I’m sure you’ve noticed already, but something is happening to the economy that is not like the previous changes in our recent history. I’m not talking about the recession, I’m talking about how peer-to-peer commerce and distributive and decentralizing technologies, such as Bitcoin and the emerging P2P Internet, are challenging the political economy’s Old Order and creating what is now being called the New Economy. It’s an important trend to keep on our radar screen because there is little doubt that decades from now, historians will be writing about how it had a significance of seismic proportions. In the next few blog posts, we’ll be discussing why these technologies are different, how they are strengthening communities and local economies, and why this is important for solar professionals. If you're interested in a deep dive primer of the economics of the New Economy, see this article about the Cantillon Effect, Currency Trends, Satoshi Nakamoto, and Bitcoin.
Before we delve into the specifics, let’s talk about a few key concepts:
Means. This can be the means to finance something, the means to create something, or the means to distribute something. If you don’t have the means to do these things, you have to pay someone else who does. If you do have the means, you can do it yourself, and sometimes doing it yourself means doing it better, and for cheaper.
Middleman. The middleman, or intermediary, is someone who connects a buyer and a seller. Middlemen are enablers--they enable transactions that otherwise would not be possible, or facilitate transactions that would otherwise be cumbersome. In order for someone to be a middleman, the person needs to serve as, or have control of, an exclusive conduit of information, goods, or services. If the middleman loses control of the conduit, or if many other conduits come into existence, the middleman ceases to exist. This is called disintermediation, or “cutting out the middleman”. Because of the strategic position middlemen occupy, they are often able to charge a fee that exceeds the value of their material contribution to the product or service. As a result, the buyer, seller, or both makes less on the transaction. For this reason, middlemen are sometimes viewed upon as parasites or leeches.
Power And Interests. In most transactions, there is a conflict of interests. For example the buyer wants a lower price, and the seller wants a higher price. The actual price ends up being a compromise. When there are more participants involved, each with their own interests, more compromises must be made. Each participant will use whatever power and leverage they have to advance their interests vis-a-vis the interests of other participants. In situations where some participants have more power than others, the transaction will create winners and losers. In other cases, where participants have equal amounts of power, or even better, there is an alliance of interests, the transaction can result in a win-win situation. An alliance of interests can happen many ways, but perhaps the most powerful alliance of interest occurs when the consumer of an item is also involved in the item’s production, distribution, or financing.
Movement of Wealth. In some transactions there is no movement of wealth, such as when one person purchases an asset of another person. One person exchanges $1,000 in goods for a $1,000 in cash. In other transactions, where a person is purchasing something that will be used up, or is purchasing something that is worth less than the price they are paying, wealth moves from the buyer to the seller. For example, a person pays a mechanic $500 to perform maintenance on his car. The car is not worth any more after the transaction than before, but the owner of the car is now out of $500, while the mechanic and his suppliers have increased their wealth by some fraction of that $500.
What is the New Economy?
As we explore the topic of the New Economy, keep these key concepts--Means, Middleman, Power and Interests, and Movement of Wealth--in mind. The recurring theme in the New Economy, is that the new way of doing things distributes the means over a wider base of people and removes, or diminishes, the role of the middleman. In doing so, the New Economy is having a profound impact on the distribution of power and wealth.
Let’s look at the solar industry since this is what we are the most familiar with. Solar technology is most widely known for being a cleaner alternative than its fossilized predecessor. Less spoken of is its potential to turn the energy industry on its head.
Converting coal, gas, or oil into energy and distributing this energy to billions of people requires huge sums of capital. Someone needs to pay for all the refineries, pipelines, tankers, mines, oil drills, and bulldozers to extract these fuels from beneath the earth’s surface and deliver its trapped energy hundreds, if not, thousands of miles away. Acquiring the means to do this requires enormous capital outlays and is thus not something an individual, or even a small community working together can do. Uncle Joe is not going to embark on a DIY scheme to drill, fract, refine, and transport natural gas to his home. The capital intensive technology needed in the fossil fuel industry naturally results in centralized ownership and control of the means, which of course results in centralized wealth and power, and more oil industry lobbyists on Capitol Hill than you can shake a stick at. This power allows the centralized fossil fuel industry to easily advance its interests, often running roughshod over those of everyone else, resulting in oil spills, global warming, poisoned aquifers, and on and on.
Rise and Fall of the Middlemen
Another notorious feature of this energy system is that middlemen--positioned conveniently between freezing grandparents in New England and oil and gas fields all over the world--are often able to exploit or manipulate market conditions to their advantage. Remember Enron?
Since consumers are so geographically distant from the producers and distributors of this energy, the money needs to move long distances, across state and national borders. In cases where the consumer is using the energy for non-commercial uses, this movement of money is also a movement of wealth, draining the coffers of households, communities, and even entire nations.
Compare this to a PV system that is owned outright. Once a building owner has purchased and installed a solar electric system on his rooftop, the individual owns the means to produce energy that he or she will use and/or sell to the grid. There is no middleman, because the consumer is simultaneously the producer and distributor. Consequently, there is no parasitic loss of wealth. Moreover, the interplay of power and interests between the participants is a win-win situation for all, because again, the buyer and seller are the same person. The person is in control of their own energy production, will spend far less over a period of 25-30 years than if they were paying the fossil fuel energy companies, and is not contributing to the paychecks of Washington lobbyists. Wealth and power remain with the individual and within the community.
From Consumer to Provider
Let’s go through this again, as it is worth repeating. Instead of the means being concentrated in the hands of a few, it is distributed to many. Instead of middlemen making billions on the buying and selling of energy derivatives, the owner of a PV system sells the energy to himself or to a community grid directly. Instead of power going to the oil companies, the power goes to the people and their communities, and finally, instead of money being transferred from homeowners and residents to energy company shareholders and oil sheikhs, wealth remains with the individual and in the community.
As solar professionals, I’m sure you are already aware of these dynamics and I’m probably writing for the choir here. But it’s important remember and share these perspectives because the current trends of the New Economy are also helping to redefine the relationships between software providers and their users and solar consumers becoming providers.. We want to be at the forefront of that, and we may even be asking for your input in the near future.
Here's a short video from DW Planet A about the trends we've seen in solar as it relates to energy and economics, and where things are today (2021).