Green & Sustainable Chemistry Conference: Paul Hodges Q&A
Christina Valimaki: Good afternoon, I’m Christina Valimaki. I am Senior Director of Chemicals Industry Marketing in Elsevier’s R&D Solutions business unit. And, as you heard, Paul Hodges, here at the table with me, is the Chairman of the International eChem.
He’s also a member of the World Economic Forum, Industry Council on Chemicals, Biotech and Advanced Materials. We’re going to have an interview format today to close of session. We’re honored to be able to do that and really have a conversation, putting all the work that’s been presented in the minerals, resources and recycling sessions in the context of the circular economy and how that will drive growth in the future.
So, setting the context a bit, I want to remind us all of the circular economy’s waste hierarchy, starting with reduce, reuse and recycle, and its ties to the green chemistry principles. For example, Principle #9, which emphasizes the selection of catalysts when designing chemistries. Catalysts help to reduce energy consumption and reactions, and they also represent a reusable material, so they hit several of the circular economy’s waste principles in the hierarchy. However, some have argued – Paul – that green chemistry research and innovation is really needed first and foremost when it comes to recycling. So atomic recycling, such as that of design of degradation of materials. And I’m wondering if you agree with that?
Paul Hodges: Thank you very much, and good afternoon to everyone. Thank you very much for the invitation to be here, and thank you for staying right to the end. Yes, I think I would challenge that, in what I would argue is that we need to re-think, when you look at the waste hierarchy, what are we trying to do here? Are we trying to reduce the amount that goes into landfill – which is an enormous amount at the moment – or are we trying to radically change the way that we use stuff, if you like? The consumer society. And I think my own view is that, obviously, people have done an awful lot about trying to reduce waste and trying to reduce landfill. And I’m sure there is still more to do. The big push for the future has to be more towards the top of the waste hierarchy.
How do we actually keep materials in the hierarchy in the market all the time?
Now, one of my roles is on the World Economic Forum for chemicals, and we published a report for Davos in January about plastics. And everybody’s in favor of plastics. It’s a very good thing, it’s saved a lot of lives through making food safer and everything else.
But 95% of all the plastics we use get used once and thrown away. It’s a cost of about between 80 and 120 billion dollars a year. So it’s an enormous problem.
And simply finding ways of making it better, in terms of reducing the amount that goes to the landfill, doesn’t really address the issue that one of the statistics that we pulled together is that there is one ton of plastic in the ocean for every three tons of fish. And if we carry on like this, by 2050, we’ll have as much plastic in the ocean as fish. I’m sure we all agree this is intolerable. We can’t look forward to a solution like this. So I think that’s where I think innovation really has to start now, because that is the big new frontier for us.
Christina Valimaki: One of the underpinnings of course of predicting economic growth and the direction of growth is demographics. And given that the current global birthrates are below replacement rate – or that’s the trajectory, at least – you could argue that the current pollution problem, for example the clogging of the waterways and the oceans with plastic materials, could be maintained at status quo, given that the population is not expected to grow as explosively as we had predicted maybe four or five years ago. So wouldn’t you say that staying at status quo presents less of a problem than one might imagine?
Paul Hodges: I think you could always make an argument for the status quo. I personally wouldn’t accept that argument because I think we’re actually in the wrong place at the moment. If we were in a place where the level of pollution was already relatively low, and we were arguing about resolving the last 5 or 10%, well then you can get into a debate about is it right to use all our resources here, shouldn’t there be more important things? But I don’t think we’re anywhere near that position at the moment. We have a massive and increasing problem of pollution today. We have a massive and increasing problem of waste. And this is something that I think the people who are contributing to this conference are eminently capable, and certainly from the posters I’ve been seeing and the sessions I’ve been attending, an enormous enthusiasm for tackling these issues. If you look at the demographics, what you see is that the world has moved – take from 1950 to today – the world has moved from 2.5 billion people up to around 7.3 billion people today, largely because of this phenomenon of the Baby Boomers. But there are two – exactly as you say – there are actually two issues going on here. One is the collapse in fertility rates. Used to be, in 1950, average fertility rate five babies a woman.
Today in the world it’s only two and a half – so it’s halved.
In the Western world, it’s been below replacement level. Replacement level is the number required to keep the population stable, of 2.1 babies per woman. It’s been below that now for 45 years, so it does seem that a wealthier economy means that women have fewer babies. And of course women go into the workforce and have to give up more, or have to take time to have babies, all of those, which you of course know yourself in this area. The second area, however, and this is, I think, going to be the biggest challenge for the next 20 years, is the impact of aging populations. So if you were in Berlin in 1888, Bismarck, who was then the German chancellor, introduced the first ever state pension. And he introduced it at the age of 65. The reason he introduced it at the age of 65 was that almost nobody lived to be that old. Life expectancy in Germany and the Western world was around 46 years old. And so it was a small amount of money for a small number of people for a very small amount of time. Now if you fast forward to today, the average person, at the age of 65 in the developed world, has 20 years of life expectancy. So if you are retiring at 65, you can hope to live reasonably to 85. If you’re in the developing world, you can hope to live for 15 years, until you’re 80. Now the problem with this is that people over the age of around 55 don’t contribute very much to the economy. All the policy makers and central banks who want growth, you’re going to have within 10 or so years, one in five of the world population over the age of 55.
And people over the age of 55 already own most of what they need, and of course they move into retirement, so they have much less money to spend. This is the problem that the central banks are supposedly trying to solve with all their stimulus programs, but it’s quite obvious they can’t solve it because they can’t print babies. They can rack up vast amounts of debt, but they can’t actually put young people in the room who are going to buy and produce things over the course of their lifetime. They can just rack up debt. So this is the issue now that I think we’re going to have to face. Because for the first time in history we’re going to have a whole generation of people over the age of 55 and there are virtually no products or services available for them. We give them walking sticks, we give them pills, but they inconveniently don’t die anymore. Now I, personally, and a few people in this room, I personally think this is a very good idea! But if I’m a central banker, I don’t think it’s a very good idea because, actually, I and anybody else over the age of 55 is not contributing to GDP. And this is our problem in society, this is one of the things that scientists and people in the chemical industry have to try and solve.
How do we live in a world where a large part – 1 in 5 of the world population – is really not going to have very much money, but still needs the essentials? They still need food, they still need water, they still need shelter, they need mobility, they need health. All of these things, and they need them in a sustainable way.
I would just throw in one comment at this point: When we talk about sustainability and green, I don’t think anymore we should talk about this as being a nice thing to have. It is a nice thing to have, obviously. But I actually regard it as a core economic necessity. We cannot afford to keep throwing away the amount of stuff that we throw away. 95% of all our plastics – we just cannot afford to do this, irrespective of whether the earth can cope with that, which clearly it can’t. So it’s up to the people in this room, and the people in the chemical industry, to change the way that we use these resources, because we cannot go on as we are.
Christina Valimaki: I think Paul’s analysis here is important to recap the connection. So he’s describing a fundamental demographic shift with an aging population, which means a reduction in consumerism. A reduction in consumerism directly impacts the chemicals industry, which is a practical, daily branch, into which all of your research filters eventually. So what we’re looking at here is an era of needs for the population over wants, and the reduction of especially luxury consumerism. So the question becomes: How will the chemicals industry grow? It’s the largest manufacturing industry in the world, approaching six trillion US dollars annually this year. And what is really the relevance of spurring chemical industry growth? What should the industry do differently in the era of needs versus wants for the consumer population?
Paul Hodges: Both very big questions. And perhaps the best way of describing it is to say where have we been? And where are we going next? Because I think that contrast starts to set the scene for what we’re doing. And of course there’s a lot of debate about this, and I don’t want to discourage debate, because we’re all moving forward in an unknown world. There are no maps here to guide us, because it’s never happened. If you sat here, as I say, in 1888 and talked to German Chancellor Bismarck, he would not have believed it possible that we would be talking about this issue. So it’s completely new. Now what happened to the chemical industry, our great period of growth, was very simple. We went from 2.5 billion people in the world, in 1950, to 7.3 billion today. All of those people needed the products that we, as an industry, supplied. We’ve just been hearing about carbonates, we’ve heard about all sorts of other products. And we have been, particularly in the last 20 years or so, we have been a very much supply-led industry. By which I mean, if we confined sources of supply, preferably low-cost sources of supply. Take for example, the debate over shale gas, and can we have cheap shale gas, and does that help to create growth? So that’s an example of what we’ve been doing for the last 20 or 30 years very, very successfully. But where are we today? I would argue we’re moving away from being supply-driven to being demand-led. In other words, we don’t anymore take, as we have done for the last few years, a standard view of demand. Look, here’s an IMF GDP forecast: it’s 3.5% GDP growth.
So if we want to know about demand for our product, we know that demand will grow 1x GDP, 1.5x GDP, 2, whatever it is. Right, so that means, by 2020, we will need to have this amount of production. Now that’s demand done, now we need to think about how we build those plants and make it all happen. I’m arguing that we now go back to where we were before all these Baby Boomers came into their peak, as you may call it, wealth creation period, that age between 25 to 54 where people’s careers take off, their incomes go up, they often settle down, have families, their spending goes up. So that was where we were, in a world of constant growth, and now we’re moving into a world of ‘Do we actually have a customer?’
And this is really interesting, I think, for all of you in the audience. Because what it means is that the critical success factor for the industry now becomes one of effectiveness, not about efficiency. 15, 10 years ago, large companies were reducing the number of researchers they had, the number of central research laboratories they had, the number of application development scientists that they had. Even the number of techno-commercial salesman and business development people that they had. We don’t need those, they said. We can make more money, we just take our existing products and we package them a bit differently and we push them out as cheaply as possible, and we will make more and more money for our shareholders.
We don’t need to invest in the future, because the future is going to be like today. Well that wasn’t very good news for researchers. It wasn’t very good news for scientists. We were living, if you like, off the seed corn of the past. Now, with this new world, new normal world, as you might call it, we need all these new ideas. Particularly what we need, and the thought I want to leave you on this is
We don’t want to be product-led anymore. We want to be service-led.
I was talking to somebody yesterday about the excellent work they’ve been doing in land remediation. Now there you have a need, you have a very clear – you’ve seen the poster – a very clear need to remediate this land which is heavily polluted. And that isn’t about digging it up and putting it in the sea, or digging it up and putting it in landfill. This is about using one’s scientific ability, and also political ability, because you have to negotiate with governments, and business ability, because you got to find an economic case for doing this, where you can turn that land into something useable again. Now this is something very challenging, and I would argue this is about being service-led. That you’re using your brain and the experience you’ve got, in order to meet a real need, as you said.
And in the past, we have been very much, I think, in a mix of the two. Yes, we’ve dealt with needs, but we’ve also dealt with wants, and we’ve kind of confused, sometimes, wants with needs. We say ‘Oh, I need a new iPhone.’ No, you don’t need a new iPhone. You want a new iPhone. And if you can’t afford it, it actually doesn’t matter very much. But you do need food, you do need a safe environment. And if, it’s not a want, it’s a need. And if you don’t have it, your life is threatened, and so is that of other people. And so I think this great shift, which we’re at the start of at the moment, is going to have an enormous impact over the next 5 to 10 years, as we come to terms with it.
Christina Valimaki: Last question. Paul, you’ve argued we’re at the end of an economic supercycle. And when we look at the new normal of the potential growth trajectory of the economy, I’d just like to recognize the work of the Elsevier Green Chemistry Challenge finalists – the five finalists, as well as the findings, the research findings, of many of you in the room and the delegates who presented posters at the conference yesterday and today. Why is it that their research findings – the findings of those in the room, and the five finalists – create a hopeful economic picture for the future in your mind?
Paul Hodges: I think it comes back to this question of focusing on needs. I mean, I was delighted with all the posters that I saw and sessions I’ve been in, and so on. I wasn’t part of the judging panel, so I can’t talk about why these five were selected. But, if you look at those five, from my point of view, you’ve got two connected with water, you’ve got two connected with food, and you’ve got one textiles, which is around shelter and health. So if you look at my six core needs, they’re all in that process. So, first thing is, I’m delighted that the audience, if you like, and the work that you’ve been doing relates so directly to the thinking that we’ve been developing.
The second thing that delights me about all of this, and as I say it’s not just those five papers, superb though they are, but all of the papers, because there are many superb papers there, and the issue there is people are trying to find a new way of doing things`. And when you drill down into them, they’re trying to find ways of doing things differently at lower costs. And I do think this is critically important, that of course when you’re doing something for the first time, it’s always going to be more expensive than if you’re doing it for the millionth time. We know that, the experience curve is very clear.
So I’m not saying, on Day 1, everything has to be as cheap as existing solutions. But if we are moving into a world where one in five of the population is over the age of 55, many of them living on pensions, we might want them to pay twice as much because it’s a good solution, but we can’t ask our grandparents to do that, because they haven’t got the money.
If they do that, they have to cut short on food or they have to cut short on heating.
And I, for one, don’t want to go back to a world where pensioners sit in front of the fire in the winter and can’t afford to have the fire on because they can’t afford it – they’ve only got their pension. So what we have to do, our responsibility, and this is why I think the conference is so important, and the papers that are coming through are so important, is they’re looking at how can we do this affordably? And this, if one is looking – my final thought on this – if one’s looking at this from a career point of view – and I don’t have any problem with people looking at the work they do as a part of building their career – what I would suggest is that you’re going to be very well placed for the future if, first of all, you can demonstrate that you understand the economic context in which you’re operating, as well as the sustainability side of the context. Secondly, that you’re responding to real needs that people can’t avoid.
As I say, it doesn’t really matter if we have a new iPhone or not. It does matter if we don’t have any food for the next month. So real needs is very important. And this third point about ‘yes, I can do that, and I can make it cheaper and more affordable than it is today.’ And we come right back to where we started from, the waste hierarchy. One of the best ways of doing that is simply not to throw away so much stuff. If you don’t anymore throw away 95% of all the plastics you produce each year, you must have a saving. And the question is: Do you stop not throwing away by stopping it altogether? ‘I just can’t afford to package food safely anymore.’ Or, and this is what this audience can produce – or, can I instead find a way of packaging food more safely and more cheaply, so that we can get more value from the food that we produce? I think those are the great challenges that we’ve got, and it’s just so exciting to be with an audience that’s so gripped by this, and that’s got such fantastically innovative ideas about how to handle it.
Christina Valimaki: We have time for questions perhaps.
Question 1: Thank you for that, that was very interesting, I thought. One of the concepts you touched on quite a few times there was growth, and it’s my opinion that it’s almost impossible for us to act sustainably as a society if we continue to measure our success by the metric of growth – because we’ll be continuously encouraged to overconsume, especially if the population is plateauing or falling off, and especially if it’s aging. So my first question is, do you agree that growth is no longer an appropriate metric in the developed world? And my second question is, if so, what do you think should replace it? How will we measure our success without growth?
Paul Hodges: I certainly agree with your point. I mean, we only started to measure growth after the 1929 crash. Roosevelt, in the States, President Roosevelt, naturally at that point wanted to understand what had happened to the US economy. So they had to do some measurement for the first time. But nobody knew before then what GDP was, and yet the world seemed to manage quite nicely there. So I think that growth is really going to be increasingly irrelevant for us. It’s a very interesting question of what should replace it, or does it need to be replaced? People are talking about happiness indices for example, and quite a lot of work has been done in that area. Of course the question is twofold – you actually sort of manage what you measure. I’ve been a corporate manager, I’ve run large businesses.
The stuff you measure, you manage. The stuff you don’t measure, you don’t manage. So I can understand the argument that says ‘Well we need to have something to measure.’ But on the other hand, I look at the range of things you need to include to make this index work, and I’m at the moment quite baffled as to how I would do it and the weightings I would put into it. So I think, to be honest, this is going to be a work in progress. We have to pool our ideas, and we’ll probably come up with something which isn’t brilliant to start with, and then we’ll critique it, and in five or ten years we’ll get better and we’ll start to know what we’re trying to do. But you’re absolutely right. As the Irish proverb says, if you don’t know where you’re going, any road will do. And we do need to know where we’re going.
Question 2: Paul, thank you for your nice and inspiring talk. Most of it I would underline, the service model and demand-driven. But I think it’s important also you have in mind that it’s not just about service or demand-driven, we also have to make sure – you mentioned the plastics and 95% -- that we reuse the material flows and substance flows, and use the materials more intelligently and more reuse maybe. And in that respect, I think it’s also good use that elderly people do not consume so much materials anymore. And, for me, that’s, I would say, good news. And as for measuring, that’s interesting because that was more or less invented by Galileo. Measure what you can measure, and make measure what you cannot measure. And as we heard already this morning by Paul Anastas, and I’m fully convinced that a lot of things make life worse to live and so on, you cannot measure. So maybe we need some data, but also some quality that guides us where we want to know. Maybe the nice scenery, not because of its economic value, but because it’s nice – colors, light, and so on. And maybe we should start to measure and describe change instead of growth, and where we are going, and that could be a compromise. What do you think?
Paul Hodges: I think that’s very interesting. I think this is part of the debate that we need to have.
I like very much the work that you’re doing, 'benign by design'. I think that’s fantastic, those concepts.
If you look at industry, and that’s my background, so forgive me for talking about it, one of the ways that we tried to get around this was through the development of what is called the ‘balance scorecard.’ So you look at revenue and you look at profit and you look at safety – how many accidents are you having? – and you manage those. But then you also look at the non-quantitative, the more qualitative issues. And you can measure, for example, one of the things we did for customers was to measure on-time, in-full delivery. And when we started to measure that, we realized we were appalling. We actually have had 80% of our deliveries were on-time, in-full.
Obviously a customer is going to be happier if they’re getting what they wanted, when they wanted it. So you can, and that of course then drives the quantitative approach. So I think that that is a very creative area to have a discussion in, and to start working forward on. In addition, I think what we’re looking at with the world is also a change in perception. If you take the auto industry, for example.
Auto industry, probably the largest single customer for the chemical industry overall. And in the past, everybody wanted to own a car. It was a rite of passage, as soon as I get to be 16 in the States, 17, 18, whatever it is, I must get a driving license, I must go out and get a car. If you look today at young people, they’re not that bothered about owning a car. And we’ve got all sorts of new business models like Uber coming along, like car sharing, there is BMW car-to-go parked over the road there this morning. We’ve got cities like London and Paris going into car sharing. We’ve got autonomous cars coming through. And you’ve got the president of General Motors himself saying ‘We’re going to see more change in the auto industry in the next five years than in the last 50 years.’ And I think we’ve reached peak car moment. I don’t think in the world we will have more cars in 2020 than we have today, and I thoroughly welcome that. One of the challenges that places on us is to be able to keep those cars in the system longer. So instead of just throwing it away, actually repairing cars and so on. And 3D printing is going to have a terrific role to play. So I think there’s going to be change from this direction, change from that direction, all led by the principles that you’re talking about. They’re absolutely critical.
Christina Valimaki: That’s it for our interview today. Thank you, Paul, for being with us, and for the attention of the audience.
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