Misson Driven Investing - The Textbook Explanation

While a town, a country, the global society has unlimited wants, the resources used to satisfy those wants are limited. The Production Possibilities Curve is representative of this phenomenon. One of the most fundamental curves in Economics, the Production Possibilities Curve, or Frontier (PPF), is designed to model the output possibilities for a two product economy. While it is theoretical, the curve explains the fundamentals of opportunity cost, scarcity, and how certain investments and advancements can cause increases in output. We are interested in this curve as a descriptive framework for integrating the concepts of Mission Driven Investing, Patient Capital, Ecological Interdependency, the Ability of Money to Affect Resource Allocation, the Efficiency of Allocating Money, ERR, and How All This May Relate To You

Building Block Definitions & PPF Concepts

Consumer Units/Economic Voters

A person, the summation of persons in a family community, the summation of families in a local community of families, the summation of communities in a country, the summation of communities throughout the world is the summation of all consumers. Of course we are talking about communities that have money/economic votes – one dollar is one vote, two dollars is two votes, and holders of soft currency dollar equivalents have less votes than holders of hard currencies.

Consumers acquire their consumable items, services and investments defined as ‘things’, by purchasing with money and near monies, by direct bartering of ‘things’ they own or make, as gifts, and from wars and other forms of persuasive stealing (legitimate persuasive stealing is legal; while illegitimate is illegal according to the ‘rules of order’ of the dominant power). To narrow the discussion, people and their communities acquire most or all of their ‘things’ with monies and near monies. Their purchasing power is determined by their incomes plus wealth, which quantifies their budgetary ‘votes’ over a specifictime, a day, week, a year, 5 years or for whatever time horizon one wants to discuss.

To summarize, people are organized into individuals, families, partnerships, corporations, mafias and private armies, schools, research universities, churches, healthcare organizations and governments. Each of these human organizations have purchasing power ‘votes’ for buying things, determined by their incomes and wealth.

Producer Units/Economic Voters

A well rounded person is more than a consumer and more than a passive investor of wealth. This person is also a producer. In the worst case a person has neither income nor wealth, nor strong connection to any organization. In these situations individuals are net takers from society and end-up in prison so someone can make money off them there; or in some countries end-up prematurely dead. If a person has neither income nor wealth and receives subsistence shelter from an organization in a harmless way in the hidden economy – like a college graduate returning home to live in the parent’s basement - that person is a harmless Economic Non-Existence. A person who prematurely retires from a steady high paying job to become an incubating entrepreneur, alone in an office suite, with credit lines maxed-out, with no customer prospects calling, lacking a credible plan, and no budget for being a consumer is of no interest to anyone and therefore qualifies as a Non-Existence. In the hierarchy of social-economic values of human beings, a mere Non-Existence is worse than a mere Consumer Prospect.

Most of us prefer lives that we think are more valuable than that of being mere consumer prospects; and unless we are spies do not want to be mere Non-Existences. We are factors of production, contributing to the creation of items, services, ideas and infrastructure that benefits human organizations, and possibly non-human ones too.

Our potential productivity and our children’s potential productivity is influenced by our education. Increasingly higher levels of education are necessary but not sufficient to be productive and to prosper. Individual productivity is also determined by a person’s health and values, association with other factors of production within his or her organization, and proximity to and contacts with external complimentary organizations and social networks. For example, compare two farmers with equal educations. The first has 1000 acres of fertile land, access to water piped from a public aqueduct, farm machinery, dependable rail and roads from farm to buyers, and useful contacts at several top-ten agricultural universities for applied research. The other farmer has 5 acres of unfertile land, no source of water other than seasonal rainfall, a hand shovel, a donkey trail to market, and no university contacts. Guess which farmer is more productive.

Almost all organizations are productive; yet for various reasons organizations do not earn equal margins for their services. This fact plus the compensation models of the specific organization determines an individual's pay.

Five observations: 1) an individual's pay is largely determined by the organization in which they work, not by objective measures of individual productivity or by theoretical risk-return trade-offs. As example, there are many family businesses where the ‘hired girl’ is provided an administrative assistant’s salary for working part-time; and once experienced receives no dollar ‘allocative voting’ pay (and no national income accounting recognition) for her full-time work, with no control over the check book or assets after she marries an owner. American society responds to this marketplace limitation by providing the wife legal claim to a portion of family wealth created during years of marriage.

2) If the family business also hires illegal worker-immigrants from their ‘friends and family’ network, society is really paying the ‘outside benefits’(funding of schools & hospitals that accept illegals and their families are obvious examples), administered not according to productivity of these illegal workers; but according to broader definitions of social coverage for citizen’s and non-citizens.

3) Organizations are more or less productive depending on where they are producing (communities with better infrastructures contain more productive organizations), what they are trying to produce, the quality and quantity of their resources, the organization's production functions, management efficiency, and on the forces of support or resistance coming from outside the organization. The preceding relates to family organizations, now for public ones. In our 21st century interdependent economy there are many examples wherein resources applied through public organizations produce ideas, goals, infrastructures, services, financing, and some products better and more efficiently than through private organizations.

4) Most social agency campaigns for or against appropriate roles for specific kinds of public and private organizations has less to do with concerns over efficiency, productivity, wages and creativity and more to do with who keeps the power and grows the wealth. For historical and cultural reasons, different societies have different role intensities for private sector and public sector organizations.

5) Producer organizations have budgets for the accumulation of inputs to produce consumer goods, to renew the economic depreciation of their manufacturing capacity, for applied R&D, and for investment in new capacity to produce goods & services in future time periods.

I. The PPF Model

The PPF is a descriptive model, not a forecasting model, explaining how consumers and producers come together over time, in a socially cohesive manner. It is a conceptual summation of all possible mixes of outputs, roughly defined as Potential and Actual Net Domestic Product, for a community, country or the world (depending on the scale of human community one wants to analyze); and the summation of utilized inputs to achieve the actual output. In reality, the model involves billions of variables and the PPF has a multi-dimensional shape beyond the visualization capabilities of humans. Do not get hung-up over this fact, a two dimensional model of output categories is used for graphical illustration, with Investments on the y-axis and Consumer Goods & Services on the x-axis.

Do not get confused over the term Investments. In this model Investments are the real configuration of resources to enable capability to produce consumer goods, services, to supply clean air and water, and to make additional manufacturing and services capacity. In this model Investments are not Financial Investments or Financial Assets. Financial Investments and Financial Assets do come into play to scale budget lines, to allocate resources and to measure ownership of the ‘goodies’.

The model addresses inputs to produce outputs, allocated to satisfy producer-decision maker wants (expressed in dollar votes), opportunity cost of choices, and the gap between what is actually achieved and what society wants as output bundles (expressed in dollar votes of buyer-decision makers), if execution is 100% efficient.

Before getting to the graphics, we introduce a few more definitions.

Ecosystem Stock: is the stock of tangible and intangible assets that benefit society. Rail systems, highways, schools, hospitals, air quality, the current health of the oceans, renewable sources of fresh water, biological populations, other renewable resources, social harmony, the internet backbone are examples of ecosystem stock. Ecosystem stock is similar to manufacturing capacity.

Investments in Capacity(I): are resources applied to Ecosystem Stock and Consumer Products & Services Capacity. Investments in Capacity assemble factors of production (under any kind of organization) for the building of output and delivery capacity that increases potential production in current and future periods. Examples of investments in ecosystem capacity are funding of schools, organic and clean tech R&D, funding of cross-disciplinary business incubation centers at universities, tropical tree farm development that takes carbon out of the atmosphere, expansion of wind turbine and thin film photovoltaic factories that make machines that are to be installed within clean energy generation plants. Examples of investments in consumer goods and services capacity are investments in factories and organizations that design and produce millions of consumer items, vehicles, beauty aids, military items, police items, fast food restaurants and beach hotels. According to GDP calculations, growth of wealth must be measured net of depreciation (wealth defined as the sum value of Ecosystem Stock and Consumer Products & Services Capacity, plus a few consumer items and inventories).

Consumption Goods & Services(C): are the tangible and intangible items produced within a time period that are not used to produce additional goods and services in current or future time periods. As this is a two dimensional simplification of a multidimensional model, we combined the traditional defense and consumer categories into product bundles on the horizontal axis. For example, a hybrid car, a candy bar, a bottle of pain killer, and a nuclear missile are consumable items on the horizontal axis; while investments in manufacturing plants that produce hybrid cars, chocolates, medicines and nuclear missiles are on the vertical axis. In other words, nuclear missiles by themselves are not investments, despite the fact they can be used as ‘persuasion tools’ during negotiations for oil and other things.

Production Possibility Frontier(PPF): includes varying combinations of investments in capacity and consumption outputs that an economy can produce, in perfect execution scenarios. As actual execution requires a period of time, select a time frame that contains an investment cycle or some other scientific or political-economic meaning: 1-3-5-10-20 years are all relevant time periods; except that major technological breakthroughs (almost always positive) can be expected within time frames extending beyond 5 years, which changes the PPF. Starting at the origin as time zero, actual total output at period end always falls short of the Frontier due to imperfect execution. The value of actual output is Net Domestic Product (NDP). By dividing NDP by the country’s population one derives Per Capita Net Income, which along with distributions of per capital income statistics measures the relative prosperities of citizens within a country and between countries. The execution gap between what is actually produced and the Frontier is lost potential NDP and lost potential Per Capita Income. This is illustrated on the charts that follow.

How does a country reach its NDP point? Answer, through an iterative process over the chosen time interval. Producer organizations have budgets for the production of goods and services and for the buildup of capacity - financed by income, invested wealth and borrowings. Consumer organizations have budgets for the consumption of goods and services and for investments (primarily consisting of passive ownership of financial securities) - financed by wages, savings, invested wealth and borrowings. Decision makers in producer organizations consider demand forecasts, past sales histories, expected input costs, competition, investment options and other factors in determining their output targets.

In aggregate, producer decision makers try to reach a ‘best case’ tangent point on the summation of highest utility/preference curves of all producer decision makers that is theoretically attainable – typically targets somewhat below the PPF but not as far below as what is actually realized. This macro-producer preference curve is not the same as a summation of preference curves of consumer decision makers. Furthermore, it is only an approximation of what society would choose - if each member of society had an equal dollar vote. Having said this, market forces and decisions of the many often guide resource allocation closer to what society actually wants (healthcare and security-defense-offense industries maybe exceptions), than decisions by a few central planners not guided by market forces. In cases of famine, war and natural disasters, when non-voting peoples’ cry out for food, shelter, healthcare – aid is rallied through charities, NGOs and other organizations to transfer resources or dollar votes to those lacking sufficient economic power to adequately ‘play’ in the marketplace.

Over time organizations overshoot, undershoot and modify their output targets. Over time, consumers also change their budget lines, buying behavior and utility/preference curves – causing spot shortages, surpluses and changes in market clearing prices. From the perspective of medium and longer term mission driven investing, short term market clearing mechanisms are useful but not critically important. What is important is the ability to shape and expand the PPF.

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Live For Today Or Invest For Tomorrow? Is This Your Only Choice?

For those who acquire adequate perks and external benefits from their work and investments above choice is less necessary.

History proves above dilema is not your only choice. Leaving the historical discussion for a future coffee break, our intention here is to encourage middle class professionals to select some strategic investments, defined in their own enlightened contexts, enabling a more engaged and satisfying today by investing more for tomorrow.

Graph #1: Producer & Consumer Organizations Allocate Budgets According To Preferences Of Their Decision-Makers.

A tangent point on the highest attainable Preference Curve is selected by Organization #2 Preference Curve 2.3 Preference Curve 2.2 Preference Curve 2.1

The highest attainable Preference Curve for Organization #2’s Budget (B2) is Preference Curve 2.2.

B0 = the Budget Line for Organization #0.
B1 = the Budget Line for Organization #1.
B2 = the Budget Line for Organization #2.

The slopes of the lines for B0, B1, B2 are not the same, if each organization faces different substitution costs (Price of 1 unit of Investment in terms of forgone units of Consumption) for inputs and outputs.

In above example, Investments are relatively cheaper for Organization #1 than for #0. This probably causes #1 to allocate a larger % of total B1 to Investments than Organization #0. Conversely, Consumption Goods are relatively cheaper than Investment Goods for Organization #0. We expect Organization #0 will allocate a larger % of total B0 to Consumption Goods. Organization #2 has the largest budget of the three organizations and faces the same substitution costs as Organization #0, so the slopes of B0 and B2 are the same, making their Budget Lines parallel.

Collecting Societies’ Productive Stuff For Goal Oriented Treks & Wanderings

Graph #2: Output Targets For A Country Evolve From The Implicit Summation of All Producer Organization Budget Lines and Preference Curves. Inputs Are Procured For Production Functions To Achieve The Goals Of Decision-Makers.

PPFc = the Production Possibility Frontier For a Country. Marginal Rate Of Output Transformation = the slope of the PPFc at any point of the Curve/Frontier. Pc = the highest attainable summation of Preference Curves for all producer organizations. This Preference Curve is not the same as the highest attainable Consumer Preference Curve; however the dogmatic assumption is that Producers Try To Produce Outputs Consumers Want. Bc = the summation of Budget Lines in a Country. PT = the implicit rollup Production Target for millions of varieties of goods & services, produced and distributed within or exported from a Country. This target is located at the tangent point of the Pc, Bc and PPFc.

Trekking & Wandering Towards Worthy & Un-Worthy Goals

Graph #3: Below is a country summation of Economic Activity, defined as a production function vector, starting at Time Zero (T_Z) To End Of Period (T_E).

		PPFC = Production Possibility Frontier for a Country. PT(TZ) = Production Target at the beginning of the period, similar to PT in Graph #2. PA(TE) = Production Actual at the end of the period. Production Functions define the vector T (TZ) to PA (T). GI = Target quantity of Investment goods & services at PT (TZ).
GC = Target quantity of Consumption goods & services at PT (TZ).	HPA (TE) = Hypothetical Production Actual that delivers more Consumption outputs than GC but far fewer Investment outputs than GI.

Dollar value of PT _(TZ) = the value of the Net Domestic Product (NDP) Goal
Dollar value of PA _(TE) = the value of Actual NDP in the period.

NDP actuals are always smaller than NDP goals, due to inefficiencies and uncertainties that arise during production function implementations. Hurricanes disrupt oil production. Wars, labor strikes, reorganizations that follow leverage buyouts-mergers-acquisitions disrupt production. Overall, natural events, misinformation, errors and the actions of specific interest groups, who are more interested in increasing their relative shares of per capital income(PCI) and wealth than in growing overall NDP, prevent attainment of PT _(TZ) and all other points on the PPF_C.

NDP actual /Country Population = PCI. PCI and the distribution of both PCI and total wealth amongst the population are indicators of general prosperity in a country.

In the above graph, both Investment and Consumption output fall below G_I and G_C. Overall PA _(TE) results are preferable to overall HPA _(TE) results. In the PA _(TE) scenario there is more added production capacity for future periods than in HPA _(TE), enabling a catch-up to the current period consumption shortfall for all those who are not dead before Period 2. However, in the HPA _(TE) scenario, excess consumption outputs will be sold at fire sale prices, destroyed or inventoried at hypothetically unnecessary cost; while additions to the economy’s production capacity are insufficient to satisfy consumption needs in future periods.

II. Mission Driven Investing In a World of Increasing Expectations, Constrained By Finite Resources and External Costs

Initiatives that fall within our Mission Driven Investments category, by definition, have objectives that are broader than maximization of spot trading return, expected impacts lasting beyond the year, and end goals worthy of realization, thereby justifying adequate patient capital. While liquidity avenues for individuals to cash-out of these investments in the short term are being perfected, these investments justify less exposure to financial repackaging and major sell-off risk when compared to more traditional private equity and VC investments.

A Non-Inevitable Threat!

Comparison of a Country’s PPF_C As Costs of Environmental Restoration & Non-Renewable Energy Resources Rise; While Everything Else Remains the Same, Including Carbon Based Production Functions.

PPF (T1) = the Production Possibility Frontier for a Country in period 1. PPF (T2) = the Production Possibility Frontier for a Country in period 2.

A contraction in the PPF_C will reduce actual NDP and PCI (after inflation is deducted). If prices for natural resources go up permanently and if the full cost of pollution rises while everything else remains the same, the PPF_C contracts. During periods of contraction, pressures increase from various interest groups within a society, aiming for protection of their absolute levels of income and wealth, to grab larger shares of “a shrinking pie" by taking pie from others. Redistribution temptations when converted to action further worsens the outlook. More bottlenecks mean more inefficiency. And 'productive eyes' have been distracted away from growth goals. This increases society's gap between shrinking potential and the realized NDP.

I want to focus on a two- part problem: a) first the obvious one. At a time in history when humanity expects increasingly higher levels of consumption, contraction is likely in the U.S. PPF, if economic activity remains largely defined by old carbon-based production functions. Negative ERR (external rate of return consequences) accelerate over the near term, sometimes exceeding positive IRR (internal rate of return benefits). The ERR downside intensifies due to accumulating effects of our past activities, and from new consumer demand and economic activity coming from outside of our country - new activity that has spill-over effects on our country. History indicates whenever ecologies are stressed by external societies and whenever bedrock institutions within a society fail to care for the needs of their own populations - probabilities increase for civil and foreign wars. b) Now, the not so obvious problem: the conventional premise that a decline in the standard of living of America’s middle class is inevitable is a false premise. It is false for many reasons, including confusion over conservation having a lot to do with going without ‘things’ that matter. Worse, by falsely setting expectations of the majority on inevitable contraction, too much will be spent on defensive positioning and on the same old passive financial investments, which may make the global plutocracy somewhat richer – and contraction of America’s PPF a neglected, tricked, angry reality.

Other than complaining about our worsening angst, what should we think about?

1) Consider grouping factors of production according to which resources/inputs are finite and not renewable, which are renewable, and which are infinite. 2) Clarify trade-offs in consumer bundles on the Frontier. Restated, determine which bundles offer a relatively better life. For example, sometime in the future we may use less gasoline per capita; but we may be more educated, healthier, and live longer youthfully. 3) We should understand the limitations in our pricing system, including a) the setting of priorities for resource allocation based on dollar votes rather than people’s wishes, b) inadequate aligning of ERR costs & benefits to appropriate stakeholders and c) recognizing that our definition of NDP attributes monetary transaction value to all sorts of useless endeavors, often horrendously inflating the core value of really valuable goods and services produced in advanced economies.

Returning to the definition of a Non-Existence, if it includes people occupied as telemarketers, mortgage refinance sellers, white collar paper pushers and MS Office cost accounting spreadsheet developers – millions more of us are on, or have been on, the service economy dole, wasting time away as Non-Existences. We are not inferior human beings; but we are economically vulnerable to globalization and for various understandable reasons are not actively contributing to solutions at levels near our potentials.

2) Turning to a get-ready positive perspective, we should appreciate our conventionally underestimated similar awarenesses and very high elasticities of demand for investment opportunities that deliver above average returns per risk class, while doing the right ecological things. We should understand and distinguish between sustainable growth targets and process guidelines to be embedded in our specific investments, from unsustainable targets and process guidelines that threatens the viability of other investments opportunities, and which do little to avoid future scenarios of too little for the global too many. Finally, we should expand our appetites for collaboration with all kinds of partners in our deals.

O.K., what should we do?

1) Support socio-economic environments that encourage ‘eyes to the future’ innovation, inclusiveness, respect for the individual, collaboration and community. Discourage social environments based on fear, blind obedience, higher family risk and zero-sum gaming – as inefficient strikes, misinformation campaigns, and wasteful ‘watching of ones backside’ (legal fees & insurances) are the effects. The negative scenario increases the gap between actual NDP and the PPF.

2) Participate in investments with missions that expand the PPF with benign or better environmental impact. If the PPF expands and the inefficiency gap between actual NDP and the PPF remains constant, standards of living grow, provided population growth rate is lower than NDP growth rate. Invest in infrastructure, educational and R&D institutions, and clean tech manufacturing capacity that utilizes waste materials and abundant local materials as inputs. For more dramatic PPF expansion, invest in initiatives that aim to deliver major technology breakthroughs. Internet peer-to-peer connectivity with resulting creativity gains and web enabled supply-demand chain enterprise collaboration resulting in efficiencies are recent past examples. As further illustrations, consider three future technologies: a) an age-reducing drug that allows people to live 50 year longer, gaining wisdom along the way, while maintaining the physical and mental health of 30 year olds (Sirituins, Resveratrol, Genome Research), b) photovoltaic and wind-power technology that generates and stores electricity for less than $1 per watt and c) widespread product introductions utilizing Nature’s processes. Biomimicry & Milpa 2.0 processes technically increase the PPF; and weaken 19th century ‘survival of the fittest’ Social Darwin analogies.

Which Missions Justify Patient Capital?

Organizations That Expand Our PPF While Having a Benign To Positive Ecological Impact Justify Patient Capital.

We lump opportunities into two subcategories.

Graph #5: (A) There are numerous small risk investment opportunities that increase production capacity in Period 1, and tweak Production Functions towards environmental sustainability. Furthermore, in aggregate these initiatives expand PPF, NDP and PCI in Period 2.

PPF (T1 ) = A country’s Production Possibility Curve in Period 1. PPF(T2) = A country’s Production Pos sibility Curve in Period 2. PA (T1 ) = A country’s NDP for Period 1. PA (T2) = A country’s NDP for Period 2.

Graph #6: (B) Investments in major technological advances can expand and transform the shape of future PPFs. When investments in this category hit, many things change: Preferences, Production Targets, Production Functions, relative costs of inputs, slopes and sizes of Budget Lines and execution efficiency.

PPF (T1 )= A country’s Production Possibility Curve in Period 1. PPF (T2) = A country’s Production Possibility Curve in Period 2. PA (T1) = A country’s NDP for Period 1. PA (T2) = A country’s NDP for Period 2.

How We Make Attractive Returns For Our Investors

MenloGreen invests in initiatives having missions worthy of Patient Capital, and wherein Social Responsible Indicators (SRI), ERR and economic multipliers are aligned. This is often accomplished by a diversified mix of ownership, networking and partnering. In traditional investment thinking, by leveraging SRI and aligning ERR costs and benefits, we can reduce IRR demands from some investor groups, including public investors, who receive and can use high ERR benefits defined in their terms. This equates to lowering the overall cost of capital on our initiatives, can enable higher IRR returns to investors not benefiting from the same ERR in the same way, and it can further reduce total risk.

We also paddle with, not against, the SRI flow – maximizing collaborative opportunities to fight against our shared threats of pollution, resource limitations, global warming, sickness and increasing healthcare needs. To do otherwise could stimulate unplanned employee turnover in our investments, negative community reactions and other inefficient events.

MenloGreen is inclined to invest in clean tech U.S. manufacturing capacity that makes basic essentials, not fad items. We rally expansion capital that does not run with the lemmings. Rarely do we invest in ‘shoot-for-the-moon’ offerings or in mega-merger opportunities. MenloGreen’s space is typically later stage innovative companies, with good returns and manageable risk that does not fit the ideal profile of VCs. We have chosen an underserved space that offers a substantial number of quality opportunities which, on a managed portfolio basis, will beat portfolio returns of VCs in most years.

Lifting All Boats, Not Just Yachts; but Dingies, Rafts and Inner Tubes too.

In graph # 1 we mentioned that organizations allocate budgets according to preferences of their decision makers. In chart #5 we discussed worthy missions and worthy production targets. Now, we suggest individual and family organizations can invest strategically. Others do it. You can too!

Let us focus on two components of return, IRR and ERR. IRR requirements vary amongst investors for many reasons including attitudes towards risk, tax situations and time preferences for cash returns. However, ERR (when defined specifically for each investor) can vary more between investors and be more important than IRR, due to distinctly different investor priorities and broadly defined portfolio effects. Consider three relatively small strategic investments by members of different investment classes.

Investor Class	Example Investment	Primary Preference of Organization	IRR & ERR Relationship
City Manager/Public Sector	Garbage Recycle Plant	Ecological Development & Environmental Renewal	IRR provides some additional revenues to fund mitigation of the ecosystem costs of waste and daily operational costs of the plant. The ERR to the City Manager is the capitalization and operation of the plant; not the profits from an investment that finances the plant. To the City, their ERR is more important than their IRR.
Big Business/ Rupert Murdoch	Purchase of the Wall Street Journal	Expansion & Sustainability of a global portfolio of companies.	Rupert claims IRR from the WSJ is of secondary importance to the capability of the paper to impact the agendas of political- economic policy makers. Rupert wants the WSJ to be a tool of external power.
Middle Class Head of Household	$20K private equity investment in local economy clean tech building manufacturer.	Maintaining high paying employment, good housing, healthcare and education for his family.	A 20% annual IRR on $20K is nice; but if the ERR benefit is securing a good job or an important partner relationship with the manufacturer - ERR benefits are more important.

Above suggests a modification in meaning to the Investors' Circle tagline: ‘To IRR is Human, To ERR Is Divine’. Our modification is to two-step the ERR. MenloGreen focuses on providing Patient Capital to mission worthy initiatives that generate middle class IRR and positive ERR. With this in mind, we finance initiatives and package deals having middle class, public sector, big business, pension fund and endowment fund investors in the mix. Once we establish that missions and society’s ERR are not compromised, MenloGreen identifies, swaps and aligns the strategic ERR benefits of each organization. When we do this, we speed funding, strengthen partner commitment to end goals, optimize our middle class investors’ total returns and reduce traditional cost of capital. This is efficient.

A few wrap-up thoughts,

• Increasing global demand in the face of environmental constraints requires that we grow in an innovative way.
• Public sector organizations are more than regulators and collectors of fines and taxes for transfers of income. Many public sector organizations have roles as producers, procurers and distributors; owners, partners, lenders, educators, R&D incubators and participants in alumni-university-community business catalysts.
• The national income accounting identity, savings + underutilized wealth = potential investment capacity, can help illustrate a point. Wealth actively utilized is power. The wealth of America’s middle class is largely in the equity of our homes, our IRAs and Keoghs, in the public lands that comprise almost 1/3 of the land mass of the United States; our local, State and Federal Governments, and our universities. Are we utilizing all of this wealth for our strategic advantage? Have we temporarily abdicated decision making over most of our middle class resources?
• New VC investments in the United States approximate $28 billion per year (2006 which is the 2007 forecast too.). Most of the companies funded, if successful will impact the PPF.

Consider an event that went wrong and can be wastefully repeated in the future. A few weeks before our 2004 Presidential election, large corporations received more than $140 billion in non-strategic tax give-aways, while solving a $4 billion trade issue with the European Union, that delivered almost no impact on the United States PPF or on our carbon based production functions. However, the tax cuts did stimulate investment in offshore manufacturing and in higher stock prices to firms that received these benefits. Passive investors profited from these stock increases, yet those who owned were predominately not the middle class. (Congress doesn’t openly pick winners and losers; but members do have their ‘ear-marks and their back door favorites’.)

Looking forward, imagine raising an additional $28 billion for mission worthy middle class business initiatives, not from taxpayers and not for give-aways, from a redirection of a small percentage of traditional money flows - sourced from our middle class equity, endowment funds, trusts, and community organizations. This money is to be transferred in the amount of $1 Billion to each of our top 28 research universities – to be disbursed and managed by the entrepreneur centers associated with the Graduate Business Schools. These centers are to be meeting points for alumni, community, cross disciplinary intra-university collaboration and for interaction with other universities in the network, enabling the adoption of innovative cultures and infrastructures to local ecosystems. Investment money is to primarily go into promising middle class startups with solid clean-green business plans that are sustainable and have high local economic multipliers; but do not fit: the ‘shoot- for- the- moon’ VC model, cookie-cutter franchises, or are too complicated or require too much capital for the SBA. I expect our incremental $28 billion could have a 6 times greater impact on NDP and future PPFs than equivalent VC money in most years.

Restated, did you or your community feel better-off after the 2004 Corporate tax give-away - probably not. Did investment bankers, stock brokers and owners of publicly traded multinational stocks feel better – probably yes. If in 2008 we allocate $1 billion to your local university for innovative new business investments located in your regional ecosystem, investment money that returns full principal (for new investments in your local economy in future years) and pays interest or dividends – will you feel and be better off? The answer is almost always yes.

• Web based enterprise software technologies have enabled significant efficiency improvements in purchasing aggregation, supply chain distribution, distribution of transfer payments, financial & administrative record keeping, reporting & related services. Many organizations could reorganize, letting go of the majority of their white-collar clerical workers – if it were not for apparatchik worry, on an overall economy basis that millions of people depend on a steady corporate or government paycheck. In reality if that paycheck stopped being issued, millions of people would not find alternative sources of steady paychecks at comparable value. This inability to find equal or better sources of income is less the result of laziness from potential Non-Existences than for other reasons. The overall affects are a reduction in the mobility of labor, and retardation of innovation and total economic output. The point here is, as social contracts further weaken and technology improves tens of millions more become vulnerable to outsourcing, and wages remain suppressed. Few argue the trend. Debate focuses on the rate. We are not really interested in the debate. Our interest is helping people become less vulnerable.
• Assuming an employed person and potential Non-Existence now contributes nothing in real terms towards the designing, financing, building or providing of a product or service, that employed person serves the overall economy better by transitioning to stay-at- home-status, lessening pollution during energy consuming commutes. Stepping up from this minimalist scenario, the Non-Existence contributes more by becoming a bicycle peddling teacher or a healthcare home provider, even without a drop in pay – as the Non-Existence moved beyond receiving money for zero productivity to same pay for useful services to society. Continuing this thought, some employed persons, given appropriate safety nets, will transition, over-time, to positions of higher potential contribution as social entrepreneurs. The point is that most employed I.T. based service workers are inefficiently utilized factors of production.
• As a concluding note, may we suggest to AFL-CIO policymakers that isolated campaigns to protect America’s comparably higher wage scale in an increasingly global economy may seem helpful in the short term, but are insufficient delaying tactics. Your member’s ability to gain control over their own destinies largely depends on how they use the power of their aggregated wealth, including their ownership of world class capital equipment, titles to real property, and shares in strategically selected American based clean tech manufacturing firms. Labor’s aggregate shares of these firms need not be controlling, yet holdings must be large enough to guarantee seats on the board, active management influence over strategic decisions, and operating decisions regarding what is produced, how produced and how marketed.

---------------------------------- Diversify Your Portfolio, Invest a Bit Strategically! ----------------------------------

A California call for action, supports our message above:

A statement of Senator Barbara Boxer (views shared by Tesla Motors owner and Governor of California, Arnold Schwarzenegger) at the Senate Field Hearing on "Green Job Growth and Global Warming." Tuesday, August 14, 2007

Global warming is the greatest environmental threat faced by mankind.

We have now arrived at a time in our history when human activities related to greenhouse gas emissions could bring dangerous consequences.

In July, I traveled to Greenland to view the rapid melting of the enormous Greenland Ice Sheet.

If the Greenland Ice sheet were to melt, the sea level would rise by 23 feet. This would have disastrous consequences, particularly for California and the Bay Delta.

I have a map here showing what a 23-foot sea level rise would mean in this area of California. It would inundate highway 880, which runs from here to Oakland. It would flood the Bay Delta nearly all the way to Sacramento. Places like the San Francisco Airport and entire neighborhoods would go underwater.

The costs of these kinds of impacts are enormous and greatly exceed the costs of controlling emissions.

As Sir Nicholas Stern, the internationally renowned former chief World Bank economist has said, spending a dollar to fight global warming now will save you five dollars later.

In fact, most cost projections show that while fighting global warming will cost money, Gross Domestic Product will continue to increase, just a little bit more slowly.

For instance, EPA has determined that if the legislation authored by Senators Lieberman and McCain were enacted, U.S. GDP would increase by 112% by 2030 instead of by 113%, a net decrease of only 1% in estimated growth.

But in fact, I believe even these projections may be too pessimistic.

I believe that if we cap carbon emissions and fight global warming, we will be better off for it in every way, including economically.

I believe that by fighting global warming we can increase energy efficiency, increase our energy independence and increase our global competitiveness by creating clean energy technologies, which we can export to the rest of the world.

The International Energy Agency estimates that the world will spend over 20 trillion dollars on new energy technologies by 2030.

These technologies can either be clean technologies or dirty technologies, and they can be developed or made either in the United States or elsewhere.

By capping carbon emissions, as we have done here in California, we can stimulate investment in these clean technologies and position ourselves to be world leaders in this enormous global market.

This is happening in California already. California has led the way in so-called "AClean Tech@" investment with more than a billion dollars spent on such investment in 2006.

According to University of California Berkeley Professor Michael Hanemann, who is here with us today, carbon reduction policies, can be a net boon to the economy.

According to Professor Hanemann, if California were to take 8 specific steps to fight global warming, the result would be a net increase of gross state product of 60 billion dollars and would create 20,000 new jobs.

Companies that are here today, like Tesla Motors, Applied Materials and Akeena Solar, can help create good new green jobs for Americans.

That is why I approach the global warming issue with hope and not fear.

That is why I believe we need to get started soon in fighting global warming.

That is why I am so proud of the actions taken by California to lead the way for the nation to reduce carbon emissions.

If we act soon, we still have a chance to avoid the worst effects of global warming and in doing so, we will also strengthen our economy and create good jobs for millions of Americans.

As 60 California economists have said: “The most expensive thing we can do is nothing.”

I think that is true for both the environment and our economy.