not only by our mental models, but by existing infrastructures that maintain us in isolation. Even if an actor saw 'the bigger picture' and was willing to change his behavior accordingly to achieve more sustainable development; doing so might weaken him ('play against him') in a system where all the other actors involved would "cheat", that is, act in their own interests rather than in the systems' interests. As predicted by game theory and the prisoner's dilemma, even though some players in the system may be willing to change, they might not get the opportunity (or have the capacity) to do so, because they are isolated in a system of more powerful actors who will use their decisions against them. Consider, for example, the government of a developed country that is willing to implement sustainable development policies (e.g., under the employment topic, raising the minimum wage, guaranteeing more social benefits for workers, reducing work time, etc.). This government might not get the opportunity to act as it intends. This is because it belongs to a bigger system, the international community. If all players in that community (the system)

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automatically responded to that actor's move, and raised their labor practices up to that country's standards; then the system as a whole would be better off (each actor's own level of competitiveness would be unchanged, but the workers across the globe would benefit from better working conditions). However, if the players in the community "cheat", i.e., they do not raise their standards and regulations, then that one well-intended country will be at a significant disadvantage. Even its own companies will probably relocate their activities to countries where labor is cheaper and regulations are less stringent. It will lose activity and employment within its own territory. This will in turn, hinder its competitiveness and its ability to meet the basic needs of its citizens, etc. The failure of the 2009 Copenhagen Climate Change Conference is a very concrete example of such mechanisms.

Finally, some challenges to "capacity" include limited education and training, and existing infrastructures (as mentioned above). All of these result in a lack of ability to see, think and act systemically, and anticipate rebound effects. Developing the capacity to change (or lack thereof) is probably the single-most important condition in rising up to the 'sustainability challenge'. Take for example an actor in the system who is willing and has the opportunity to change (e.g., by transitioning to more sustainable products, processes, practices, etc.). Unfortunately, these good intentions and attractive opportunities do not make a difference if the actor considered does not have the capacity to change. Questioning the ability of incumbent entities (e.g., large existing firms or government agencies) to lead the sustainable development agenda then becomes relevant. Wouldn't these actors, given their deep anchorage in ('industrial') value and operation systems, only be able to accomplish incremental transformations, instead of the radical shifts required by sustainable development? How can incumbent entities that have a "financial" instead of a "living purpose" (Kelly, 2012) at their core, change to become sustainable? We will explore these questions in more detail in part 4.

Due to all these constraints resulting in limited (or even absent) willingness, opportunity and capacity to change, we tend to make excuses for ourselves and shift the burden of responsibility for maintaining our unsustainable state, to external forces. One of the most dramatic example of such behavior is "climate change skepticism". Today, there are still many individuals who argue that the anthropogenic contribution to climate change is exaggerated; that what we are observing are only 'normal' planetary climate cycles; and that we should wait for residual scientific uncertainties in climate change predictions to be removed before we start taking action "for nothing". Figure 1.2 depicts that cynicism with humor. These tendencies to 'shift the burden' and avoid responsibility (1) it further delay much needed action, and (2) reduce the scope and lower the ambitions of any such action. That explains why, even considering the urgency of the challenge we face, we are not doing enough. And, with the dynamics of stocks and flows and time delays in mind, we understand how these attitudes have the potential to seriously and irreversibly compromise our ability to transition smoothly to a sustainable system.

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and keynote speaker at the Navigating the American Carbon World 2012 conference

1.5 But ... there are some good news!

While the challenge we face today - _{if we want to achieve a sustainable development, one in}

which humanity prospers without consuming more than the one planet that we have - is massive, complex and urgent; there are some good news to be told. First, as mentioned earlier, the "systems" (of values, beliefs, mental models, behaviors, relationships and influences) that led to our unsustainable state were created by humans. As humans, we thus have the power to change them. Second, while they may not be familiar to the public yet, many very practical and sensible solutions have been and are being designed by top-notch experts, masters in the art of systemic thinking (Meadows 1991, Hawken 1997, Sampford 2008, Costanza 2008, Jackson 2009, Ashford 2011, to name only a few). The policy packages they propose ambition to co-optimize the different economic, environmental and societal dimensions of sustainable development; and thus paint a desirable vision of a sustainable world. We will then have to work our way backwards (or 'backcast') to build the roadmap that will lead us to that desirable state. With greater political will, these visions and action plans could be implemented at scale. And, while they might not all yield perfect results from the beginning, they would at least initiate the change process; and provide a starting point that could be improved until a satisfactory solution is reached. The third good news is that actually, some clusters of consciousness and action were able to emerge even without large political involvement and support. Jackson (2009), Edwards (2010), and Kelly (2012) share the stories of multiple bottom-up initiatives. Alternatives to the mainstream system that have emerged from the ground, at the community

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level, proposing more sustainable structures of ownership, production and consumption. While we may not be aware of it, there are already many initiatives out there that are redefining what it means to collectively "live inside a living being" (Kelly, 2012). Examples of such initiatives include microfinance, employee-owned companies, social enterprises, community development financial institutions (CFDIs), and others. Currently isolated, these initiatives are increasingly coming together to unite forces and pave the way towards an inspiring society, more respectful of the people and the environment. Last but not least, we strongly believe in humanity. If models of a "generative economy" become increasingly widespread and desirable; if we thus manage to create an inspiring and collective vision of a world in which "sustainability, community, sufficiency, and fairness" prevail, then humanity will let go of its unsustainable habits, and move in the direction of that ideal. We have to focus on what we want to achieve, rather than on what we seek to avoid. Together, universally inspired by the ideals of liberty, justice and equality, humans have the power to create a new order, "one that enables an enduring

human presence on a flourishing earth" (Kelly, 2012).

1.6 Outline of the Thesis

Expanding on the multiple questions and tensions that we have introduced here, the aim of this thesis is to examine the underlying structure of our system, especially looking at the rationales and incentives that motivate the different actors of our system, namely the for-profit private sector, the government, the civil society and (unorganized) individuals, in order to understand the origins of its behavior, and identify what could change and how in order to create a more sustainable future. Part 2 will focus on the origins of our system's structure and mechanisms and present its limits (Where are we today? How and why did we get here?). Part 3 will aim to create a desirable vision for a sustainable future, emphasizing the importance and the power of the envisioning process within the context of a deep and broad change management undertaking (Where do we want to go?). Part 4 will provide an in-depth examination of the motivations and behaviors of the different actors that make up the system, as well as some insights relative to what motivations (structures) should be in place in order to create the behaviors (patterns) required for sustainable development (What should change in order to get there?). Finally, having produced a vision of the system we want to create, and having a better understanding of how the current system works and where its potential pressure points can be found, Part 5 will discuss possible drivers of change, i.e., "implementation paths" (How do we make those changes? How do we get there?). We will end Part 5 describing some 'critical success factors', i.e., distinguishing between sufficient and necessary conditions to enable the success of the aforementioned "implementation paths," before we conclude our Part 6.

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2 The Need for a Systemic Shift

Where are we today? How and why did we get there? And, what does that suggest in terms of our ability to move forward? While the end goal of this thesis is to paint the image of a desirable sustainable future for our species and our planet, and propose concrete measures that will contribute to achieve that vision; we first need to examine the current state that our species and planet are in; as well as understand how they got there. Indeed, to design appropriate and efficient solutions to any given problem, one must first understand what the problem and its root causes actually are. For chronological simplicity however, we will proceed deductively, from causes to consequences. That is, we will provide a quick overview of the evolution of our World since the late 18th century - paying attention not only to historic and economic developments, but

also focusing on worldviews and mental models. We will observe that the (decision) models and assumptions that were successful in the context of the successive Industrial Revolutions, still prevail today; but are now working against us, 'locking us' in an unsustainable industrial state in which humanity and the Planet can no longer prosper. We will finally describe the different dimensions of that 'unsustainability'. Recognizing the existence of these multiple limits to growth will unequivocally pose the need for a deep systemic change of our existing order in order to transition to a more sustainable mode of development.

2.1 The Legacy of the Industrial Revolutions

The First Industrial Revolution (late 18th century), the Second Industrial Revolution (late

1 9th century) and the Green Revolution (mid-20th century) radically transformed our economy, society and environment in just two hundred years. Industrialization of every sector of the economy - the Green Revolution consisting in the industrialization of the food system - radically changed every single aspect of daily life: transportation, work, education, communication, health, etc. While it is clear that the successive revolutions carried many benefits, with technological and economic progress "raising the living standards of masses of ordinary people" (Lucas, 2002); they have come at a cost that we are only starting to fully measure now. From the establishment of extractive economic structures and the supremacy of finance, to the capture of political institutions, their success required and enabled the rise of models and systems that are now showing their most perverse effects, highly threatening the very ability of our specie to thrive (and survive) on Earth.

Note that this thesis does not aim to deep-dive into the many rather theoretical and semantic debates surrounding the First and Second Industrial Revolutions. Instead, we will focus on the main forces that initially drove the Industrial Revolutions (essentially, the ability to extract, distribute and use cheap energy3_{); and those that later resulted from them. The point is}

3 Ayres, van den Bergh, Lindenberger & Warr (2013) argue that while standard economic theory regards

capital and labor as the main factors of production, a third factor, namely energy, is actually a much more important factor of production than its small cost share may indicate. And continued economic growth

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really to evidence that the same forces that supported and constituted the strengths and 'benefits' of the Industrial Revolutions, once passed a tipping point, turned into weaknesses and 'costs', progressively leading to the demise of the system they helped establish. Below is our attempt to provide a very high level picture of these different dynamics (Figure 2.1). The diagram also presents the different limits of 'the system': ecological, social, economic and spiritual; which we will discuss later on.

Figure 2.1: high-level picture of the dynamics that gave rise to and resulted from the successive industrial revolutions

Ecological Ieio-ogica _New_Enery

imit- InSovation rces

Depetion of] Resmurcs

aaI SO~New _{Enery-Technogy}

& sinks - p tlotnn

/ _{J] cfAici}

I

ustiirt _IPrductionFitom] _{IDistributedl}Fater. _DisgrlbutdFT i~

ovme L sIeIy1 ioy1ueNaJ

s in Healtht 0)dS I

Iaeae Large-ae

Pfoduction

IreasingK E-qwrgence Capital C uMption Factories Requiireents

Mas Rle Th ef of Private

Spiritual Mreadth = E t F ry I I Limit Happine&s ) =- LM\ Inequality ---- w- -r Incntve _K _odgej Bame

along the historical trend cannot safely be assumed notably in view of considerably higher energy prices in the future due to peak oil and climate policy.

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2.1.1 Unprecedented Development

First, let us focus on the emergence and expansion of the Industrial Revolutions, the forces that supported them and the benefits they generated. In Rifkin's words, "the great economic revolutions in history occur when new communication technologies converge with new energy systems" (Rifkin, 2011). On our diagram (Figure 2.1), we specify "energy-technology paradigm" to make the phrase "energy system" more explicit; we are not talking only about new energy sources but rather about our ability to exploit energy sources in radically novel ways.

The successive Industrial Revolutions produced radically new socio-economic and cultural structures, based on new energy and communication systems. The First Industrial Revolution (1760-1820/1840) was marked by the invention of the steam engine and the shift to coal as principal source of energy, and by the increasing penetration of machines in the workplace. Textile, iron and coal productions, the main symbols of the First Industrial Revolution, surged thanks to the transition from hand production methods to machines. Capital productivity increased tremendously and production costs decreased in proportion. Consider, for example, the invention of the "spinning jenny" which transformed the textile industry. This new spinning machine, by Englishman James Hargreaves, allowed process eight threads at once, thereby increasing the speed of cloth production by a factor of eight. Similar inventions and gains in productivity were observed across industries and sectors. Output increased dramatically. Prices decreased dramatically. More and more consumers were thus able to access more goods at cheaper prices, thereby meeting their basic needs, and increasing their standards of living.

In the printing industry, the industrialization of thesis mills and the 'upgrading' of printing presses with steam-powered engines, allowed mass printing to become the emblematic mode of communication of the era. "Print material, in the form of newspapers, magazines, and books, proliferated in American and Europe, and encouraged mass literacy for the first time in history." (Rifkin, 2011). Technological and ideological information spread; and, with the advent of public schooling, created a "print-literate workforce to organize the complex operations of the coal-powered, steam-driven rail and factory economy" (Rifkin, 2011). More minds were put at work to sustain and evolve the Industrial Revolution4.

Rapidly, as the potential of new sources of energy was being uncovered, the Second Industrial Revolution (1840/60-1914) succeeded the First one. The births of the Internal Combustion Engine and Electrification radically changed the face of the world. It was the beginning of the railroad industry. From now on, human activity would expand (endlessly?),

broader and faster; the world would become centralized, organized and connected. The chemical, petroleum, and automobile industries are other important symbols of this "Machine Age". On the communications side, the telegraph, the telephone and the radio benefited from the massive laying out of rail tracks for their own expansion. They revolutionized cultural norms because of

4 The spread of ideas and the expansion of the knowledge base played a key role in overcoming resistance

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the novel way in which they re-casted social life; and they created "a communication grid to manage and market the far-flung activities of the oil economy and auto age" (Rifkin, 2011). They supported companies in the deployment and expansion of their domestic and international operations. And, they also allowed them to do so at an increasingly fast pace.

Technologies - in every domain - _{penetrated the factories, gradually evolving them into} automatized plants of mass production. This of course (i) expanded the wealth of capital-owners, who were in possession of the means of production, (ii) further increased output and decreased prices of goods, enabling a large part of the population to increase its level of consumption and standards of living; and (iii) changed the nature of work, with a massive transition from 'blue collar' to 'white collar' work. Workers went from making goods by hand, to operating machines, to supervising operations, and "supporting the business". Reforms in the public education system were made to satisfy that shift in labor demand. As such, entire classes of students were formed to join this new 'white collar' workforce and enter the 'middle class'.

First Industrial Revolution Second Industrial Revolution

Period 18 th century I 9th century

Energy Coal & Steam Electricity & Oil

Economy Factory-Production Mass-Production

Transportation Rail _Automobile

Communication (Mass) Print _{Telephone, then Radio & Television}

Employment _{Secondary Sector} _{Third Sector}

Factories MNCs

Cultural Shifts The Rise of Factory Work _{The Machine Age: Replacing Labor}

with Energy, Physical and Financial

Capital

Power Vertical, Hierarchical

Education _{Public school, turning out a mass of docile and productive workers*}

*being productive became the defining characteristic of human behavior itself.

Values * Ego-system

e Discipline and hard work e Top-down flow of authority

* Importance of financial capital (material accumulation as a proxy for well-being) a Workings of the marketplace

* Private property relations

Table 2.1: Characteristics of the First and Second Industrial Revolutions, as understood from Rifkin (2011)

With living standards rising, and health conditions and food supply improving (due to better sanitation; and transportation and mechanization, which lowered food costs), population started increasing. In fact, it increased dramatically over the entire period. Global population grew from approximately one billion in 1800 to two billion in 1930 (Emmott, 2013). And just as the food supply was becoming the main limiting factor to further population growth, the Green Revolution (1940s-late 1960s) kicked in, increasing agricultural production worldwide, and particularly in the developing world; thereby saving billions of people from starvation.

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Population growth was back on track to hit three billion in 1960, four billion in 1980, five billion in 1990, growing exponentially to more than 7.2 billion today [see Figure 2.1.1]. The green revolution produced much more food, but also much cheaper food; meaning that now individuals had much more discretionary income to meet other basic (and not so basic) needs.

In short, the successive industrial revolutions constituted a fabulous demonstration of human ingenuity and industriousness, radically transforming each and every aspect of daily life; and creating the conditions for phenomenal increases in population and in living standards. Yet, as we will now examine, "the fruits of industrial commerce" were not equally distributed, not even broadly shared, among the population.

7 6 U, 5 C f4 1 0 10,000 BC 8000 6000 4000 2000 AD 1 1000 2000

Figure 2.2: Evolution of World Population (10,000BC-2,000AID) (Ennott, 2013)

2.1.2 Centralization of Power & Wealth

Another legacy of the Industrial Revolutions is the gigantism and centralization of operations, wealth and power. We mentioned earlier that, starting with the First Industrial Revolution, the shift to machine production profoundly affected social structures. The high capital costs of machines and plants meant that production became centralized; as centralization followed from the pre-existing concentration of available capital in certain (urban) areas, and was key in realizing sufficient synergies and operational efficiencies (economies of scale) to ensure profitability of the activity. But centralization really became the feature of the Second

Industrial Revolution, as the energy regime now exclusively relied on oil, coal and natural gas.

These "elite" fossil fuels, as Rifkin calls them, could only be found in select places. And, "they required a significant military investment to secure their access and continual geopolitical management to assure their availability". "They also required centralized, top-down command

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end users." The ability to concentrate capital became critical to the effective performance of the system as a whole. And as "energy regimes shape the nature of civilizations", "the centralized energy infrastructure, in turn, set the conditions for the rest of the economy, encouraging similar business models across every sector." Modern finance, automotive, power and utilities, telecommunications, commercial construction, etc. all became centralized and saw the emergence of a few, very powerful actors. Rockefeller's Standard Oil Company of Pennsylvania held a monopoly (in 1879, 90 percent of the refining operations in the United States (Anderson, 1984)) until it was broken up by the US Supreme Court in 1911. In a similar way, the Pennsylvania Steel Works Company (metallurgy), the Pennsylvania Railroad (railroads), GM, Ford and Chrysler (automobile), Western Union and AT&T (telegraph and telephone), etc. all dominated - quasi-monopolistically - and shaped their respective industries. Yet, even with the dismantling of several monopolies, central, gigantic business operations - because of their unique ability to realize "vertical economies of scale" - had become the norm. Consider for example that, in the 1930s, twenty-six oil companies owned two-thirds of the capital structure of the industry, 60 percent of the drilling, 90 percent of the pipelines, 70 percent of the refining operations, and 80 percent of the marketing (Anderson, 1984).

The capital outlays requested by the operations of the Second Industrial Revolution (fossil fuels extraction and refining, railroad transportation, road building, telegraph and telephone lines deployment, etc.) far exceeded those of the First Industrial Revolution (set up of textile mills, construction of steam-powered ships, etc.). These massive enterprises could no longer be financed by (even the wealthiest) single individuals; funds had to be raised externally "and even from faraway sources". Modern finance - with the partition of ownership, the establishment of stock markets, increasingly large and volatile flows of debits and credits, etc.

-was born. Business historian Alfred Chandler (1977) observes that, over the period, "the need for large amounts of concentrated capital catapulted the tiny provincial New York Stock Exchange into a behemoth, and made Wall Street the epicenter of modern capitalism." Progressively, ownership became separated from management; and "a new genre of professional administrators took the helm of these giant new enterprises, while ownership was diffused to the far corners of the Earth." (Rifkin, 2011).

New stockholders, the legal owners of these massive companies, were not involved in strategic business decision and disconnected from day-to-day business operations. They measured their success - and thus that of the company and its administrators - by their (financial) return on investment. This disconnection between ownership and management thus led to a radical re-conception of the manager' role, performance evaluation and rewarding scheme. The company owners set up incentive structures that would motivate managers to take decisions that would maximize their own financial returns. This tendency, along with the

development of classical economics, initiated the era of numbers and metrics.

"Rationalization", "productivity", and "efficiency" became the guiding principles of the period (and still occupy the front-stage today). Everything became measurable and measured. Labor and (natural) resources were progressively turned into dollar figures, to be compared on