Below is the transcript for Francis Koster: Finding Local Investments That Pay Off for You & Your Community
Chris Martenson: Welcome. We are here in sunny Charleston, South Carolina and it is just a beautiful place to be and I have the great honor to sit here today with Francis Koster. And today we are going to be talking about, what we do in our work is we talk about the economy and energy and the intersection, we think there are some incredible changes coming. Of course it is one thing to point out those changes, it is quite another to talk about what you do in response to those changes. So I am going to let Francis introduce himself. But today we are going to have an incredible discussion about solutions, about what we can actually do. There is the problem and then there is the response, so today I hope we are going to be able to focus on some just incredible responses that Francis has been working on for a while. So Francis, welcome.
Francis Koster: Thank you.
Chris Martenson: Introduce yourself if you would.
Francis Koster: My name is Francis Koster. My doctorate is from the Program for the Study of the Future at the University of Massachusetts – a program which I must say does not exist anymore, but 40 years or so ago, when I was engaged in it, I paid particular attention to natural resource depletion issues, particularly oil. The academic question of ‘why leaders do not listen to warnings’ has been a central issue of my career. My first career was as a university administrator. My second career was as a renewable energy administrator for both the university and electric utilities and subsequent to that – after the oil prices fell – I became a pediatric healthcare administrator for a very large healthcare system. So, throughout that time, my consciousness, my worldview has paid attention not only to natural resources and what we might consider fundamental life support systems, but also the health and public health implications of the supply and the disruption of that supply.
Chris Martenson: So, you have been at this for a number of years now and you mentioned to me yesterday that there are a number of areas that you look at and you see a number of concerns. Where have you focused most of your attention so far?
Francis Koster: It is my perspective that we have a huge national problem that people have therefore imputed that we need a huge national solution to. Over time, I have come to believe that the solution to the huge national problem is not national, but rather local. That there are well known and ample investment opportunities done at a smaller scale which when added up yield more than we have been able to accomplish as a matter of National Policy. Given paralysis in the political sphere for many controversial issues, I continue to look for a way to swim upstream and not be blocked by some polarizing polemic from one end of the continuum or the other. I run a website called The Optimistic Futurist and I collect examples of local success stories and I have many more in my files than I have on the website some of which I will mention as we go along.
Chris Martenson: So – theoptimisticfuturist.com, is that right?
Francis Koster: Yes, thank you.
Chris Martenson: These are solutions that have been expressed at a community level where people I assume they are dealing with energy issues, food issues.
Francis Koster: I tend to focus on the basic life support systems – food, energy, water and the environment, but I also capture other issues. For example there is great passion in the United States at the moment about lowering taxes. If you take a look at the way taxes are spent and you do not focus on National Defense or the Social Security and Medicare programs, but look at everything else, particularly at the local level you find out that public health is a huge consumer of dollars, the Medicaid Program, the prison system, the correction systems and the schools. There are major, major opportunities to imitate successes that have been performed around the country to lower the operating costs in those areas. For example, some programs lower the recidivism rate of prisoners at the community jails from an industry normal about 70% down to about 30% saves huge amounts of taxpayer dollars. As you know, it costs more to put someone in jail than it does to put them in college. Traffic roundabouts for example, municipalities are responsible and land developers for four way stop signs and traffic lights and so on and so forth. There has been a number of experiments done now and analysis done where if a local community substitutes roundabouts such as are used in Europe, they reduce air pollution costs, they increase gas mileage, they increase throughput time from point A to point B and it gets faster the more roundabouts you go through and it reduces fuel consumption. As a side effect, it catches drunk drivers because the drunk driver tends to drive up into the middle of the thing and is easily retrieved by the local constabulary.
Chris Martenson: So if we get some auto-sized flypaper in the middle of the roundabout, this would be great.
Francis Koster: In some Midwestern, states where the County operates the local hospital and they put these roundabouts in, they have noticed a decline in public taxpayer support needed for the County hospital. That is a local, replicable good investment. In the energy space, one of the major challenges is municipal buildings; schools and so on and so forth where there is either a lack of money to do energy conservation or renewable energy installation, or perceived lack. And the perceived lack is frequently set by the willingness of the taxpayer to pony up. But it is a magnificent investment opportunity for private capital because there are a wide range of favorable tax treatments for energy conservation and solar energy which the private sector can harvest and the public sector cannot. An investor might for example go to the local school system and say I will fix the following nine buildings and I will loan you the money and you will pay it back to me out of a percentage of what you no longer pay the utility. And I also by the way get to keep the tax credits which you cannot use and get quite handsome rates of return while doing good for their local community – looking good at the Rotary Club and so on. These are enormously secure investments. You are not banking on a gold bubble or other volatile things; you are banking on the fact that energy prices are not going to go down.
Chris Martenson: Well I really like what you are doing because one of the most common refrains I hear from people is they say okay I get it, I really like to do good, I just do not know what to do with my money right now. So for a lot of people doing something with their money, we are still constrained by traditional thinking – I am either going to put it in stocks. I do not really feel good about stocks today for a variety of reasons which can vary, but bonds, geez, one percent, tie my money up for two years, I do not know about that either. But you are saying there is a third alternative out there but people do not know about them.
Francis Koster: There are two major categories of alternatives. First of all, let us talk about rate of return. Unless a building is brand new, there is typically the opportunity to save 20% of its energy bill at a 30% rate of return.
Chris Martenson: Okay.
Francis Koster: Thirty percent rate of return. If you want to go from 20% energy savings, there is a declining rate of return, the more you try and save in any given installation the more your rate of return goes down because you pick the low hanging fruit and so on.
Chris Martenson: And that low hanging fruit would be things like replacing windows, insulating.
Francis Koster: Ballasts in fluorescent light bulbs, and old air conditioning units. Many municipal schools were built in the 1960s and 1970s during the baby boom. They are now 40 years old. They still have the 40-year-old air conditioner in them. You could go along and go to your local Carrier air conditioner or your local, pick a name and I am drawing a blank on other names, I did not mean to favor Carrier. But go to a local HVAC place and say what would it cost me to change the air-conditioning out of Herbert Hoover High School. It would not be difficult to go to the School Board and say how much do you spend for energy or go to the local school administration, they will tell you and perform a little back of the envelope calculation. Put your money there. It is local, it creates local employment, educates local kids and you will earn 20% risk free using proven technology. We are not waiting for the latest new windmill, the latest new photovoltaic, we are taking off the shelf, well established technology that your local craftsman knows how to fix and use.
Chris Martenson: Well this is a big theme of ours is that we do feel in some cases people are waiting for when that final awesome technology comes, there is a big ‘if then’ statement in there. And for us it feels like there is so much that we can do right now on the shelf. So I just installed solar panels, 1970s technology, right, nothing fancy about flowing water through a box which happens to be black, right? So there are things that are off the shelf right now. One of the biggest areas that we see, I think the earliest gain has to be is in conservation itself. Yes, we can use watts more efficiently but the best thing is to actually not use a watt in the first place. Do you work with conservation? Is there a return play in conservation?
Francis Koster: Absolutely. When one thinks about this, let me say this, there is a palpable bias in the population of entrepreneurs who are drawn to this space. And the bias goes something like this – major investors or venture capital firms are looking for in and out in a year and a half or two or three with a rate of return of 30%, 40%, 50%, 60%, 70%. So there are personalities who are drawn to highly leverage risk excitement, etcetera. Then there are the techies who are engineers of one stripe or another who want to make the latest and greatest something, windmill, solar panel, paint that converts to electricity, something, something. When you focus on energy, conservation it is really boring compared to that unless you focus on the bottom line. If you are relatively risk averse, you are much better off to pay for painting the local school buildings roof white and take your 20% than you are talking to your brother-in-law about some guy in a garage who is building the latest gizmo. We failed as a society to link the conservative, and I say this fiscally conservative investor with the local opportunities in a way that create local jobs. Partly I think because as youngsters come up out of school they want to make the latest and greatest. I mean, that is how you were when you were that age; that is how I was. As we begin to build our retirement savings and so on and so forth, we are not quite as willing to put all the chips in the middle of the table anymore. Yet, in many cases the desire to do good while doing well is still present. So there are large numbers of opportunities to do that.
I will give you another example. In the State of North Carolina where I currently live, only about half the landfills capture the methane gas that is generated from them. It is a huge financial opportunity. There are major companies that go around the country and take the very large landfills and do something with the methane gas, but locally there are lots of nice tidy quarter of a million dollar investments sitting there that the large companies will not do because their overhead is too high and so on and so forth. So one of my themes is look in your own backyard — focus on fiscally conservative sound investments and focus on local employment. You will be surprised at the opportunity that just leaps out at you.
Chris Martenson: So you have been collecting some of these stories for a while and you have stored them at your website I assume.
Francis Koster: Yes.
Chris Martenson: And people can search in there and look for them. How many of these stories do you have there right now?
Francis Koster: I’ve only got 32 published. I have been going through a struggle of labeling. I used to call the website Designs for America because I wanted to create a blueprint for a new America. I did not get any hits. After a year of struggling with that, pushing that particular rope, I tried calling it the Pessimistic Futurist and I even got less hits. So after doing some quiet thinking it became clear that what I am talking about is really a flavor of optimism within one’s self-control. I am not asking or suggesting that people buy stock in a large company and hope they solve it, I am suggesting you go to your local credit union and you guys solve the local school problem with sound fiscal investments and so on and so forth. So I have 150…156 stories now, success stories which I have captured. I am recruiting college students to help me write them from the journalism schools around the country. That is where I am putting my social capital.
Chris Martenson: Excellent, how is that recruiting going? If you need any more talent, I am sure that some will come through this particular opportunity.
Francis Koster: If anybody knows of local success stories, and the website has some criteria, they have to locally implementable; academically documented, I do not put up anything that a) has not worked and b) has not been proven to work by a third party review.
Chris Martenson: So define academically documented before we go on.
Francis Koster: There are footnotes at the bottom. If it says it saved $x, show me the document, show me your monthly utility bills before and after or show me the loan documents or something like that.
Chris Martenson: Okay.
Francis Koster: It is rigorous stuff.
Chris Martenson: Good.
Francis Koster: Locally documented. It must be a sound fiscal investment after start-up phase. I do not want to raise a higher hurdle for this form of venture capital than any other form of venture capital and there are enterprises which get started that lose money for a year or two. But if it endured and if it came out over time to be a positive investment, then I would publish that.
Chris Martenson: Okay. So if it meets those criteria. So one thing people could do that are listening to this is if they know anything that fits that bill or maybe they could submit it to you and you could tell them if it fits those criteria or not. And then the other thing would be you have a bunch of stories that need to be….
Francis Koster: Researched and written up.
Chris Martenson: The raw form needs to be converted into web publishable form. Okay. So, of all of them that you have, can you categorize them or how do you categorize them and what sort of buckets are they fitting into right now? Are they energy plays? Are they food, water?
Francis Koster: There are so many success stories out there that as a means of focusing my own attention I have chosen to put primary energy into the basic life support systems – food; energy; water and the environment.
Chris Martenson: But you collected stories from all of those.
Francis Koster: If they come across the transom, I will publish them, but I do not particularly go looking for them. I mention the prison recidivism one; I actually uncovered that on the way to another story. So I put it up. Let me mention having to do with food that may be of interest. Your audience probably is unaware that during the Second World War 45% of America’s fruits and vegetables was produced in backyard gardens – 45%.
Chris Martenson: Victory Gardens.
Francis Koster: In the Victory Gardens. And there was a huge mobilization of the local population to plant Victory Gardens. Right now, we import somewhere between 17% and 20% of our fresh fruits and vegetables, we import it. We have large unemployment, particularly of the labor pool that is not going to find work in high tech industry. They are not going to be computer programmers. But they can raise vegetables. So here, we are buying vegetables, flying it in through airplanes which cause environmental degradation and so on and so forth. So how did we get there? How did we move from local food production? Again I will use North Carolina as an example. The average farm in North Carolina is something on the order of 25 or 30 acres because grandpa used to own 450 and he died and his kids inherited a hundred each and then they died and so now, it is down to 25 acres each. You cannot do commodity crop raising, you cannot raise corn and soybeans and so forth at a commodity scale on 25 acres, you just cannot do it. So now, you have a city like Charlotte which is in the top 50 markets of the United States that imports a huge amount of its food when it is sitting right in the middle of some of the best farmland that we have on the east coast. How did we get there? Well it turns out that one of the major issues is that farmers are terrible marketers. That is not their gift.
So a fellow that I know, he is a fellow ex-Peace Corps volunteer, he put together a computer program that went to the major food consuming restaurants of Charlotte that were upscale and said what kind of unique foods would you like to serve your customers to enhance your clientele. And they said if we could get foot long French beans or purple potatoes or things which you cannot buy at the local supermarket we would pay twice market because of the value add. It is called value added produce that that would lend to our food establishment.
So, this fellow went out and talked to all the farmers and said would you be willing to grow purple sweet potatoes. Well no. Why not? Well a) I only know how to grow corn and soybeans and commodity foodstuff. And second, I have never seen a purple sweet potato and b) who would buy it? So he said look I will tell you what we will get you started with a small plot and we are going to put this on our computer system; we are going to introduce the restaurant owners. When you decide, you are getting close to harvest you announce that you are going to have so many crates of purple sweet potatoes and you set the price and we are going to run an eBay for food. So the restaurants saw what’s going on and said geez, next week we are going to have purple sweet potatoes available, I will take four crates. And the restaurant down the street said I will take three and so on and so forth. The system has evolved so now both the restaurant and the farmer have barcodes. So the farmer harvests his sweet potatoes, applies the barcode, he wands it with the computer that he has. It goes to the central – essentially a virtual farmer’s co-op if you will. It is the latter day incarnation of the old dairy farmer co-op where they had a central cooler and used pick-up buckets, huge pails of milk, but it is done virtually now. And then the restaurants they have their barcode and so come harvest morning, the driver gets in and he is geo-mapped to go from supplier to supplier to supplier to supplier and the restaurant. And if it turns out that there is a restaurant on the way, I just picked up four crates of purple sweet potatoes and I need to drop two over here, immediately drops them, it routes him that way. The private transportation sector in some cases, taxicab companies do it on return trips from the airport. In some cases, it is small cartage firms; sometimes it is just a guy with a pick-up truck who agreed to do this twice a week when he is not being the football coach or something like that.
It links small producers to small consumers using the internet. It has been a phenomenal success. We can do this in every city in the United States. There is no reason why this cannot be done. I do not have the latest numbers, but the value of the produce which has flowed through that has doubled every year since its inception which is four years ago.
Chris Martenson: That is incredible. I belong to a CSA – community supported agriculture.
Francis Koster: Yes.
Chris Martenson: And so we have a once a week pick-up and my wife and I drive down and 50 other cars are in the lot jamming it at that point in time, but if I had a place I could go and I could say – cause the produce varies a little bit and you get to do a little bit of selection – but if I could go online and say this week I need arugula, carrots, whatever I am going to select and then that could actually show up so that we did not have, they have 400 clients the CSA we belong to.
Francis Koster: Right.
Chris Martenson: That means 400 cars drive there once a week and drive away. So when you look at the fuel cost of that.
Francis Koster: I know the small town you live in, there is a guy some place with a pick-up truck who if he knew that on Thursdays if he went to a central location, loaded his pick-up truck and he just used Google maps or something and figured out, he would be delighted, you would be happy to pay him a couple of bucks to drop that stuff off.
Chris Martenson: I would be totally thrilled. It would save me a whole hour.
Francis Koster: Okay, when we are done here go to my website.
Chris Martenson: Yes.
Francis Koster: Okay and look up this particular food production scheme.
Chris Martenson: Right, that is a fantastic idea. So we are saving energy, and most importantly, we are connecting local resources which is a big story.
Francis Koster: You are saving energy; you are improving the diet because American commodity foods and I am talking fruits and vegetables that you buy at the local market have been genetically selected and I do not mean by gene manipulation. They have been bred for their ability to stay ripe-appearing for long periods of time. They have not been bred for their high nutritional content. That has been sacrificed. There is recent work out that documents that quite well. The nutritional value of fast growing crops for trace mineral elements which we are learning are increasingly more important is lower than it was in the 40s and 50s.
Chris Martenson: I have seen the data, both the macronutrients and the micronutrients.
Francis Koster: Yes.
Chris Martenson: It is just plummeting, like 25%, 30%, 40%.
Francis Koster: And the reason for it is it takes a while for these plants to extract the nutrients from the soil and so if you make a plant that grows quickly to harvest it has not been in the ground long enough to suck up the good stuff so when you buy the product it is less of a product than you think it is, and it is less of a product than it was 20 or 30 years ago.
Chris Martenson: Right and you have to buy from a farmer than who also replaces the micronutrients.
Francis Koster: In the soil.
Chris Martenson: Right. Because once you have pulled the boron out it is gone.
Francis Koster: It is gone.
Chris Martenson: Unless somebody puts it back.
Francis Koster: There are certification programs and so forth that you can on the website that I was previously discussing elect whether you wish for example buy just organic stuff or just natural stuff and those are two terms of art. Those are actual Federal categories of fruit – your listeners may not know that, or commodity grown. I am afraid I lost my train of thought here. I took a diversion into food and nutrition degradation and I should have been talking about local jobs, reduction in air pollution, higher quality food. And the last one which I feel quite strongly about is that you have increased the nation’s security. If all of your basic life support systems flow through a relatively small number of nodes and something happens to one of those nodes or they get exploited by evil forces
Chris Martenson: Natural forces.
Francis Koster: A germ or a bug or something you have two immediate responses. You get a large number of people either sick or hurt or something. And you increase the desire for government regulation. So if for example when this morning’s paper there was an article about a food recall and so now the FDA or somebody is going to crawl all over that particular plant try and figure out how it started because it will contaminate the food – 10 million people. If you live in Charlotte and your local supermarkets got their food from that 10 million family stream and it gets paused, you are in a world of hurt. But if it is widely diverse in its supply, if you shut one down then the others survive. This kind of thinking goes back to the Cold War days, there was a fellow named Herman Kahn who wrote a lot of books about the dangers of excessive centralization.
Chris Martenson: Well you know cost effectiveness is a brilliant wonderful thing and we all love cheap food; cheap clothes all of that. But there is always a trade off in life and the cost effectiveness trades off against resilience. So if you are keeping a deeper inventory of something. So we have made that trade off. We have gone probably too far down the cost efficiency side of this curve and some people are saying maybe including our listeners, are very sympathetic, the idea of let us take a little less cost efficiency and let us have some more resilience baked into this.
A quick story: when oil got to $140 a barrel, gasoline breached the four-dollar barrier in my area. What I found out a year and a half later was that town officials had met with the local Giant food store people and the Giant food store people were saying, after the fact, they did after the fact sort of reporting on this. It came out that they said the food stores were this close, I am holding my fingers real close together, were this close to not having trucks come in because they literally, they had an independent trucker network and the independent trucker is like I cannot haul this for you and make any money and he was like I am not taking the load. And they were looking at the loss of all kinds of stuff from California. The further away it was the greater the chance that they were saying we might have shortages because we have contracted with a supply network that is out of our control in essence in some respect. That was just at four dollars a gallon. What happens at six? What happens if we go to ten dollars a gallon? Well I think it is pretty clear you can say it will lead to disruptions; we cannot predict necessarily where they are but if you have local growing and local food storage that means we have to find some way of warehousing or cold storage.
Francis Koster: The warehouses exist. In fact there is a number of them that are dormant because we used to have them and then we moved to refrigerator trucking and that was virtual warehousing. I have been involved in looking at a couple of local projects and I find landlords who say come on in, we have these coolers sitting here – we might need to upgrade the compressor. You mentioned fuel disruption. The disposal of waste in America is a huge cost. That cost often strikes the taxpayer because they have to maintain dumps and landfills and so on and so forth. At the same time, the taxpayer is buying fuel for the school buses. The organic waste from the school lunches can make the fuel for the school buses. There are a number of programs around the country that are now starting to imitate one that I know of which has been quite successful where literally a fellow who ran the maintenance yard of a school system got interested in bio-fuel and observed just how much organic matter – plants and so on and so forth – were being thrown out by the school. He wanted to fiddle around and see if he could learn how to make bio-diesel. He was able to do it. He got support thankfully from his superiors and they scaled it up. Then a local factory approached them that was really struggling to stay alive and this contributed many of the jobs for the local community. We pay people to haul away waste oil from our food — this is a cookie company. We bake cookies and we have a lot of left over cooking oil, how can we work together here. So it transformed an operating expense of a for-profit company into a tax-deductible donation. Their bottom line looked better. The school system got the oil and put it in the school buses after this bright school maintenance guy ran it through his machinery which by the way he purchased surplus from the National Guard and also from a dairy farmer. It was nothing more than a big stainless steel tank like you see go down the road and a little bit of other stuff. I do not mean to over simplify this, but this is nothing that the local community college could not teach people how to do. And there are community colleges that do teach this stuff, so you do not need to hire Ph.D.s to do this.
They began to burn the bio-diesel and it got a bad rap, nationally in the school bus literature and other mass transit literature because the school buses began to break down. Why did they begin to break down? Well this guy went in and figured out that the bio-diesel was actually removing crud that had built up in the diesel engines of the school buses and was causing wear in those engines and it broke it down. It was essentially the filters were getting full. And at first that was viewed as a problem, oh my God, we got to replace the filters. And then the mechanics said what are you talking about, you are prolonging the life of these engines amazingly. So we will put another twenty-dollar filter in this and we will get another hundred thousand miles out of this thing. So we have to look at the life cycle costs of some of this stuff. So now this school bus fleet is using a blend, I think it is 90/10 or 80/20 but the percentage of bio-diesel, they make themselves. And they have hired people to make it themselves. They provided local employment, made a contribution towards the survival of a local employer; the air pollution has gone down considerably. Many people do not know this but the air pollution burden on children who ride school buses is not a healthy thing. The rates of asthma of kids who ride school buses is higher than the rates of asthma of kids who do not. So you have save asthma, days of absence in schools. A lot of people do not know this either, a school system gets paid essentially per capita, how many kid attendance days were there. So if you have a child who is an asthmatic and is out of school a lot, once they pass some threshold the school does not get paid. So there is an economic incentive to the principal to lower the air pollution so that they get paid.
That takes me to another topic which is the modernization of external costs. Normally when one would think about the miles per gallon and the cost of diesel fuel for school buses, you would not think about the sickness that that diesel caused. You would only think about the price of the diesel fuel. I make arguments fairly forcefully that you need to talk about the cost of the diesel fuel which includes the missed days of school and the air pollution and the national dependency on nations that do not like us and so on and so forth. This is a triple win here.
Chris Martenson: And you have a number of wins like that on your website. So how does it wo