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Transcript
Rob Johnson: Welcome to Economics & Beyond. I’m Rob Johnson, president of the Institute for New Economic Thinking. I’m here today again, we’ve done podcasts before with Long Chen. He is the president of the Luohan Academy and he and his team have created a fascinating report on the digital circular economy for net zero. There are dimensions in the report that relate to the role and possibilities of the digital, the entire systemic vision of the circular economy, including what is involved in governance. And I’ll let him explore.
He’s had some brilliant co-authors working with he and his team and particular Patrick Bolton from Princeton University, Michael Spence, Nobel Laureate well known to the economics community of INET. Peter Lacey, [inaudible 00:01:27]. How would I say, in a time when people are in distress, it’s a very encouraging report. People are afraid of digital transformation. But now they envision how to use digital transformation to diminish our fear and improve the likelihood of sustainability and their circular economy I think is a very important way of seeing how to be, which you might call respectful of the side effects, what economists call the externalities. And so let’s, how do we say, push off from shore and go on the voyage with you. Thanks for joining me today.
Chen Long: Thanks, Rob.
Rob Johnson: Let’s start with what inspired you and your team to say, “This is what we’ve got to do. This is the report that we can see or we can articulate to help the world get on course.” Where did the inspiration come from?
Chen Long: Right. But let me start with maybe some personal experience. Actually we realized the power of the digital technology many years ago, I think back in 2016. So at that time I was the chief strategy officer for the Ant Group, the Alipay, the payment company. And at that time we were doing inclusive finance. So make payments available, digital payment available for everyone possible at a very little cost.
But at that time we were inclusive, but then we realized that we would like to do something for the environment challenges. At that time remember the climate in Beijing was really bad, so it’s very foggy and the air is dirty, we couldn’t see each other and the kids suffer or this or that. And that tide was very impressive. You can hear that the governments and the big companies, they commit to do a lot of things, which is, I simply want to do a lot of things.
Individuals, they suffer in bad air in the cities everywhere, but individuals feel powerless. There’s nothing they can do about this, but it affects everybody’s life. At that time we thought, well, we would like to do something about it. What we did then is we come up with app in Alipay, it’s called the Ant Forest. Basically what that does then is use the digital technology and the big data. It is based upon every user’s approval to track their carbon footage. Let’s say, Rob, wants today rather than driving to work, you decide to take a subway, that would mean reduction of the carbon emission.
And that can be calculated according to certain scientific formula, through experts. So that we can actually accumulate. We can calculate and accumulate how much you have saved, reduce the carbon emission. Effectively we have created a carbon account for everyone. Then the interesting thing is that you can actually monitor this account. It’s going to show up as a little green ball. And we plot a forest. It is going to show up in little green ball in a forest.
And there you can collect this little green ball, then a little virtual tree will grow. Then gradually as you accumulate your carbon reduction behavior, this virtual tree will grow into a full one. And at that time, a real tree will be planted in the deserted areas. The areas that forest is needed most, so that is a simple idea.
And also, actually, if you have friends, you have friends circles, they see each other’s little green balls. You can collect, in a sense you can steal each other’s energy, but only through friends, the people you know well. Then it create a friendly competition, a social challenge to each other to do that. So that’s a little program and it blossomed within half year. I think in the past several years, it has grown into the world’s largest, fastest growing application globally. It has accumulated more than, I think right now is probably more than 600 million users are using that.
What this really says is that effectively you have 600 million people, they monitor their green behavior. In the meantime, they are planting trees every day. We’ve planted a lot of trees and they can be seen through the satellite because there’s huge areas in the desert areas. And this is I think a cool example to show that what can be done as I would call this a bottom up approach. It’s not through the government’s pledge from big company’s pledge, which is crucial but not sufficient, far from sufficient.
Every citizen, every institution, we are affected and we are responsible to do something about it. The challenge is how can you design something, make this scalable, make everybody a willing people, change their behavior and get everybody involved in affordable, scalable way to achieve what we want to do against the climate change. And so that’s something you combine the power of the digital technology and a concept would cause the circular economy. And so which is something you do to help reduce the carbon reduction, the maximum use of the energy. Anyway, so that’s what we have been doing in the past years and are just putting at the current climate the environment, we’re trying to put something, new stars together for this report, that’s some background.
Rob Johnson: Okay. Well, let’s work on helping the audience comprehend. You talk digital circular economy, let’s break it into two parts. How does digitalization help? I could infer that from some of what you just described with the app and so forth. But there are many areas that I see in the report related to energy transportation, buildings, and other sectors that you articulate. But what is digitalization doing? Is it obviating the need to burn carbon in order to get things done? How would I say? You can do remote school, you don’t have to commute to school every day, things like that. But tell us just broadly how digitization is, which you might call a central part of this strategy.
Chen Long: Right. Digitalization in nature is a revolution of information. And information, it has important feature is called [inaudible 00:09:26]. What it says is that it can be used unlimited times. Anybody’s use of the information does not consume the information itself. Sometimes we say data is like oil. But actually data is not oil because data can be burned unlimited times. What I’m trying to say is that when we use the information for any activity involves information, if you use the digitized version of that, then actually you can reuse the energy and it becomes very scalable and much more efficient way of doing without physical use of the resources.
For example, let’s say we can use the video conference and one economist, [inaudible 00:10:17] last year, he’s also a fellow at Luohan Academy. He wrote a paper last year with the aspect that if you have a virtual conference is like us we’re talking to each other, they have more than 207 participants. They calculate, estimate their carbon. They find it’s only 166, is very minor portion of the emission that would have been produced by a physical conference.
What I’m trying to say is that digitization can help reduce the carbon emission at least in three ways. One is the virtualization, which essentially you replace a lot of the use of the physical resources by virtualization. Now they’re using the digitized version of it. The second way I think to do it is that make us smarter because of the big data, because of the AI, so that make us smarter to measure and track our carbon footage to optimize our use of resources. And that’s the second way to do it.
And a third way I think is equally crucial is the connectivity. Because of the internet, because we are connected to each other. So that actually is critical in economy’s concept. Because in any economy, if you have to have certain design, like a market that get everybody involved, they have incentive to exchange to allocate resources. But with that connectivity, you build certain markets. So help each other to fulfill their goals, demand and supply using the digital tools. And it was traditionally you can only do markets very locally. For any store in the big city, cosmopolitan cities, usually 80% of your customers comes from within 10 kilometers surrounding your location.
But now we know that we can trade. We can talk to each other, things happen, break the traditional boundary. The average distance between the bar center, for example, in China’s online platforms is around a thousand kilometers. The traditional physical limits were broken. My point here is that we can actually organize new possible ways to collaborate, to make the use of resources better for people who wants to sell green products, who wants to have demand for that meet each other. And that’s also crucial.
So through virtualization, through the smarter use of the make us smarter to make the environmental friendly decisions and connect the supply demand for that through at least there’s three ways digital can help better against challenge against climate crisis.
Rob Johnson: I remember reading a section of your report about the use of data to heighten the awareness with renewables, whether wind or solar. They have what you might call variations within the day. There’s daylight and there’s dark, or the winds go up and down during the day. And until we have, how do I say? Extraordinary batteries, you can perhaps shift the time when you choose to consume at the time when the supply is most plentiful.
I thought that was a very interesting matching that that awareness can, what you might call, allow society collectively to be much more reliant upon renewables, because they can time their demand to synchronize when the supply is greater. And so there are lots of fascinating dimensions in the report. But I remember thinking how insightful that one was when I started.
Chen Long: Yes.
Rob Johnson: Other things, I know you talked a little bit, very popular theme right now. How do cryptocurrencies relate to this energy challenge?
Chen Long: Crypto. Let me first respond to what you commented just now. I think the important future for the human society for the energy use is actually it needs to be local and somehow decentralized. And so that’s related to the crypto too. So you won’t have a decentralized solution for the energy use. What I’m trying to say that, so a lot of countries, they have committed for the net zero within certain years. Society as a whole would like to get this done as say by 2060 latest.
Now, but you see a lot of this renewable energy like the wind, solar energy, it has the seasonal, it has daily effect. How do you get them and store them and transport them from the areas that are abundant to areas that really in need. It’s very costly to do this. That’s why it’s very kind of ironic, if you look at last year, actually so many countries pledged the net zero, but actually the price of the oil as a lot of the coal, a lot of the traditional resources, the price just skyrocketed. So that has something related with the demand. Demand doesn’t shift and supply is limited. And then it just still has to go up. So we have a long way to do that.
But I believe the important future of that in the near future that a huge chunk, probably close to half of the energy we use will be produced locally through wind and solar. But that varies throughout the day. We need to be smart with how … we need to have this IOT. A lot of the devices, it helps us to collect the data, sorry, collects the energy and store and use it. And actually we need to have this virtual electricity coordination system, so to help the local to do that. I think that would constitute a huge chunk, probably half of the energy we use.
And that’s a decentralized solution rather than a country’s comprehensive electricity network. So that is the decentralized solution. I think that’s a good part of the … we call this decentralized or crypto part of this. That’s perhaps the bad part of this, the bad part of this is for example, is the Bitcoin, cryptocurrencies right now. A problem of this currencies is that I’m very in favor of the decentralized solutions, it’s great. But the problem of this is that because there’s zero trust, there’s another zero, zero trust in the users of the cryptocurrencies. And they don’t know each other, there’s no institutions to coordinate the trust.
Let’s say I want to send you one Bitcoin, but then how do you … Can you trust I send you this. And how can I prove I do have one Bitcoin. There’s no institution to verify this. So it verify this through the burning energy, it’s called mining on the internet. Actually a lot of people just prove that my thought, one Bitcoin exists and the transaction happened. They need to burn a lot of the energy. So according to one calculation, for me to send you $1 worth of this, let’s say I will send you $1 of cryptocurrency. The cost of that, if you all consider is like $26. It has a lot of externalities, my point is this.
In that way then, in order to live in the environment of zero trust. You actually have to burn a lot of energy and that’s not necessary. So that at least at this stage, it’s not very energy efficient at all. So that’s not the best example of the energy use when digitization is involved at this point. I hope it could do much better, but right now it’s not.
Rob Johnson: We talk about digitization and all of the efficiencies that it allows us to aspire to achieve and actually achieve. What is the circular economy? Describe that dimension of kind of the big picture of your report.
Chen Long: Right. Circular economy is a scientific economic concept. Basically it is an economy that is restorative and regenerative by design, and it aims to keep products, components and materials at their highest utilization potential and value at all times, both through their technology and their biological circles. Essentially you can think about for our ancestors, they were having some kind of circular economy, even though it’s not very efficient, they rely on the solar system, the sunlight to generate, they have the food and they consume, then it’s circular in its way.
But then so the point here is that in order to have an economy, economy means is the humans for the human society, all the production inputs, our efforts together, resource our locations together to make the economy going. So that has the economy part, but make it circular. That means for every input we would like to make the best efficient use of it, the regenerative and restorative, and to for example recollect the waste. So for the whole life cycle of use of any of the materials that can be maximized use, and it can be restorative and regenerative, so that’s the essential concept.
It’s only when in such a way that we can achieve the goal that is called net zero emission of the carbon. The challenge of the circular economy, so the concept is beautiful, the challenge is how because it’s not very scalable. Think about how are we able to do this in a scalable, efficient way for every step, every procedure we do, we know how we can track and measure and manage our use of the energy. So that part, you wouldn’t have the power of scalability. We need the digital technology.
Rob Johnson: I mean, when you talk about circularity, I mean I understand it conceptually. But I saw some fascinating just what I’ll call specific examples I’ve never heard of like markets or networks, digital networks for used clothing, so that you’re not having to harvest any more cotton. You can do other things with the land, or what have you. There seem to be many, many dimensions where that regenerative or non wastefulness of these myriad, this whole constellation of ingredients.
And it almost makes which I might call … it’s like making the population smaller given the old methods, because now instead of gobbling everything up, we regenerate it and use it the second or third or a fourth or many, many times, depending on how durable it is. And this makes tremendous amount of sense, but it’s I imagine which you might call, it requires some very careful thought about the design of incentives for people to be conserving and recycling and recirculating. Is that a political, which you might call responsibility? Or can you do these things through digital technology innovation, where governance does not have to, which you might call be the overlord and enforce these things?
Chen Long: Yeah, that’s a great question. So just now the case you mentioned, we can call this recommerce and actually it’s prevalent in many countries. For example, in United States we have this Craiglist. Craiglist is one of the largest digitized secondhand marketplace. And there’s estimates that Craiglist has led to about 2% to 6% annual reduction in municipal’s solid waste per capita generated.
So in China we have something called Idle Fish. It’s right now the largest second hand commodity goods marketplace in the world. So for example, for clothes. So for every piece of clothes, if several people can wear it and can use it in its lifecycle, then that means several times of reduction of the production on the supply side. So that is regenerative, circular.
But so that’s the connectivity part of the digital technology, because it’s only when you … so a lot of people they have the idle items that they do not want to use anymore like the clothes. They are actually still pretty very good condition, but they don’t want to use anymore. But then they can sell it on the market. And then a lot of the people, actually they need it, and they can buy it at a very affordable price.
So this is a very good example of use the idle resources. And actually for the Idle Fish in China, it has more than 300 million users with more than 20 million active users every day. So they buy and sell a lot of secondhand stuff and a huge chunk of those are young people. And we find that very young people, actually they have better sense of the environmental issues and actually they like to use the old, reuse the stuff. And because this reused stuff are actually in very good condition, there could be even trendy good stuff.
But then let’s say a secondhand iPhone for example, so it’s not the newest brand, but actually it’s still in very good quality and all clothes, a lot of stuff. So that’s a good example. Now for that marketplace to happen, actually you don’t need the government intervention. You do need have certain mechanism design to meet the supply demand. You have to create a trust system, such that those items are not for fraud to verify it’s true and it’s reliable.
And so you have to have this whole design, use the digital technology to use it, to make it happen in a trustworthy way, the buyers and sellers, they didn’t know each other. Somehow they can trust this is secondhand stuff but it works, it’s in good quality and not get into a fraud, so it’s kind of stuff. So that can be done through the technology in a scalable, efficient way without the government. So that meets the incentive. That’s why we call this economy, it’s not just technology. You have to do this in economy, which means involves everybody’s incentive.
Ant Forest I just mentioned at the beginning is another good example that we actually, because the consumers, the users, they’re happy to see their little virtual tree to grow, then customed to do that. So then that’s good enough. So Ant Forest actually it has becomes, as I mentioned, is one of the fastest growing mobile app in the world at that time. And later it won the United Nations champion of the environment award because of efforts. And this again requires government support. So I’m giving you multiple examples to say that with the digital technology and with the smart design, we can do this kind of stuff without government intervention.
Rob Johnson: A lot of these things can be done without government. But to be what you might call complete in your digital circular economy, what role is there for government? I mean, I’m not saying it will always be performed, I’m saying in your vision, what’s the necessary elements of governance or governance awareness to join and enhance this system.
Chen Long: Yeah. I think governments are crucial because environmental challenge happens a lot of time because of the externality. In economics we know that the market sometimes fails because individuals, the energy users, they don’t bear the whole cost of doing that to the environment. There’s a lot of externality there. The market cannot solve this problem by itself. I think first of all, the government has to have the leadership to crack the whole society the efforts to set goals, to set certain through the laws, through the regulations requirements, call for actions, coordinate, so that is essential.
I think the government is essential and indeed many countries, many governments, and the big institutions have committed to do this for society. My problem is that sometimes I call this the top down big boy approach. The big boys needs to be responsible, but that’s not far from enough because there also needs to be a bottom up approach that has to involve the individuals, the small and the microenterprises because we are the consumers and we decide the demand.
If we do not change our behavior, if we will not get involved there’s very little hope for this whole economy to achieve the net zero. But for this bottom up approach to be scalable, you need to have certain technology. And this technology is crucial in this regard. My point here is that both side is needed. And we call this the social economic governance. You need governments, you need the people’s … we need the culture and habits to change. We need the top down and bottom up approach together for technology to play a role on this whole society. That has been the case if we look back on the impact of technology on society as a whole.
Rob Johnson: Just for the purpose of our audience, many in these Institute for New Economic Thinking are dedicated students to the history of economic thought. Obviously there’s innovation here in this digital world and so forth, but are there precedents? I saw, remember in the notes, I looked at the Nobel laureate, Elinor Ostrom, had a book that you all cited on understanding institutional diversity.
And there was another book from Cambridge Press, Andrew Jordan and others did on governing climate change. It was like polycentricity. And just looking at your references and so forth, but are there pillars? Are there people who … how would I say? When you look back wisely could see these different structures that you are pulling together now? Maybe not the digital dimension, but the circular dimension and the nature of governance. Are there precedents or are we, if you will, in a brand new world?
Chen Long: I think, so to battle the climate change, people do realize the strengths or the necessity of this crucial elements. Obviously there’s previous and the circular economy were not of course the first and it’s being circulated around for some time, so we understand that. If we think about the digital circular economy, there’s three keywords here. One is digital, one is circular, and one is economy. So all the three elements have been emphasized, so different channels. There’s a lot of precedents.
We know that we need to, this is climate change, essentially to solve that you have to do things circular way. So you have to reuse the energy, the maximum efficient way use of energy, so we need to be circular. But then it has to be the economy, economy means that it’s not just that you order people to do this. The human society live in economy, which means that involve the people. They have to utilize their resources in incentive driven efficient way, so it has to be economy. It cannot be just planned, just be the order, just restrictions. You cannot do this, you cannot do that, but that’s not enough. People have to have the incentive to do this.
So to do that and to make related to the [inaudible 00:34:51], so that needs to be economy, so that’s the concept we need. So then of course economists have written a lot about the what’s marketplace, a lot is doing that, so that’s the economy part.
The third part is the digital technology. So that is, how do you make the circular economy happen but in a scalable way, efficient way, and you need technology. It’s not just about the energy technology itself. You also need to have the digital part and make everybody involved, and then together to battle the climate change, the crisis. I think to put together is what probably relatively one of the early ones to really emphasize on this.
But I think the concept, the individual elements are known, and sometimes people put them together, but we emphasize that this is probably one of the few, the unavoidable, we should really best use, combine those three key elements together, so that’s our understanding.
Rob Johnson: Another dimension that people express a lot of concern about these days is that in the era of globalization, I’ll be kind of silly about it, maybe the treaty of Westphalia is dead. Meaning the notion of the nation state and integrity of boundaries is really drawn into question because capital can move around the world in nanoseconds and there are all kinds of side effects. Los Angeles talks about its pollution, but it can’t control it, because it comes from other places in the Pacific Ocean or whatever.
And it feels to me like, I guess what I’m trying to set up is a question which is I can see in a closed governed place putting this system together works, but we almost need it to be done simultaneously in every region or nation. There has to be kind of like a global agreement for a platform deployment everywhere, because to be simple about it, pollution and poison in Philadelphia and Detroit harms people in the long term in Southern Africa. In other words, maybe COP27 will be too soon, but how do we put this on the table at the COP meetings to create an agreement to deploy it side by side everywhere.
A lot of people who didn’t like global governance don’t like global governance because they say it’s up there at the top for the whole world and it’s not sensitive to the region. But in the early parts of your presentation and in your report, you talk about the need for that decentralization and that intimate awareness in each little pocket. But in order for us to get the common good, we need all these places to work at the same time, employing these methods, we need a global agreement to deploy them in each region. Do you think that’s feasible?
Chen Long: Right. Essentially what you describe is a challenge. As we talk about that, environmental challenge is a lot of externalities. So that externality is a lot of time is outside of individual, but you can say it’s also beyond local. So then we need to have a bigger and bigger circular economy. And then here we’re talking about maybe a global circular economy, which means globally, collectively, we are effectively achieving this goals. And that’s extremely difficult because different countries like the different locals, they have different development level, the stages.
In developing countries, in much less developed countries, they’re trying to survive. And it’s very difficult for them actually to ask them to really do a lot of things, a better climate change, they can only enjoy the greener food production in certain way. They’re barely surviving. And that’s why in more advanced countries then there are much more active in advocating for this. But we have to have the sympathy for each other. We have to understand we’re at different stages. Then that highlights I said several things. It highlights the collective leadership of the global, a lot of countries. The governments, we need to understand this battle actually fits all of us. We’re not immune to this.
If another country pay no attention to the environment issues, then everybody is affected. Collectively the governments have to do this. And that’s why we need to have the COP27, 28, we have to do something really about this. This is on the government side. We have to have the joint agreement to help each other. For example, the developed countries, they have to provide technology, also to provide maybe the necessary funds to help the developing countries to battle that, otherwise it’s hypocritical to just ask them to do things they are better surviving.
But then so we have to help each other to do that. Then we also needs to have the economy. We mentioned that we want to make the whole world circular, but then you want to have the economy so that everybody involved, regardless of the economic level, they have the incentive to do environmental friendly things, activities. Then you need to have the technology to make that into the scalable way. And also for that to happen, then it’s decentralized the efforts, properly use the technology and the mechanism design also works.
I think we can see this big picture is possible, but well far from that, fortunately I think more and more governments and the companies, institutions, individuals, they’re more aware of that, and we’re making efforts to do that. But really we have very limited time left. To achieve the goal of the Paris accord to limit the increase of the temperature on our planet within 1.5 degree, at the current level of the carbon emission of our production and life, a living standard, we have few than about 10 years, so a lot should be done.
Rob Johnson: Yeah. And you said something that I thought was very interesting in this last passage, which is you’ve got to help the poor countries, but with the pervasiveness of externalities related to global warming and so forth, you’re not just helping them, you’re helping yourself. Meaning if you don’t deploy these technologies in those places, we won’t meet the one and a half degrees or anything close to it, and then we will all suffer. So there is, how would I say, a need to acknowledge the pervasiveness of externalities and react to that in addition to the need of poverty or to foster development to the places that are less advantaged.
And I guess the people that I talk to, particularly in Africa about this often emphasize to me that the carbon problem is not about this year. It’s about the cumulative amounts. And America and Europe’s cumulative burning of carbon is a very large proportion of the problem that we didn’t shift gears years and years ago, as authors like [inaudible 00:43:31] have made very clear that we knew about it and we didn’t do anything for almost 50 years. And so I think they have what I’ll call a moral basis for demanding assistance in those developing areas, because the people who set the stage for the problem are the rich communities who burned a lot of carbon yesterday and the day before.
Chen Long: I fully agree because actually up to now, if you draw a graph to show the per capital GDP and the per capital carbon emission, you can see an upward straight line, almost a straight line, which means the more advanced countries tends to be the per capital more carbon emission countries. And historically, if you look at where the more economic advanced countries, where they came from, they started the industrial revolution, which is the various large scale use of the fossil energy. And that prompted the whole industrial revolution.
And then gradually waste that with that, gradually the countries with their living stand improve. It becomes the more consumption driven countries, they move the manufacturing out to other countries. But then they actually are still consuming those things. And then at this stage, because they have a living standard, they realize that we want to have a more friendly greener environment, which is true, which is great.
But the problem is that, that’s why other countries are not at this stage yet. So they really have to have understand this is a collective problem. And in a sense the whole human society is paying back the debt they own to our mother earth. Because in the past hundreds of years, it is the industrial revolution, the very large scale use of the fossil energy that get us today. Our living standard is so much higher than before, but then we have created so much problem for the planet.
Collectively, we have to pay this back. It’s not just about the less developed countries. And it started with the much more economic advanced country like Europe and United States, and of course many other countries. We have to do this collectively with history in perspective. It does make sense to pay back the debt from history.
Rob Johnson: There was once a famous economist, he was called the Earl of Lauderdale. His name was Lord Maitland, the 13th Earl of Lauderdale. And when Adam Smith wrote The Wealth of Nations, he emphasized value as exchange value in the market. And the Earl of Lauderdale wrote a book that was very critical of The Wealth of Nations by saying, “What we have is something that is not really value, because if you turned off the water, if you turned off the oxygen, humankind would die.”
And so those things are obviously valuable even though they’re priced at zero. And what the Earl of Lauderdale seemed to foresee was that at that time, the population in the world in the degree of industrial development, as you were alluding to was small enough that nobody was afraid of losing the climate or the air or the water. But it does seem, now that we are embarked on that challenge, and it’s more complicated than the Earl of Lauderdale said because of this pervasiveness of externalities. The market left to its own devices won’t price things adequately to reflect the side effects that are produced, that can harm a lot of people.
And there are a lot of people now who are very concerned in the United States that we have what they call a market for too many things. And what I mean by that is a market for politicians, a market for the corporate media, a market for university endowments, so that the truth can be thwarted, avoided, with a lady name, Dr. Naomi Oreskes wrote a book called the Merchants of Doubt, sewing the seeds of doubt, paying off the politicians, stopping the proper design.
And most people would accuse the big fossil fuel producers like Russia, the United States, Canada, and some of the middle Eastern companies, countries, excuse me, that are based in the Middle East, the companies are based there. That these people have a vested interest in which you might call continuing to burn their fossil fuels. And what I like is your digital economy is monitoring it. Your circular economy is making the best of it. And the innovations in governance, which might include digital can start to track the externalities and other things in ways that heighten consciousness.
But we’ve got to figure out a way to, I will call stop the commodification of social design and enforcement. We’ve got to find a way to free the world to do the right thing. And I think as some have said, there’s a wonderful book by Bernard Harcourt at Columbia University called The Illusion of Free Markets. That markets are a tool, but the structure of the markets and the rules and the enforcement are political decisions. The market is not a god. The market is a tool and your report does a beautiful job of using the market as a means to achieve this transformation. But I think this, what I’ll call the dark side of political economy is a very important part of the challenge.
Chen Long: Yeah. Thank you for your wonderful comments. And so if we go back to Hayek, as Hayek said, the market is an information processor. So essentially it’s great strength comes from it can put together and process a lot of decentralized information from everyone. And I think very important elements for the market to be efficient. Why it’s limited is because some of the information is not processed enough.
I think that digital technology can help us to actually better measure and track the carbon emission, how severe the crisis it is. Because if we look back why it takes so long, more than half a century for people to realize that, we have to collectively do something about it, because we do not have enough evidence, we do not have good measurement. So people debate all the time. And then they’re driven by other incentives.
So the better we can use the technology to measure, to describe how severe the challenge is, the answer people will be reminded from the governments to institution, individuals, we can do more. If we want to break the limitation of the traditional markets, it starts with the measurement, it starts with the proper technology. Then we’ll be forced to do something. And we can only hope that this can be much faster.
Rob Johnson: Yes. Well, I must say this is a very, very troubling time in many dimensions for people all over the world. And what I’m always afraid of is that if people are identifying a crisis, but without seeing the North star of the way forward, the path to navigate, they become more frightened and they despair. And they perhaps then submit to what I will call the comfort of authoritarian rule.
And in the United States right now, whether people are talking about issues of race or gender inequality or fiscal discipline or the healthcare system, everybody is really pessimistic. And I want to congratulate you because in these what I’ll call dark times, you’re shedding light with this report on the possibilities of doing something constructive, instead of just being afraid of technology, viewing technology as your partner in achieving these goals. The vision of the circular economy, the notion of how would I say, the possibility of overcoming this challenge and allowing the world for our children, grandchildren to be prosperous.
I think the very fact that you are constructive is as important. Obviously the credibility and quality of the work partners with that, so that people can feel some hope. And as you know, you run a leading institute, one of the world’s most dynamic institutes in my opinion. It’s very hard to find people who have … they sometimes fear being which you might call foolishly romantic. So they don’t talk about the good news. They talk about the bad news. And what I think you did here, along with your team with these experts is you are pointing a way forward that might alleviate. It might enhance confidence and alleviate despair and fortify trust, renewed trust in both expertise and governance, which I think are essential to accomplish this mission.
Chen Long: Well, thank you so much, Rob, for your kind words. And I guess we have no choice. So if we look back, actually it is precisely technology has brought the society to where we are. But then the whole history of the modern history is a history of the technology revolution, but is also one of the constant anxiety. Because technology brings a lot of changes. It completely change our life a good way, but then it also brings a lot of side effects. And through this whole way, constantly we have anxiety because it’s very hard for us to predict what’s going to happen next is changing us.
But in the meantime, we have always been finding some good solutions. The problems that brought by technology. So that has been history. And I think this time is no different and we have no choice. And so we have to face the … where we’re enjoying the benefits of technology, then we have to be realistic. We cannot sugarcoat the reality. But I think there are ways to do it. And then that’s why we need to have the right approach. We have to realize what can be done and the best, mixed technology is useful for. We’re hopeful we can do that, that’s a spirit.
Rob Johnson: Well, I guess, I had the good fortune of growing up in a musical community called Detroit, Michigan. And when I listen to you, I think first of the famous song Theme From Mahogany by Diana Ross in The Supremes, or [inaudible 00:55:59] by Diana Ross after the time of The Supremes. Where she says, the song is, do you know where you’re going to? Do you like the things that life is showing you?
Well, but the other one that I found very potent, sometimes these things come into my mind as I’m listening to the guests and I was listening to you, I heard Marvin Gaye, he’s got a famous song which was transformational in the political awareness in music of what might call soul movement, gospel and soul. His song was called What’s Going On? What’s going on, what’s going on, we got to find a way to bring some understanding here today.
And as I’ve read your report, I think you and your team have said at some level, if Diana Ross is asking, “Do you know where you’re going to?” You guys found a way to bring some understanding here today. And I think, like I said in my previous comment, the ability to be constructive and find credible guidance and the basis for optimism is absolutely the nourishment that we all need. My friend keep up the good work. I’m very proud to know you and I’m very much admiring all the things that you create. And in this world with the US and China and everything else in turmoil, you are creating public good for all of us. Thank you.
Chen Long: Thank you very much, Rob. Thank you.
Rob Johnson: And as I always do, I attend many of your seminars. I love the one that you did recently on elder care. And I brought some people who work in that realm as observers. I think with all of the fiscal challenges of pandemic, energy transformation and what I’ll call the boom, the baby boom bulge, the aging of the population. That was a very prescient thing. I’m bringing that up along with your report today, because what you do is impressive. And I want to encourage all of my audience and my young people to keep a close watch on the Luohan Academy, because you’re illuminating very important things over and over and over again.
Chen Long: Thanks so much, Rob. That’s joining our efforts, it’s wonderful.
Rob Johnson: Well, keep up the good work and I look forward to the next chapter that we can make as you continue to illuminate where we should be going to. Thank you.
Chen Long: Thank you.
Rob Johnson: And check out more from the Institute for New Economic Thinking at ineteconomics.org.
