Interview: Lewis Perelman

[ – May 22, 2007; originally published in Revista Bovespa]

Brazil May Become the Saudi Arabia of Ethanol. Or the Iraq.
By René Daniel Decol
Not everything that pretends to be sustainable truly is. Environmental and social concerns (“the green agenda”) claim to aim at “sustainability.” To survive, businesses, communities and even nations must cope with crises and disasters—including both predictable threats and shocking surprises. . That could be a summary of what Lewis Perelman calls “the blue agenda”. True sustainability, Perelman argues, requires a prudent mix of both the green and the blue goals—not only protection against long-range threats but also preparedness, agility, flexibility, and the capacity do adapt quickly to new circumstances. In one word, resilience. Perelman has worked for over 30 years—as an analyst, thought leader, teacher, and consultant— on key strategic problems of human ecology: transportation, energy, environmental protection, human capital management, national security, technology innovation, and economic and business development. In 1992 he gained renown for his book “School’s Out”, where he anticipated much of the revolution that the internet and information technology would end up causing in learning, work, and the keys to business success. At that time, the world wide web was just taking its first baby steps. One of the first analysts at the U.S. government’s 30-year-old Solar Energy Research Institute, and recently a fellow at the government’s new Homeland Security Institute, Perelman has a unique perspective to combine the green and the blue agendas into an overall scheme of social resilience. He criticizes both the green agenda of environmental protection and the blue agenda of national security for being commonly obsessed with a self-defeating ‘hard’ paradigm of centralized command and control, prevention, and resistance to change. Instead, he sees an emerging challenge within both the green and blue domains from an insurgent ‘soft’ paradigm that emphasizes decentralization, distributed responsibility, entrepreneurial initiative, adaptation to change, and overall resilience. As an example he mentions the disaster caused by the Katrina hurricane, in 2005: “The government of the United States, the most powerful in the world, was overwhelmed by the Hurricane Katrina catastrophe in 2005, and even now is struggling with the immense needs for recovery and reconstruction in an area the size of Great Britain. Whether we are talking about ecological sustainability or security or survivability or recovery, all problems—even global problems—are local. And the most effective solutions are tailored to local needs and opportunities”.

Brazzil – Perelman


The new paradigm applies not only to social and political fields, but also to markets: in an increasingly interconnected and complex world, a glitch in the Shanghai stock exchange computer can reverberate in markets around the world in one second. From Washington, DC, Lewis Perelman talked by e-mail: RD: You say a “blue agenda” needs to consider risks such as natural disasters, industrial accidents, disease, economic breakdown and so forth. This sounds adequate for developed countries. What about those developing countries such as Brazil, that can barely grow enough to absorb its labor market, with millions of people excluded from any kind of development at all. Isn’t the Jurassic Brazilian state a disaster enough? LP: Brazilian structural problems are well known and should not obscure the fact that Brazil is one of the most vulnerable countries to economic loss and mortality from droughts and floods. And Brazilians in São Paulo, Rio, and elsewhere every day face acute threats from violence, crime, corruption, dilapidated infrastructure, industrial accidents, disease, and the increasingly vicious consortium of drug trafficking and terrorism. Poverty breeds vulnerability to such predations and it is a truism globally that the poorest populations are the most vulnerable. Of course over the imminent horizon are looming threats such as rising sea level, pandemic flu, and the potential impacts of climate change that would compound Brazil’s exposure to disaster. At the same time there is a growing enthusiasm amongst public agencies, NGOs, and the private sector to promote investments in Brazil’s “sustainability.” But many of the projects and initiatives being undertaken in the name of “sustainable development” may prove in practice to be unsustainable if resilience to disaster and attack is not factored into their plans. Ultimately, it is elementary that business investment and operations are very sensitive to risk. The more risky that Brazil is perceived to be as a place to do business, the more difficult it is for its development to be sustained. I must emphasize that resilience is not just a matter of having contingency plans to respond to emergencies or disasters. It is more about developing both the social and physical infrastructure of communities to reduce their vulnerability to disaster and also to be able to survive, adapt, and continue to function in the wake of disaster. And not just disasters that are predictable but surprises as well. RD: You have argued that green is not synonymous with sustainable, as many here still believe. Can you elaborate on that, particularly in relation to developing countries such as Brazil? What are people forgetting when they take for granted that all that is green is sustainable? LP: The first problem with the “Sustainability” agenda is that the word itself inherently promises more than it realistically can deliver. The earth’s physical and biological systems have gone through many dramatic changes and upheavals in its 3.5 billion year history, some cataclysmic. Scientists believe an asteroid collision about 65 million years ago wiped out most of the species alive at the time, including the dinosaurs. We know that a super volcano exploded in Toba, in Indonesia, only 74,000 years ago. The resulting ash cloud that spread through the earth’s atmosphere lowered the planet’s temperature by up to 21 degrees, killing three-quarters or more of the plant life in some places and pushing the human race to the verge of extinction. We are all descendents of the couple of thousand of people who had the resilience to survive that catastrophe. Even if humans develop technology to defend the planet against a future collision with an asteroid or comet, super volcano explosions will occur again. Eventually, another ice age will come, and go. And in a few billion years the sun will explode, incinerating all the planets.

Brazzil – Perelman


So “sustainable development” in an absolute, literal sense clearly is impossible. But then what does “sustainability” mean in practice? The definitions used currently are variable and often fuzzy. The “triple bottom line” summarizes general, good intentions for improvements in resource efficiency, environmental impact, and the very broad umbrella of social responsibility. Quantitative indicators and indices of these objectives—such as those provided by the IFC, Dow Jones, Innovest, and others—seem rigorous, but are not all consistent or clearly correlated with the desired outcomes. More to the point, functional resilience—and so, basic survivability—so far has not been a major, or even evident, consideration in these accounting and investment initiatives. The agenda may be “green” but is not necessarily really sustainable or likely to be truly sustained. For example, the British energy company, BP, gets consistently high rankings from various sustainability indexes. Yet in the last couple of years, the company seems to have been notably prone to disasters: One of its refineries exploded and killed 15 people in Texas. Another BP refinery in Ohio was fined for safety violations. And one of the major oil pipelines managed by BP in Alaska began to leak profusely as a result of poor maintenance. Similarly, buildings can be certified as meeting high “green” standards for their energy and resource efficiency, low environmental impact, and healthful features—even if they are sited or designed in a way that makes them highly vulnerable to natural disaster or attack. Ironically, the headquarters of a center for “practical sustainability,” which was designed to be one of the most “ecologically friendly” buildings in Ireland, was destroyed in 2004 by an arsonist’s attack. The green and blue agendas do not need to be in conflict. There even are opportunities for positive synergy. For example, zero-energy buildings—which generate their own power from sun, wind, or geothermal sources—could enable police or fire stations, shelters, hospitals, communications facilities, and such to keep functioning in the wake of a disaster even when electrical or fuel supplies are interrupted. And alternatives to nuclear power—which some “green” advocates tout as a means to reduce greenhouse gases—could reduce the risks of nuclear accidents and weapons proliferation. But to realize that potential, the “sustainability” agenda needs to become a “resilience” agenda, by adding a fourth bottom line—to incorporate the requirements of security and survivability. RD: Months ago there was a glitch at the stock exchange of Shanghai and the Dow Jones index dropped some four hundred points. Given the high level of integration of markets today, what are the risks of a major market breakdown caused by a hazard such as a computer glitch or other minor problem, which does not reflect the actual markets? LP: First, note that the threats to global markets—which now are overwhelmingly electronic, digital networks—are not just from “glitches” or accidents but from intentional attacks. And, by the way, some analysts say that the biggest source of cyber-attacks on global networks today is in Brazil. Beyond that, there is not a simple answer to your question. Globalization is all about complexity, and the events you mention illustrate some of the paradoxes of complex systems. What we’ve seen in this case is that the world markets absorbed, digested, and adjusted to the perturbation with considerable resilience. And not just coincidentally. Just because the stakes in stock and other markets are so high, there is a great, powerful shared interest in maintaining the robustness and resilience of these systems. As a result, there is an immense, continual investment of resources and effort by the participants worldwide to bolster the security, reliability, and stability of these market systems.

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Nevertheless, the work on market and network security is in a constant race against threats— particularly the human threats of fraud, corruption, crime, and intentional attacks—that are mutating and evolving at an accelerating pace. And because the experts at defending these systems understand that perfect security, perfect protection is impossible, they increasingly are focused on improving resilience—through backups, redundancy, diversification, decentralization, better management of human factors, and similar measures. But an even greater source of resilience in global markets, besides the engineering of their electronic machinery, is the substance of the markets themselves. We’ve seen in the last generation prolific innovation in the design of financial products and services. Much of this innovation has served to expand both the number and the sophistication of the tools available to manage risk. The combination of increasing transparency in governance with the growing diversity of market products and instruments leads toward markets that are more flexible, agile, adaptive, and resilient. The financial services industry broadly seems actually to be in the forefront of the movement to shift the focus of security—or real “sustainability”— away from prevention and resistance and toward adaptation and resilience. RD: You also mention that sustainability aims at long term trends, cycles and forces. But, in the short run, green architectures may be vulnerable to critical events. Some boast that Brazil can turn into something like the “Saudi Arabia” of green energy like ethanol. Can you see any kind of crisis that might affect that development? LP: Biologically, in spite of extensive breeding and cross-breeding of sugar cane, any “monoculture”—that is a field or environment dominated by a single species—is less resilient and more vulnerable to disaster, whether as a result of disease, pests, or other environmental change such as weather, pollution, or other. There could be unpleasant surprises. In the US this spring, beekeepers reported that up to half their hives are mysteriously empty. Scientists so far have no idea why the bees, essential for pollinating crops, have suddenly disappeared. But there are obstacles to the imagined ethanol bonanza that are less speculative and more immediately evident. For one thing, just because agriculture is potentially “sustainable” does not mean that it actually will be sustained. There are many ways that agricultural practices can be destructive of the soil and ecosystems needed to sustain them. It’s also already apparent that while some environmental activists are enthusiasts for ethanol because of its benefits in alleviating the supposed threats of global climate change, others oppose expanded industrial production of ethanol, fearing that expanding sugar cane production will lead to further destruction of the Amazon ecosystem, while also driving up food costs for those who already suffer from hunger. The strategic implications of Brazil becoming a dominant supplier of so-called “green” energy also are significant. Claims by foreign experts that Brazil could become the Saudi Arabia of ethanol should give Brazilians pause: It also could become the Iraq of ethanol. An economically and strategically massive ethanol industry could well become a magnet for corruption, crime, and even terrorism. RD: You say that the two major imperatives facing both public and private management are sustainability and security which requires a new resilience paradigm. We have a recent case in Brazil, the collapse of air traffic control, where government didn’t seem to know what to do. What would be a wiser attitude? LP: Author-journalist James Fallows and technology guru Esther Dyson are among those who have argued that modern information technology makes the centralized command model of air traffic control obsolete. Basically they would bring the decentralized resilience of the Internet to the organization of air transportation by giving each aircraft the ability to see where all the other

Brazzil – Perelman


aircraft in the area are and where they are going. Automated collision warning and avoidance systems would prevent conflicts. By analogy, think of a pod of dolphins. There is no centralized control or bureaucracy. But the dolphins’ innate intelligence, and their ability to sense and respond to each other, permits them to organize and execute complex joint maneuvers to herd a school of anchovies into a ball for easing dining. That sort of many-to-many communication and control is more resilient than centralized command because it can adapt and respond to changing conditions with much greater agility. But even in the U.S., the bureaucratic inertia of centralized government—not military—traffic control, and its similarly reactionary labor relations, is a hurdle to overcome before this potential can be realized.

Brazzil – Perelman


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