July 1 is big date for Shanghai: the waste separation law comes into force. One of the organizations which has done a lot of educational work during the past years to reduce waste is Zerowaste Shanghai. Their latest blog entry explains everything you need to know about the new law and asks a few questions beyond it. Green Initiatives, another opinion leading environmentalist organization has made the law the subject of its July Green Drinks Forum. While I see rubbish bins in different colors distributed to large compounds and single households, everybody seems to be talking about this new law - and rightly so.
 
Coming back from Europe only a few days ago, where I showed to our son a modern recycling center in my home town, I have some additional thoughts to share which I have structured in a SWOT analysis, which – nota bene – looks at Shanghai and China at large as an organization with internal strengths and weaknesses and external opportunities and threats.

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Back home everything seems to go well. Waste is being separated since about 40 years and recycling has become a habit for most people. It is necessary that such habits are instilled in citizens of emerging economies such as China, but large populations and population density change the dimension of the problem significantly and ask for different and faster solutions.
 
Al Bartlett, a professor emeritus of physics, is the first address to explain why. His somewhat arrogant summary of the problem: "The greatest shortcoming of the human race is our inability to understand the exponential function." We deal with two exponential functions at the same time: the first is related to the global population explosion, the second to technological development.
 

When I was born in 1976 the world population counted around four billion people, i.e. roughly half of todays eight billion. Back in the 1970s hardly any manufacturing facilities were as highly automated as most are today. These two observations compose a formula for dangerous results: faster and more efficient production for more and more consumers.
 
Pixar’s science fiction animation Wall-E has already back in 2008 anticipated the consequences: a deserted waste planet and a tiny (and obese) left over population on a large starship. Entrepreneur Elon Musk doesn’t like science fiction. He wants to prepare for the worst case scenario and builds with SpaceX rockets which shall populate Mars in case we mess up our only home, mother earth.
 
Shanghai’s waste management law comes therefore at a critical moment and it has the potential to catalyze significant global changes. One reason is that Shanghai is China’s dragon head. Whatever gets implemented here, might very likely come as a law for the entire country – and its easy to see from above graph that a success in China’s waste management will be a success for the entire world: China’s population makes up about 1/5 of the total. But think of Shanghai only: roughly 30 million people, that’s approximately the population of countries like Peru, Nepal, Angola or Australia, will get within a few months a completely changed recycling system.
 
Another strength of this law lies in China’s top down bureaucracy which has a solid track record of successfully coercing its subjects within a short time to unsurmountable tasks. Clear fines for both individuals and companies will be swiftly and most likely without pardon executed by respective public authorities. Shanghai has seen similar measures during the last few years in regard to traffic management, and we know that central leadership wants to emulate Singapore. From such a perspective, there is the possibility that the city if not the entire country turn into a gigantic carbon copy of Japan: spotless tidy and hyper modern.
 
While these arguments make the law promising, there are weaknesses and even threats – some of them more, some less obvious - which need to be discussed.
 
It has already been mentioned by several observers that the law will destroy the organically grown informal recycling system. One can question if this informal waste sorting mechanism was really as efficient as described, but it provided a large migrant worker group an additional if not main income. Thinking of some measures which have been implemented during the last three years in Chinese first tier cities, one of the driving motives could be making city life impossible for citizens without Shanghai household registry by depriving them of their source of income. More important though, we need to ask if the new waste management system will be better than the one which is in place.
 
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Philosophers ask law makers why they promulgate laws. They call this discipline teleology: the explanation of phenomena in terms of the purpose they serve rather than of the cause by which they arise. Now, Chinese law makers will answer in regard to the waste management law that it had to be promulgated because of rising waste volumes, and it’s purpose is better waste management. So far so good.
 
The philosopher tends to go a step further in his inquiry and will ask why there is a rise in waste and why there is waste in the first place. Law makers will quickly – but reluctantly – arrive at the conclusion that the increase of overall consumption is the cause of increased waste and need to acknowledge that the law does ignore why we consume.
 
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Economists like Valentino Piana from the Economics Webinstitute define consumption as the value of goods and services bought by people. Individual buying acts are aggregated over time and space and constitute collectively the consumption of economies. Consumption is normally the largest GDP component and many judge the economic performance of their country mainly in terms of consumption level and dynamics.
Consumption may be categorized according to the durability of the purchased objects or according to the needs its satisfies. Durable goods (as cars and television sets) are different from non-durable goods (as food) and from services (as restaurant expenditure). These three categories often show different paths of growth. Another commonly used classification identifies ten needs of expenditure:
1. Food
2. Clothing and foot wear
3. Housing
4. Heating and energy
5. Health
6. Transport
7. House furniture and appliances
8. Communication
9. Culture and schooling
10. Entertainment
 
Now, this might sound awkward to you, but from an economist’s perspective more people consuming more health services and medication are good news. The same is true for education: the more parents invest in cram school, the better for the economy. And of course also for the entertainment industry: the more frustrated kids play computer games, the better for the economy. And yes, its also true for food, fashion and cosmetics: the more bags Kitty buys, the fancier the restaurants Cherry dines in, and the more expensive the skin whitener April puts on, the better for the economy.
 
So, now let’s think of how to dispose of all this stimulating and job-creating consumption.
 
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Another maybe not so obvious weakness of the law is the lack of penalizing wasteful production. China’s short but intensive experience with the sharing economy showed through football field large piles of disposed rental bikes that the government does not interfere with the market as long as it produces growth and investment. Other legislation don’t fare much better, but China is due to its size in a special position and its government has a significant responsibility. If it does not move into the right direction in due time, it will wreak havoc upon the planet.
 
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Ever since law school I have this probably strange idea that the purpose of laws must be increased well-being and that law makers need to inquire deeply or call upon expert assistance to understand psychosocial dynamics which result in more or less thereof. I contend that this law will not fare well under such an examination.
 
While we need to implement better waste management not only in China, but also in other parts of the emerging world, we need to ask ourselves simultaneously why we increase consumption and why we generate more and more waste. The documentary The Economics of Happiness provides a straight forward answer: Consumer markets and national entities destroy small and local communities. Increased consumption is therefore the result of a psychological compensation mechanism which has its root in less social interaction.
 
While above categorization of consumption talks of needs, we must acknowledge that much of what we consume does not satisfy a need but a want which has been instilled by an anonymous consumer society and a mighty advertisement industry. The advertisement industry on the other hand follows the orders of its corporate clients and those are sprockets in the large machinery of state capitalism – a form of governance which requires GDP growth in order to guarantee social stability, i.e. domestic peace.
 
If we think about the teleology of the waste management law in depth, we must arrive thus at the conclusion that despite its appearance, it is not an environmental but an economic law which intends to bring order into consumption and resulting waste generation with the far end of making more consumption and thus GDP growth possible for an economy which perceives itself separate from the rest of the world.  
 
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It might be surprising, but this Chinese policy is completely in line with the UN sustainability goals and reverberates the legislation of most industrialized nations. There is the opportunity that those who have been ignorant to the negative consequences of infinite consumption and material growth will wake up when China starts to thread the same path many small economies have been threading before her.
 
Jason Hickel commented on the flawed UN sustainability goals in an outstanding 2015 article: All of this reflects an emerging awareness of the fact that something about our economic system has gone terribly awry – that the mandatory pursuit of endless industrial growth is chewing through our living planet, producing poverty at a rapid rate, and threatening the basis of our existence.
 
Yet, despite this growing realization, the core of the SDG program for development and poverty reduction relies precisely on the old model of industrial growth — ever-increasing levels of extraction, production, and consumption. And not just a little bit of growth: they want at least 7 percent annual GDP growth in least developed countries and higher levels of economic productivity across the board. In fact, an entire goal, Goal 8, is devoted to growth, specifically export-oriented growth, in keeping with existing neoliberal models.
 
This is the mortal flaw at the heart of the SDGs. How can they be calling for both less and more at the same time? True, Goal 8 is peppered with progressive-sounding qualifications: the growth should be inclusive, should promote full employment and decent work, and we should endeavor to decouple growth from environmental degradation. But these qualifications are vague, and the real message that shines through is that GDP growth is all that ultimately matters.

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Historian Yuval Harari explains in his book Homo Deus eloquently why economic growth – and thus more consumption – is all that matters and why it has become for all governments, not only the Chinese, the solution to all problems: it has turned into a religion in which we blindly trust.
 
Modernity has turned ‘more stuff’ into a panacea. […] Economic growth has thus become the crucial juncture where almost all modern religions, ideologies and movements meet. The Soviet Union, with its megalomaniac Five Year Plans, was as obsessed with growth as the most cut-throat American robber baron. Just as Christians and Muslim both believed in heaven, and disagreed only about how to get there, so during the Cold War both capitalists and communists believed in creating heaven on earth through economic growth, and wrangled only about the exact method.
 
Today Hindu revivalists, pious Muslims, Japanese nationalists and Chinese communists may declare their adherence to very different values and goals, but they have all come to believe that economic growth is the key for realizing their disparate goals.
 
Japan’s prime minister, the nationalist Shinzo Abe, came to office in 2012 pledging to jolt the Japanese economy out of two decades of stagnation. His aggressive and somewhat unusual measures to achieve this have been nicknamed Abenomics. Meanwhile in neighboring China the Communist Party still pays lip service to traditional Marxist-Leninist ideals, but in practice it is guided by Deng Xiaoping’s famous maxims that ‘development is the only hard truth’ and that ‘it doesn’t matter if a cat is black or white, so long as it catches mice’. Which means in plain language: do anything it takes to promote economic growth, even if Marx and Lenin wouldn’t have been happy with it. In Singapore, as befits that no-nonsense city state, they followed this line of thinking even further, and pegged ministerial salaries to the national GDP. When the Singaporean economy grows, ministers get a raise, as if that is what their job is all about.
 
That Modi, Erdogan, Abe and Xi Jinping all bet their careers on economic growth testifies to the almost religious status growth has managed to acquire throughout the world. Indeed, it may not be wrong to call the belief in economic growth a religion, because it now purports to solve many if not most of our ethical dilemmas. Since economic growth is allegedly the source of all good things, it encourages people to bury their ethical disagreements and adopt whichever course of action maximizes long term growth. […] The credo of ‘more stuff’ accordingly urges individuals, firms and governments to discount anything that might hamper economic growth, such as preserving social equality, ensuring ecological harmony or honoring your parents. […] Yet is economic growth more important than family bonds? By daring to make such ethical judgments, free-market capitalism has crossed the border from the land of science to that of religion.
 
Most capitalists probably dislike that title of religion, but as religions go, capitalism can at least hold its head high. Unlike other religions that promise us a pie in the sky, capitalism promises miracles here on earth – and sometimes even provides them. Much of the credit for overcoming famine and plague belongs to the ardent capitalist faith in growth. Capitalism even deserves some kudos for reducing human violence and increasing tolerance and cooperation […] by encouraging people to stop viewing the economy as a zero-sum game, in which your profit is my loss, and instead see a win-win situation, in which your profit is also my profit.
 
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Capitalism as a religion is the product of a the age of nationalism and system blindness, one which puts the well-being of a small group of people over the well-being of a superorganism which encompasses this planet and all its creatures. China’s waste management law might well be a catalyst in bringing this awareness to more people, because it will become soon apparent that better organized waste disposal will not prevent life-stock epidemics like the African swine fever from eruption; it will not prevent the exploitation of oceans and the collapse of fish species; it will not stop the destruction of rain forests in favor of monocrop agriculture. No, it will speed up these developments and continue to waste natural resources.  
 
The German-British economist E. F. Schumacher put this idea into unmatched clarity: The illusion of unlimited powers, nourished by astonishing scientific and technological achievements, has produced the concurrent illusion of having solved the problem of production. The latter illusion is based on the failure to distinguish between income and capital where this distinction matters most. Every economist and businessman is familiar with the distinction, and applies it conscientiously and with considerable subtlety to all economic affairs – except where it really matters: namely, the irreplaceable capital which man has not made, but simply found, and without which he can do nothing.”
 
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Bill Mollison the founder of permaculture once said that he withdrew from society in the 1970s because he had been long in opposition to the systems that he saw were killing us. He decided it was no good to persists with opposition which gets you nowhere. He thought for two years and wanted to return to society, but only if he could come back with something very positive.
 
He did return and he brought back something very positive: permaculture. It is not like many believe, a model of farming, but much more an attitude of managing natural resources. Mollison adapted principles from various indigenous cultures and merged them into a new body of knowledge for modern humanity. Apart from a deep understanding how we have to treat the planet and ourselves, his most profound insight remains that we have to shift from consumption to production.
 
Continued focus on GDP growth will not only destroy the planet but most certainly result in more mental health issues and a future which will oscillate between 1984 and Brave New World: a population of consumers who satisfy their state ordained superficial wants and subdues their most authentic needs.   
 
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James Chao, Managing Director of IHS Automotive Asia, an industry analyst, speaks on Nov 29th in a rather intimate SFCC setting on Tesla in China: Hype or Reality? We learn that Tesla Model S sales have dropped in Beijing by 50% in Q3 2017 and James tells us that these numbers are really concerning. Bloomberg’s Allen Wan adds fuel to these numbers: Tesla burns so much money every day producing vehicles at a loss that its financial resources will be depleted by August 2018. Will this company survive?
 
Opinions seem to diverge significantly, even at IHS, where some are convinced that Musk has a bigger plan, while others believe that Tesla needs to be turned into a profitable company in order to proof Musk’s overall vision. James seems to belong to the later fraction predicting that the combustion engine will be longer around than many believe. He tells us that the most spectacular but also most overseen new car is the Toyota Camry 2018, which increases in a refined standard 4-cylinder combustion engine fuel efficiency by 15%, without adding significant costs to the development of new technology; apart from, he adds, investment in engineering.
 
This argument alone confirms that somebody with a history degree, even if is a Harvard one, should not talk too much about the future of technology; in particular if the truly pressing question to be asked it this: Will EV solve the problem of transportation’s contribution to climate change? It was interesting to note that not even one event participant asked about the environmental impact of EVs, but questions rather focused on battery technology in general and if China’s government policies will harvest the promised great leap forward and turn corporations like BYD indeed into cutting edge new energy industry leaders.

In my modest opinion, there are a few issues in this ecosystem which keep to be overlooked by people who only focus on specific questions like battery technology, fuel efficiency, autonomous driving or innovation cycles. If we try to understand the big picture in the transportation industry and want to have answers about the future of Tesla or the future of EVs in China, we have to apply large scale systems theory in terms of technology, social organization and natural resources.

Technology
 
What are the core technologies in the EV industry? Batteries? Powertrain? IoT? Companies like techmeter or datenna have built an entire business around CTOs who want answers to this question and rather look into what the competition is doing than follow their own vision; I assume that Elon Musk is not their customer, because his vision is one of distributed power generation and consumption which turns end customers into independent entities which still are part of one large energy network. The car is in Musk’s vision merely an electricity consumer like a dishwasher or iron, and he certainly does not think along the lines of killer apps or core technologies, but has contemplated large scale problems which require a solution. Technologies are just means to an end.
 
What is then the central innovation at Tesla? It is not related to single technologies like battery, powertrain nor IoT. It is the conception of individual transport being an integral part of an energy revolution which is based on small, decentralized, photovoltaics power stations which are part of a regular family home. The energy of the sun is harvested by the consumer through solar panels and either used directly for charging a car and operating other appliances or stored in a batteries or hydrogen tanks which provide night and winter season supply. Tesla tries to solve the problem of fossil fueled individual transportation by providing renewable energy fuel vehicles.    

Social Organization
 
Such an energy supply model is the antithesis to what the industrial revolution has brought to Western post WWII economies in form of centralized large-scale power plants, which are operated by mostly state-owned energy suppliers. Centralization has the advantage of top down organization, but the disadvantage of 2/3 energy loss during distribution; only 1/3 of the generated electricity reaches the consumer due to vast energy losses along the road.
 
The energy industry does therefore reflect in its entirety the Keynesian post WWII economic paradigm of scaling up production and distribution into megasystem beyond imagination: the bigger the better. It also reflects a political system which is based on strong and centralized nation states, which are able to provide their citizens with essential means in return for absolute loyalty.
 
Renewable and in particular solar energy stands for decentralization, self-responsibility and in terms of social organization heterarchy instead of top down hierarchy. Energy is not only consumed where it is produced thus eliminating unnecessary transportation and related infrastructure, it does also make top down structures of energy distribution completely obsolete and paves therefore the road to a postindustrial economic paradigm which has been famously formulated by Keynes protégé E.F. Schumacher in Small is Beautiful.
 
One could therefore argue that driving a Tesla and any other electric car is as much a political as an environmental statement, in particular in Beijing, where Tesla sales have dropped so significantly. And this is where the EV industry attracts my sincere interest, because I wonder why Mr. Musk wants to enter a market with a manufacturing plant in Shanghai which is obviously not suitable to his big picture strategy of distributed energy generation and consumption; and if the Chinese government realizes that it undermines its totalitarian rule by pushing for 40% EVs by 2030.

Natural Resources
 
Modern man does not experience himself as a part of nature but as an outside force destined to dominate and conquer it. He even talks of a battle with nature, forgetting that, if he won the battle, he would find himself on the losing side. Until quite recently the battle seemed to go well enough to give him the illusion of unlimited powers, but not so well as to bring the possibility of total victory into view. This has come into view, and many people, albeit only a minority, are beginning to realize what this means for the continued existence of humanity.
 
The illusion of unlimited powers, nourished by astonishing scientific and technological achievements, has produced the concurrent illusion of having solved the problem of production. The latter illusion is based on the failure to distinguish between income and capital where this distinction matters most. Every economist and businessman is familiar with the distinction, and applies it conscientiously and with considerable subtlety to all economic affairs – except where it really matters: namely, the irreplaceable capital which man has not made, but simply found, and without which he can do nothing.
 
A businessman would not consider a firm to have solved its problems of production and to have achieved viability if he saw that it was rapidly consuming its capital. How, then, could we overlook this vital fact when it comes to that very big firm, the economy of Spaceship Earth and, in particular, the economies of its rich passengers? One reason for overlooking this vital fact is that we are estranged from reality and inclined to treat as valueless everything that we have not made ourselves.
 
These lines from Schumacher’s Small is Beautiful give us two implicit answers. Musk has not solved the problem of production at Tesla, because he uses up his capital at breakneck speed; and it is his company which does on a microeconomic scale reflect a macroeconomic challenge: the depletion of natural resources can’t be stopped by changing within the same economic system from a product A to a product B, if still the same production principles and the same consumption behavior applies.
 
Let us look into these arguments a bit closer. I mentioned earlier that the core innovation of Tesla is Musk’s masterplan of decentralized, renewable electricity which shall power future transportation. He is certainly many steps ahead of his competition and most governments, but he is sadly still thinking along the lines of Keynesian economics in terms of vehicle production and consumption and this is clearly revealed in the case of Beijing, where Tesla S vehicles are being bought by high end customers who change cars like underwear. Their taste changes fast, their product satisfaction decreases even faster. They want to have the latest model, the trendiest design and the best brand, and purchase EVs rather for the hype than for the environmental impact. But why would you anyway buy a car in a city which is nicknamed the capital of congestion | 堵京 and which offers a good and reliable public transport system?
 
I am instantly reminded of Matthieu Ricard, the French biochemist and Buddhist monk, who is said to be the happiest person in the world, talking about chocolate cake: Although we want to avoid suffering, it seems we are running somewhat towards it. And that can also come from some kind of confusions. One of the most common ones is happiness and pleasure. But if you look at the characteristics of those two, pleasure is contingent upon time, upon its object, upon the place. It is something that -- changes of nature. Beautiful chocolate cake: first serving is delicious, second one not so much, then we feel disgust. A Tesla S is like any car a chocolate cake or as we more often say: a big toy for grownups. True satisfaction does not come from consuming product A or B, whether powered by fossil fuels or renewables, at ever shorter intervals. True satisfaction comes less by having and more by being.

But we don’t have to discuss the metaphysics of economics to make a stringent argument against (too many) EVs. Several reports have discussed lately the negative environmental impact of EVs but have mostly fallen short of analyzing the entire supply chain, but have instead rather focused on how electricity for charging EVs is generated. The most overlooked externality of all smart and clean technologies is rare earth mining which is polluting surface and ground water with alarming toxicity. China Water Risk published a comprehensive report on the subject in 2016.
 
In case this argument is not sufficient, one is asked to replace 35 mio conventional with 35 mio electric vehicles on China’s roads in 2020. One can imagine that EVs will not resolve central problems of urban transportation like congestion or parking.

Conclusions
 
Tesla produces vehicles which are sold without paying for externalities and fuels a stimulation driven consumer behavior instead of spreading the gospel of moderation by relying on principles of circular economy; but the company pushes a technological vision which, if successful, will catalyze social change, and is as such adding much value to our societies. Tesla shall therefore not only be evaluated by how much profit it makes, but in accordance to how much change it enables.
 
If I were though an advisor to Mr. Musk, I would argue against a China market entry. The Chinese power supply policy, which is until 2040 highly geared towards centralized nuclear power generation, and the society’s frame conditions in terms of urbanization and population density make the market highly unattractive for individual transportation, respectively require rather the entry of Hyperloop than Tesla; but old China hands know that the Chinese Railway Ministry is a PLA spin off and the Chinese market thus a deadend for foreign investors.
 
Chinese EV manufacturers like BYD or NEXT EV will never be a genuine competition to Tesla, because they lack a big picture master plan. BYD is despite its name – build your dream - not driven by a vision, but listens closely to Beijing’s China dream and tries to harvest subsidies and golden moments of government investment like most Chinese enterprises. NEXT EV has a great marketing and design team, but lacks according to experts in the supply industry central automotive manufacturing competences.  We will see what Tesla competitors will bring to birth, but shall above all not forget that the problem of sustainable transportation cannot be separated from sustainable energy generation.
 
Further Reading:

• China Water Risks: Rare Earths: Shades of Grey – Can China Continue To Fuel our Global Green & Smart Future?
  
• National Bureau of Economic Research: Environmental Benefits from Driving Electric Vehicles?
• Stockholm Environment Institute: The Geopolitics of China’s Rare Earths – a glimpse of things to come in a resource scarce world?
• KPMG: Global Automotive Executive Survey 2017
• McKinsey: The Road to 2020 and Beyond – What is driving the global automotive industry?
  
• Captain Planet and the Planeteers: on the correlation of Xi Jinping’s distant water fishing and energy policy.
  

Excellent presentation by Prof. Du Huanzheng, director of the Circular Economy Institute at Tongji University | 杜欢政， 同济大学循环经济研究所所长, about circular waste management and China’s leading responsibility. I doubt though that the Reds will turn green. Power and purpose are antagonists.