The Carbon Efficient City: Building Blocks to Cool Our Planet

2. The Invisible Hand

25 m easurement systems are a fundamental building block for managing change. However, even visionary goals articulated in terms of concrete measurement systems do not create change on their own. Transforming our high-carbon economy to a successful lowcarbon economy will require not only standardized measurements but also enabling frameworks that allow market forces to work in an efficient way. What is an enabling framework? At its most basic level it is a coordinated approach that allows institutions to align their efforts. Where a measurement system is fundamental (like an alphabet or numbers), an enabling framework sits on top and allows people to work together in more complex ways (like language or calculus). Enabling frameworks are often so ingrained in human enterprise that we don’t even notice them. This can make them difficult to think about. Before moving on to how enabling frameworks could transform our economy’s carbon dependency, it may be helpful to consider some illustrative frameworks and the human activities they enable. CHAPTEr 2 THE InvIsIblE HAnd I am learning that if I just go on accepting the framework for life that others have given me . . . I will be unable to recognize that which I have the power to change. —Liv Ullmann CHAPTEr 2 26 recognizing effective frAMeworks Money within country borders and currency exchange markets are an example of a framework that enables economic activity at a national scale and allows for international commerce as well. Currency markets make it possible for goods (and price signals) to flow across country borders, resulting in an integrated global economy. While tariffs and limited human mobility remain a significant distortion to free markets (evidence of these anomalies is illustrated by The Economist’s “Big Mac Index,” which compares the price of an identical good—a McDonald’s Big Mac sandwich—in different countries), currency markets are still quite successfully enabling global markets, which in turn allows for specialization across economies and drives market share to low-cost and high-value producers.1 As early as 1776 in An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith referred to “the invisible hand” of economic frameworks guiding the behavior of individuals and businesses in our society.2 On the technical side, frameworks are equally important. Frequently in the technical world enabling frameworks are known as interfaces. Threeprong electrical outlets with 110-volt AC power are a standard framework that allows for versatility in the production and use of electrical appliances. The three-prong 110-volt interface is a critical part of the match between efficient infrastructure and a broad range of consumer appliances. Conversely , who hasn’t encountered the angst of traveling with a cell phone and being required to buy a new charger to replace the one forgotten at home? Although we may finally see a common phone-end connection in the next few years, what economic inefficiency for the consumer who needs to purchase a new charger with each new phone and throw the perfectly functional old one away, or for the retailer who has to stock a whole rack of chargers, consuming inventory and space, when they all perform exactly the same function.3 Like measurement systems, frameworks gain value from standardization and universality. In the mid-1970s two competing technical frameworks emerged for video recording and replicating movies on tape for home use: VHS and Betamax. Despite its superior image quality and smaller tapes, Betamax didn’t gain the market share that VHS did, primarily because in the early stages of the videotape format war the VHS standard was more versatile and could make longer recordings (an important advantage for recording Monday night football games). As a result, Betamax didn’t gain a big enough THE INVISIBLE HAND 27 market share to be price competitive, and VHS became the dominant technical framework for the next twenty years until the advent of DVDs.4 Without enabling frameworks, transactional costs and economic friction remain high. This in turn discourages innovation and adoption in technologies , processes, and business relationships. The frameworks we have talked about so far vary: all are rules or norms that govern relationships, but some are big-picture and allow for a great deal of variability and evolution (such as currency exchange markets), while others are highly specific and tangible (such as three-prong outlets). The specificity of frameworks is an important concept. The more specific it is, the...