Nature avoids monocultures like the plague (We should too).
The folly of monocultures and monopolies
Ecosystems and Biodiversity: The principal thesis of Ekos2 is that we can learn a great deal from ecosystems. These natural economies run on solar energy, and use resources extremely efficiently (e.g. high levels of recycling). Moreover, the collective actions of a myriad of biota contribute the continual restoration of the common infrastructure on which the entire system depends – the humus of decaying organic matter in forest contributes to the fertility and water holding capacity of the soil and roots hold the soil.
The rich biodiversity of native ecosystems contributes to their resilience – the ability of a system to absorb and recover from shocks and adapt to change. A drought may devastate some species, but the more tolerant will survive. In fact periodic stress helps to build resistance via evolution. Diversity also creates checks and balances. For example, when herbivorous insects have a good year so do the “bugavores” the sparrows, bluebirds, bats, spiders, mantises, etc. This post focuses on the critical importance of diversity – ecological and economic.
Monocultures: systemic risks: In contrast to diverse ecosystems, large uniform monocultures, be they corn, soy beans, or pineapples are void of diversity. There are important downsides to monocultures. The close proximity of plants over large areas offers pests a splendid banquet. Large numbers can gather to congregate, conjugate, lay eggs or make or disseminate fungal spores. Monocultures also eliminate the habitats of predators.
Bananas – every banana sold for export worldwide is a genetic clone. Every tree is grafted from root stock having identical DNA. This uniformity ensures the mega-growers that all the bananas in a shipment ripen simultaneously, creating economies of scale and big profits. Dan Koeppel writing in the NY Times describes how the “the Big Gros” variety were destroyed by the Panama disease, a fungal blight some 50 years ago – the industry was saved in the nick of time by the Cavendish, a Chinese variety formerly considered “something close to junk: inferior in taste, easy to bruise” but resistant to the blight.
Too big to fail: With millions invested and many orders to fill, the big growers deem their crops too big to fail. If a pest develops resistance, add a new, stronger chemical and add more. If intense harvests suck the nutrients out of the soil, add fertilizer. Dow and Monsanto will be very happy to oblige.
Financial monocultures (monopolies): I would argue that there are strong parallels between the crop monocultures and the increased consolidation occurring in banking and finance. The meltdown of 2008 clearly showed the absence of resilience (i.e. the fragility) of highly intertwined global financial markets. Rising foreclosure rates and dropping housing values in a several states, led to a sell off of mortgage backed securities. As a result AIG had to payout billions on credit default swaps – insurance policies or bets that came due as a result of the plunge.
In the case of monocultures, heavy pesticide and fertilizer use often have severe impacts far from the crops. (See our previous post on the link between heavy fertilizer use in the central U.S. Corn Belt and the dead zones of the Gulf of Mexico, hundreds of miles downstream.
Similarly what happens on Wall Street doesn’t stay there. The crash of 2008 cascaded around the world and resulted in the worst recession since the Great Depression. The jobless rate in the U.S. still hovers near the 10 percent rate and families continue to lose their homes, despite trillions in bailouts.
Do ecosystems do bailouts? When a tree gets too big relative to its root system, it inevitably falls. Perhaps it’s a heavy coating of ice, saturated soils and/or wind that topples the big oak, creating a big blowdown mound it its wake. There is no Federal Reserve or Treasury to prop it up. Nevertheless, the forest as a whole doesn’t crash. In fact such events lead to rejuvenation. Given freshly available sunlight, water and nutrients, a gaggle of fast growers fill the space.
In the woods behind my house an entire former Christmas tree plantation of pines is dying. But between the ghosts an abundance of new life sprouts. (See the whole story in my comment below.)
I’ll leave others decide whether or not the trillions in dollars of bailouts to the top financial firms prevented an even worse catastrophe. What is troubling is that the collapse of some investment firms (Bear Stearns, Lehman Brothers) and the bailout of others (AIG, Bank of America) helped the remaining megabanks (Goldman Sachs), gain an even greater grip on the financial markets.
For a good accounting see Simon Johnson and James Kwak, Thirteen Bankers. According to these financial experts, the top six banks together control assets as large as 60 percent of the U.S. GDP; they are simply too big and too important to fail. Yet these banks continue to take enormous risks, knowing that the government will again come to their rescue.
In their blog Baseline Scenario, these authors are skeptical that the regulatory measures currently being debated in Congress will be sufficient to eliminate the underlying systemic risk associated with this consolidation. However, their July 10 post describes an interesting wrinkle in the House of Representatives.
The lesson from nature is simple: governments (the protector of the whole) should use its power to prevent any one entity from becoming “too big to fail” in the first place.