Peak Oil, Corporate Malfeasance and the Rise of the Millennial Generation

For those of you who have been reading Metaphorical Web for a while, you'll know that occasionally I will branch out of the space of XML and into bigger issues of "society watching". These incorporate a lot of my own political beliefs, which tend to be in an gray zone between liberal and libertarian, and thus if you find such political discourse inappropriate, I ask that you simply skip this blog and wait for my more technical next one.

While there is a certain degree of controversy about this, one of the topics that has begun to percolate to the surface of awareness for a large number of people is the idea of Peak Oil. This concept, in its simplest form, is that after nearly a century of pumping oil wells and discovery, we apparently seem to have identified all of the available fields of any quality. With satellite mapping, geo-magnetic and gravitational analyses, it is a fairly easy proposition to look down on this blue ball of ours and determine with a remarkably degree of accuracy, where most of these pockets of crude are located, a capability that was useful a few decades ago, but which has also pretty much disspelled the notion that we will find another Saudi Arabia or Iraq anywhere else on the planet, with the possible exception of Antarctica, a place so hostile and ecologically fragile that the costs involved in raiding it (currently) make it infeasible to approach.

If you buy the common argument that oil comes from the remains of Jurassic era plants, then we are rapidly using up that resource, with nothing left. Even if you believe (as I do) that oil is much more likely the product of methane producing anaerobic bacteria (methanogens) the "recharge" factor implies that it may very well be another ten to fifteen thousand years or more before we're able to refill the tank. As all of human civilization is only about that old, this implies that there will be a LONG time before we have another oil era.

There are alternatives to many of the contemporary uses of oil, though most are (currently) more expensive than a barrel of crude. Oil reclamation from food wastes can provide a pretty good grade of crude, though the distillation process requires a fair amount of input, and is still at the experimental stage. This will provide oil for limited uses, such as certain forms of plastics production, but  it will not in general produce anywhere near enough oil to power our automatic infrastructure. Solar strips are becoming inexpensive enough (and powerful enough) to handle the powering of laptops and other devices, and could even replace our home and office heating requirements within the course of a couple of decades, but again there are problems with being able to unite this into a larger distribution grid, with very real physical limitations keeping the utility of this technology from being viable. Windmills can generate some electricity, but windmill farms usually work best only in windy, wide open spaces, with a fair amount of this energy lost in transmission to the places it gets used (it also seems to have very adverse effects on birds' navigational systems - a windmill is a rotating dynamo generating twisting magnetic fields, which many birds are very sensitive to, causing them to fly into the group near such stations).

In other words, while these "alternative" forms of energy could take up the slack in a localized region, they will likely never be adequate to generate enough power for the voracious US (and increasingly global) economy. This means that, even with the advent of nuclear energy (with its own attendant headaches, as Three Mile Island and the Nevada Yucca Mountain debacle so clearly illustrate), we are looking at oil becoming ever more dear just as the engine is roaring into high gear. A US economy with expensive oil means that air travel becomes prohibitively expensive (and hence locked into a death spiral), means that the cost of all manufactured goods goes up, and ultimately sounds the death knell of contemporary society. This means that it is acceptable to justify the invasion of a foreign country in the name of securing those oil resources ... at least, this is the latest incarnation of the argument used by the Neo-Conservatives currently in power in the administration. And in some respects, it WILL be the death knell of the civilization that we have become comfortable with, though there is definitely life after death here, a new society that may be better or worse, but certainly will be fairly radically different. These changes will occur, though perhaps not as I've outlined here, because there are very fixed physical resource constraints that we are facing now, constraints that will force change in society  whether we want to or not.

The way that we work is already changing. Relatively inexpensive laptops and wireless computers provide the portals by which we connect to the tasks of work - I can sit in a Starbucks and build programs or analyses, communicating with the business server to coordinate my actions with co-workers or teammates, using IM to pass "watercooler" type information. This is true of anyone who works with information ... there is a definite work ritual - getting up early to fight traffic, going into a cubicle in an office park to type information into a box, spending time in meetings trying to get other people up to speed with a presentation, making the commute back home, then collapsing in front of the TV, exhausted but unexercised. The problem is that each stage of that ritual represents some (and in many cases some significant) energy costs. I spend $50 a week on gasoline commuting back and forth. The real estate, though not yet really recovered after the last economic downturn, is still comparatively expensive compared to a couple of decades ago, as is the power costs in maintaining energy swilling swervers and desktop systems, though this latter is dropping in the face of new technologies. Right now the advantages outweight the costs - it is easier to run a business when people are in general proximity - but these costs are mounting all the time, especially when this is tied into the other major cost increase of today: health care.

At the moment we're in a period of calm, though it's more like the eye of a hurricane than long term prosperity. In a normal business cycle, we should be in period of accelerative growth, unemployment (even by the very narrow and stilted definition used by the current administration) should be around 3%, and the economy should be purring along. Instead, airlines and theme parks are laying off thousands, mortgage companies that were in a hiring frenzy a couple of years ago are now going bankrupt, hiring is not even at the population replacement level, and radio and TV is filled with ads for "Debt Counselling Services". If you work full time, you are being "asked" to start sharing some of the health care costs. If you are a contractor, even one working full-time with an agency, you are likely paying for your own insurance completely, or doing without. Don't even bother asking if you're unemployed. In other words, even in an economy that by all rights should be operating at full steam, there are huge headwinds pushing back, and they are only getting stronger.

In Japan this week, I spent some time talking with a graphics professor. Much of his "teaching"  work now involves dealing with students that he has never personally meet, taking distance-learning courses to mitigate the high current infrastructure costs of education. That he now can do so easily is an indication of a sea change that is going on in that sector. The outsourcing (whether "local" or overseas) of jobs is also in great part a consequence of the decreasing costs of such virtual work environments (though greed on the part of CEOs hoping to maximize their own paychecks at the expense of the employees plays a big part as well). Such outsourcing is simply an extension of the trend started back in the early 1990s of trying to eliminate as many full time jobs in favor of less expensive, just-in-time contractors who could be hired for an immediate job then "released" once the job was completed. The burdens that such business had previously shouldered, from health care to pensions and even equipment costs were passed on to the contractor, who typically did not have the collective advantages that corporations had to spread the costs (and risks) among a large pool of people. Prior to the advent of virtualization, doing this was not cost effective - the workers were not effective enough to justify the costs of working with them in a contract role. That's definitely no longer the case.

In the short term, this is the kind of situation that a CEO has got to love. In the long term, it may be their undoing.

American manufacturing is dying. The recent uptick in factory activity is driven in part by a major reclassification of what constitutes factories (pushing many McDonalds and Starbucks into that category, for instance), and in part by a weakening dollar that has made certain American goods cheaper compared to their equivalents elsewhere. However, an increasingly global anti-American sentiment, coupled with rising oil prices, and a system where most of the component pieces for "American made" products come from China, has meant that this bounce is nowhere near as strong as any predicted it would be in any case. Factory utilization is still well below the 100% utilization mark, meaning that we still have much more extant capacity before the need to start building new factories or hire new workers kicks in, with automation continuing to reduce the number of those new workers.

The US IT sector is struggling, though I think its on the upside of its own cyclical slump. In a number of areas (as I saw last week) American software is seen as being shoddy, too expensive, and often coming with very restrictive strings attached.  I was also a little dismayed to realize that at an international conference on a major XML standard, the American contingent was practically non-existent. In wireless technology, this country is seen as being about three years behind the curve, and it is slipping behind other countries in terms of the degree of R&D investment and technical education, and the migration out of IT, while not as pronounced as it was, is causing senior-level talent to retire even as  fewer new programmers enter into the field. Meanwhile wages in places like China and India are increasing for those same people, who are increasingly finding it more attractive to stay home and set up their own companies than it is to take the big leap to the US (especially in light of increasingly hostile immigration policies).

So what does this all mean long term? The cost of foreign IT professionals is rising as the population of local IT professionals is dropping pretty dramatically. Ditto other knowledge workers/creative types. The incentives to go back into the work-force in a salaried position are becoming minimal at this point: subsistance wages, lack of health care, insane hours, dehumanizing work conditions, the very real risk that money you put into pension funds will find its way into some retiring CEO's golden parachute instead.  The next generation work force is making money buying and selling on eBay, starting Open Source projects that they can then charge consulting fees for, jumping from contract position to contract position on Monster, and pooling money to buy into houses, becoming virtual assistants, becoming small-press publishers or selling prints through online services such as DeviantArt or 3D meshes through Renderosity. What they are not doing, at least not in this country, is becoming any more reliant upon the corporate infrastructure than they have to.

I'm concentrating on these twenty and thirty year olds because they provide a snapshot of our society twenty years from now. Most of them are neither liberal nor conservative - they are socialist (Green) or libertarian, both with an extraordinary distrust of the established order, but holding differences in terms of how goods and services are distributed. They do not get their news from Ted Koppel or the New York Times, but from a couple of dozen primary and hundreds of secondary sources on the Internet. Many express themselves in blog space, and they consequently hold a great deal of contempt for "established" facts, instead building an internal network of the universe where everything is weighed for its likely veracity or utility. They generally have a very lose sense about what constitutes ownership, at least in the virtual world. They are the future, and if I was a CEO, I would be very worried about them, because they will tear corporations apart.

Corporations buy and sell things. They rely upon homogenization of the market to reduce the degree of specialization that they need to undertake to sell the product. They rely upon controlling the flow of information to enforce that homogenization (one of the reasons why the state of broadcast media in this country is in such a deplorable state), and they will attempt to censor anything that contradicts their messages in a negative light. So long as their market is also made up of their employees and they can effectively control those employees by reducing the scope of available alternatives in employment, then they can effectively keep the existing system going.  However, demographics is going to start working against them, as is technology, as are energy and health care costs.

When a job becomes untenable or ceases being "cost-effective", people will start looking for alternatives. The ones least likely to do so are the ones most vested in the existing order (one of the reasons why I do not think the current "accidental" boom in real-estate was all that accidental). The ones most likely to do so are ironically the ones that these companies most want to keep - the ones who will generate some form of IP that can be licenseable. Done on the company dime, these things belong to the company. Done on the programmer's (or author's or writer's) dime (and not thoughtlessly given away) that becomes an asset that they can potentially license themselves. Many of the people in the 1990s didn't understand this, and handed control over multi-million dollar ideas to companies in exchange for a mediocre paycheck and all too often worthless options. The next generation has learned from their forebears; and in general are far more educated about IP Law.

The cost of "doing business" is going up, with too much of that cost borne by the workers in those businesses and too little borne by the "investors". Society adjusts. We're on the edge of an IT shortage, one induced in great part by the heavy-handed tactics of corporate culture in the last few years. Virtualization, high health care costs, rising energy costs due to global demand increases from other "Post-Industrializing" countries and increasingly limited supplies, and rapacious and demeaning business practices have engendered a generation that is preparing for the future by becoming locally self-sufficient, autonomous, connected, and consequently much less dependent upon the corporate (or governmental) infrastructure, or the products and services they provide. They have ridden out their first big Depression, in a way that much of the rest of the country really hasn't yet, and in general are taking those lessons to heart and building on them (and reforming the structures that generated the problems in the first place). Yep, I'd be very worried indeed, if I was a CEO of a large corporation right now.

Okay, enough polemics. I'll get back to code in my next posting.

-- Kurt Cagle