Economic Imperative: Part 2

Date: Fri, 18 Apr 1997
From: Ann Dale
Subject: Economics


    Part 1

    Down One

    Further to John Middleton's and David Brown's comments with respect tothe economic system, I believe it is a mistake to place too much emphasison the dominant paradigm. By responding to the dominance, we marginalizewhat is often defined by the mainstream as "alternative" thinking.There has been much criticism of the dominant socio-economic paradigm (Dalyand Cobb 1989, Daly 1990, Rees 1994, Dobell 1995, Hawkens 1994, Henderson1991, Jacobs 1992 and Holling 1993), but to date with little challenge tothe mainstream economists.

    The principal failure, I believe, has been to define ourselves vis-a-visthe mainstream, rather than developing new models putting the mainstreamin the position of having to respond to the new models. Rather, we havebeen tinkering at the edges of change, rather than developing new mythsand narratives for social change around those myths. As well, another tactic,and one that government should lead, is creating space for policy alternatives,where I believe real innovation and creativity lie, through diversity.

    I believe the principal mistake of human systems has been to view theenvironment and economy as separate cycles connected by a one-way movementof resources from nature to humankind. The ecosystem and the economy, infact, have very similar needs in terms of maintaining essential structuresand ensuring performance. They each require elemental diversity and free-flowingcirculation to function properly. "It appears to be a near universaltruth that diversity is the foundation of developmental progress in complexsystems and uniformity is the foundation of stagnation and decay (Korten1995, p. 269).

    The notion of limits and one's view of the place the economic systemoccupies in natural systems, however, is one of the central debates imbeddedin the paradox of growth. Traditional economists view the economy as anisolated system: a circular flow of exchange value between firms and households.The economy is the system of interest and natural systems are simply sourcesof resources and sinks for wastes. Nature may be finite, but these naturalsources and sinks can be infinitely substituted for by human capital, withoutlimiting growth in any important way. Steady-state economics (Daly 1991)describes the economy, in its physical dimensions, as an open subsystemwithin a finite, non-growing and materially closed total system - the earth-ecosystemor biosphere. The growth of the economy, therefore, is constrained by thephysical carrying capacity of the larger biosphere.

    The crux of the issue then is the positioning of the economy as an isolatedsystem, or as an open subsystem of a finite system. If the former, thenthere is no environment to constrain the continual growth of the economicsystem. If, however, we view the economy as a subsystem of a larger, butfinite and non-growing biosphere, then obviously growth is limited by itsfiniteness. The economy may continue to develop qualitatively, but it cannotcontinue to grow quantitatively; beyond some point it must approximate asteady state in its physical dimensions.

    If one accepts the reality of steady-state economics, then compellingand socially complex questions emerge for civil society and its definitionsabout what constitutes sustainable development. What is the optimal scaleof the subsystem relative to the entire system? If one accepts the realityand necessity of limits, is it implicit that we live at the limit, or shouldwe live below the limits to allow space for other species? (Figure 4)

    Another issue central to this debate is substitution. Some economistsbelieve in fixed coefficients, the opposite of substitution at the margins.For example, during the 1970s, the Club of Rome in its report, Limits toGrowth, used fixed technology and no substitution in its modeling, and asa result predicted an apocalyptic collapse, a prediction that caused intensedebate at the time, and debate that is ongoing today. Some experts, however,believe that with human ingenuity, the ability for flexibility and substitutabilityin the economic system is enormous. They argue that with human ingenuity,it is hard to predetermine the future trends and limits of technologicaldevelopment. In fact, Lipsey (Dale et al. 1995) argues that the majorityof technology economizes with respect to both the environment and the economyby using less of all inputs and that technology appears to become absolutelymore efficient over time. We must, therefore, do our best to manage sustainablegrowth and that growth, if it is to be maximized, must occur through technologicalchange.

    The traditional factors of production - labour and capital - don't acknowledgean equally emerging critical factor, that is knowledge. The current economicsystem does not contectualize nor account for it. As well, with our propertyrights regieme, who hold the rights on behalf of the toad? The toad is quitesimply ignored, because we cannot account (price) it. Which also includesthe knowledge infrastructure. A colleague of mine from Carleton Universityhas suggested defining money in terms of environmental variables, for example,an index of money to oxygen creation. What do you anchor the money systemto? To return to linking money to envrionmental variables, define a rationof oxygen necessary for ecosystem well-being, inclusive of humans, and developan index number for the printing of money (Reid, personal communication).The purpose would be that as oxygen decreases, the money supply would betightened, and as oxygen increases as a result of remedial actions, plantingmore trees or decreasing car consumption, then more money enters into circulation.Thus, there is an automatic correction mechanism to correct environmentaldegradation. Re-evaluating the price system by tying it to what could bea basket of environmental care, offers an entirely different model ratherthan by trying to commodify nature, or by maintaining the status quo throughthe use of tradeable permits.

    Currently, we have two critical delinkages happening, a separation ofmoney from production, that is, money has become a commodity in and of itselfthrough the money markets, (Joel Kurtzman, the editor of the Harvard BusinessReview, estimates that for every $1 circulating in the productive worldeconomy, $20 to $50 circulates in the economy of pure finance, that is,the money markets), and a separation of employment from profits, as a resultof technology and downsizing, the more profitable companies are decreasingemployment. But what do we want for a sustainable society? It seems to methat meaningful employment is necessary for social cohesion, for a widevariety of factors. In addition, downsizing ignores the critical factorof knowledge infrastructure, as some companies and governments are now discoveringthey have lost a critical layer of institutional knowledge.

    Therefore, I argue once again for a reconciliation framework, and thatsome hard thinking be done about what it actually means and how would weorganize to implement it?

    On a last note about the current economic system, I think it will ultimatelycollapse for two fundamental reasons. The first is an issue of scale, itis simply growing too big, and once critical thresholds are reached, itwill collapse. Second, it is no longer effective. The market system usedto distribute wealth somewhat, and helped to create a vibrant middle class.It is no longer distributing wealth in anywhere the same fashion. In fact,it appears as if real incomes of the middle class are decreasing in industrializednations, at the same time that poverty is increasing (Korten 1995), witha disturbing accelerating trend towards the feminization of poverty (Kettel1996).

    How well does the current economic system support the welfare of peoplelocally and globally? Korten (1995) maintains there is little basis forassuming that economic growth, as it is currently defined and measured,results in automatic increases in human welfare. Daly and Cobb (1989) afteradjusting the national income accounts to count only increases in outputthat relate to improvements in well-being and adjusting for the depletionof human and environmental resources, show that, on average, individualwelfare in the United States peaked in 1969, then remained on a plateauuntil it fell during the early to mid-1980s. Yet from 1969 to 1986, GNPper person went up by 35 percent, and fossil fuel consumption increasedby around 17 percent. Despite the economic growth in the Third World between1960 and 1980, the gap in real income between the rich and poor nationsincreased from a factor of 20 to a factor of 46, and that gap continuesto increase (Hawkins 1994).

    A reconciliation framework may be effected through industrial ecologypractices and principles, that essentially incorporate processes from naturalsystems into human production systems. Nature produces virtually no waste,so, if production systems are re-designed to produce virtually no waste,using the outputs from one industry as inputs to another, and the earthnot treated as a free source of sinks for human generated wastes. Anotherfundamental characteristic of natural systems is that a lot of their activitysurrounds the maintenance of the system, whereas human systems emphasizeproduction only, with no value on maintenance. This, I believe, is alsoanother important feature for such a reconciliation. But in order for thisto be effected, we need to have human activity systems that respond to negativefeedback loops, and not, as currently is the case, to positive feedbackloops only, resulting in negative co-evolutionary processes, like the pestmanagement system, or the fisheries collapses. (Shealagh, do you have anycomments here, or Stephanie, or Charles)



    Date: Tue, 27 May 1997
    From: Ann Dale
    Subject: And following on economics


      Up One

      Down One

      I would like to follow-up to the last emails from David Brown and JohnMiddleton concerning the gap between sustainable development perspectivesand the direction of current international trade agreeements. I will then move on to the recent values discussion. All of which is leading into ourupcoming workshop, to which I am very much looking forward to.

      Further to my earlier emails about the necessity to transcend the dominant paradigms, I came across the following quote in a book by Wavy Gravy, theguy who stood up at Woodstock and said, "Welcome to breakfast in bedwith 50,000 people." "You don't change a game by winning it orlosing it, or refereeing it, or observing it. You can change it by leavingit and going somewhere else and starting a new game from scratch. If ithas appeal, it will gather its own energy. Fighting a system, however, merelystrengthens that system, which accounts for a lot of bitter revolutionaries, including victorious ones" (Stewart Brand, The Last Whole Earth Catalogue,Random House).

      In earlier emails, some co-researchers have identified population issuesas primordial, I know others regard climate change as the most urgent. Itis my contention that they all urgent, given the interlocutory nature ofsustainable development issues, and the now co-evolutionary nature of naturalsystems and human systems. We may vary among ourselves as to where the primaryfocus is, but I think we are all agreed on the urgency of acting now. Andsome of us believe that we know enough to act now. Why, then, has the sustainabledevelopment paradigm taken so long to be recognized by key decision-makers?in the face of what I consider to be overwhelming information that we aredestroying our planet.

      I believe that we have been fragmented by the issues, and by which sectorwas the most important to challenge, and which many people have chosen,to little avail, in terms of changing or even challenging the dominant socio-economicsystem. We have missed the boat by concentrating on doom and gloom scenarios,which was critical for raising environmental issues on the public agendaat the beginning of the 1970s, and have not been strategic as per Brand'squote, that is, we have not created the new myths and metaphors necessaryfor diffusing sustainable development concepts and practices throughoutCanadian society. And that is what I hope we will accomplish by coming upwith new frameworks, and particularly, a reconciliation framework, thatis dynamic, with a generic set of principles that could appeal equally acrossgovernments, the private sectors and the engage the public. A broad task,and some cynics would say, well nigh impossible, but at least, in this dialogue,we should aim for the stars, for I believe, through this collectivity, wemay develop the synergy that leads to truly emergent thought.

      To back up my discussion a little on the futility of concentrating onany one of the parts without going for a holistic framework, there are awealth of studies, research, and task force reports that gather dust onthe shelves of libraries, arguing for an alternative economic system. Forexample, the MacDonald Commission stated, "In many other places inthis Report, we call for less government intervention; in the area of environmentalregulation, however, we are obliged to call for more. Over the long term,the task of environmental regulation promises to be immense. We shall haveto deal with growth in the number and size of projects that may adverselyaffect the environment, with an increasing number of pollutants and hazards,with the irreversible, and sometimes unquantifiable, effects of a growingrange of industrial substances and processes, and with the emerging internationalaspects of our environmental responsibility. Consequently, we recommendthat governments increase their spending to provide the analytical resourcesneeded to support the long-term regulatory task. We further recommend thatfederal environmental processes be put on a statutory basis, and that federaland provincial review processes be brought into greater harmony" (MacDonaldCommission Report, 1985, pp. 439-440). In this case, the MacDonald Commissionwas one of the best organized commissions in the Federal Government, withan extensive research budget, and some of the best economic minds in thecountry were brought together to lead this exercise. And yet, the majorityof its recommendations were not implemented, except for its recommendationson free trade, which I might add, the Commission did not recommend withoutthe implementation of a guaranteed annual income scheme to ease the transitionperiod of structural adjustment that would occur.

      The vested interests for maintaining the status quo are very sosphisticatedat influencing government decision-making, and indeed, it is my contention,that the fragmented nature, overlap and duplicating nature of the bureaucracyand its current structural organization into sectors such as agriculture,industry, and natural resources, mitigates against the effective implementationof sustainable development. As Holling states, the brittle and rigid structuresare one of our prinicpal barriers.

      Another example of the futility of wasting strategic efforts againstchanging the direction of the "psychopathology of the current economicsystem" is demonstrated by a case study brought to my attention byDavid Brown. MMT is a manganese-based compound that is added to gasolineto enhance octane and reduce engine "knocking." The United StatesEPA has banned its use in formulated gasoline, which includes approximatelyone-third of the U.S. gasoline market. An Environmental Defense Fund (EDF)survey of the remaining producers reports that none use the additive, andCalifornia has imposed a total ban on MMT.

      Canadian legislators wanted to ban the use of MMT in order to protectthe Canadian public. Because they could not do so under Canadian EnvironmentalProtection Act (CEPA) provisions, they chose the best available alternative:banning MMT's import and transport. Ethyl (the company that invented leadedgasoline) responded to the Canadian Parliament's act to ban the import andinterprovincial transport of an Ethyl product, by filing a lawsuit against the Canadian government under NAFTA. Ethyl claims that the Canadian banon MMT violates various provisions of NAFTA and seeks restitution of $251 million to cover losses resulting from the "expropriation" of both its MMT production pland and its "good reputation."

      This to me, shows the futility of trying to tinker at the edges of thesystem, and imposing change from the outside. We have to look at the effectsof our research, our actions against our resources, and assess the efficacyof our efforts. In spite of all the efforts and agreements of the InternationalJoint Commission on the Great Lakes, the lakes ecosystem is as pollutedtoday as it was thirty years ago. It would appear that the most effectiveactions seem to happen, for example with acid rain and more recently withclimate change, when large international regiemes build up around selectedissues. We may then be looking at a system or systems that stimulate thecreation of "networks of collaborations" and the building of keyconstituencies around prioritized issues, in order to affect the necessary societal changes.

      It seems to me, therefore, that we are involved in identifying frameworks that create space for policy alternatives, perhaps through the use of policy inquiries. The 1996 report by the International Development Research andPolicy Task Force entitled, Connecting with the World, Priorities for Canadian Internationalism in the 21st Century, states that "Policy inquiry recognizes the uncertain and tentative nature of policy "knowledge" and accepts that there may be a variety of legitimate views on policy strategies. Policy development becomes an interactive process of inquiry among experts, interested parties, and a broader public. Policy dialogue, then, becomes an occasionfor exploring and discussing options. Policy inquiry can and should, nowmore than ever, engage the public,professional associations, business, labour,and the media. In new and uncharted water-as with many issues of international development-such an approach to policy development makes eminent sense.It does not deny or exclude the reality of political motivations and political pressures; rather, it allows policymakers to review different opinions andto consider options. Policy dialogue and relevant policy inquiry are the essential underpinnings of the policy leadership that can only be providedby government" (p. 21)

      The report goes on to state, "To get beyond narrow institutionalpreoccupations, there should be greater effort at explaining major issuesmore clearly to Canadians. Those concerned about maintaining Canadian capacitymust move their organizations to a more popular base of support as a matterof great urgency. Sustaining policy-related capacity must be related directlyto the ultimate product: greater security for Canadians, the environment,and jobs. It is institutional factors, nonetheless, that provide the settingfor the definition and pursuit of objectives. Institutions cannot be ignoredin a discussion of restructuring and retooling. Alliances with institutionsin "like-minded" countries of Europe, the Pacific, and the developingworld will be essential. More attention must be paid to concepts of "virtualorganization" (p. 22)

      Further, in our attempts to identify frameworks, and the one I am stronglypushing, is a reconciliation framework that is holistic enough to transcendcurrent sectoral interests, we must not forget, as Greg has pointed out,an explicit cultural dimension, what I refer to more generally, as the socialimperative. I heard an interesting analysis on the radio this morning aboutthe incompetence of the media in the current election, in that, they arenot bringing any reporting of historical facts into this debate. And thatwithout memory, we are doomed to mediocrity and repeating the mistakes ofthe past. Robert Putman, in the recent John L. Manion lecture, talks abouta study of Italian governments that he did, in trying to identify what constitutedbetter governments. They were unable to guess what turned out to be thebest predicators of government performance - choral societies and footballclubs! Why, because "some of these communities had dense networks ofcivic engagement. People were connected with each other and with their government.It wasn't simply that they were more apt to vote in regions with high-performancegovernments, but that they were connected horizontally with each other ina dense fabric of civic life. . . The question was why some governmentswork better than others, and the answer is choral societies-that is, socialcapital." He then goes on to talk about the distrust of state and localgovernment, a distrust and lack of appreciation, lack of approval, of theperformance of most of the institutions in our society and that there hasbeen a substantial decline in many forms of civic engagement in Americansociety, a secline of nearly 40 percent over the last 20 years. He arguesthat as a result of the electronic revolution, "place-based socialcapital is being replaced by function-based social capital, and we haveto find ways in which we can use this electronic network structure to createreal communities with real face-to-face interaction, not just phosphorous-to-phosphorousinteraction. . . We must figure out what the new institutions will be thatfit the new way we are living our lives, while re-creating genuine bondsof community".


      Just to build a little on what has been said before, and linking backto focusing on any one sector, I am reminded of the parable of a guy onan island, in a sea of shit that is just below his nose. A boat goes by,and he says, "Don't make waves, man". In Arja's message, she talkedabout the value of adaptability, in the words of Stuart Hill, "onemust remember that one can as easily adapt to "shit" as to thegood stuff!! - remember the adaptation/addiction/allergy/ degeneration syndrome.Maybe what we are talking about are two key features of ecosystems, responsivenessand resilience.

      From a very buggy Lac Maskinonge. Ann



      Date: Fri, 13 Feb 1998
      From: Dave Brown
      Subject: Transnationals


        Up One

        Hello all,

        Just catching up with the latest postings; e-mail links from here (Thailand)to home are not always the greatest, and web links are virtually hopeless,but most of the material gets through eventually. As usual, I'm excitedand energized by what I read (followed swiftly by frustration at being ableto find the time to participate as fully and expediently as I would like!).

        I'm pleased that the issue of transnationals has been revisited by Stephanieand Shealagh. I think that corporations are crucial players in the sustainabilityequation, and that any framework of governance must deal with the massivegap in accountability that exists for the global-scale activities of powerfulmultinational interests. At the risk of redundancy (I posted a similar messageback in March of last year) and accusations of stridency, I'd like to echothe key concerns surrounding this issue, as articulated by Tony Clark ina 1996 address to the International Summer Institute in Calgary (see below).(Quoting Clark also lets me off the hook in terms of composing a reply ofmy own - sorry for cheating... :D )

        Clark, David Korten, John Cavanagh, Vandana Shiva and others have writtenand spoken extensively, eloquently, and passionately about these issues.I have the full version of Clark's address, and of another excellent addressby David Korten entitled 'The Failed Paradigm of Globalization'. If anyoneis interested, drop me a line and I will be happy to send you plain-textcopies of these brief but compelling addresses by e-mail. These documents,while not news to most who have been monitoring these developments, arenonetheless good populist synopses of the major concerns.

        Also, you can listen to Korten's address on the World Wide Web in RealAudioformat, along with excellent talks by John Cavanagh, Vandana Shiva, andothers at a forum on 'The Social, Ecological, and Political Costs of EconomicGlobalization', New York City, November 10th-12th, 1995. The webcasts arepresented by Virtual Radio Network, PeaceNet, and the International Forumon Globalization at


        Dave Brown


        An excerpt from Clark's address GLOBAL NORTH - GLOBALSOUTH: Rebuilding Sustainable Communities in Response to the Deepening Crisisof Poverty, Social Disintegration and Environmental Deterioration in anew age of Global Corporate Rule. (Keynote Address to 1996 InternationalSummer Institute, University of Calgary, by Tony Clarke, Polaris Institute,Ottawa, Canada):

        "...All to often, there is a tendency to blame our governments forplaying the game of many cases, it is no longer governmentsper se nor even powerful nation states that are calling the shots. The realforces that are driving the process of globalization are transnational corporations.It is the transnational corporation that embodies the twin engines of globalization--- namely, the international movement of capital and the computerizationof technology. It is the modem corporation, more so than any other institution,that is controlling our economic, social and ecological future.

        "This is the central message which David Korten conveys inhis recent book, When Corporations Rule the World. Over the past decadealone, the number of transnational corporations has mushroomed from 7,000to over 40,000. Of the 100 top economies in the entire world today, 50 areindividual transnational enterprises. Ford Motor's economy is larger thaneither Norway's or Saudi Arabia's, while Philip Morris' annual sales aregreater than New Zealand's GDP. The 500 largest corporations employ only1/20th of 1 per cent of the world's workers, yet they control 25% of globaloutput and 70% of world trade. And, 5 of these transnationals alone control50% of the global market in 7 industries (consumer durables, automotive,airline, aerospace, electronic components, electrical & electronic,and steel).

        "The economic power wielded by transnational corporations todayalso has profound political consequences. In most of the industrializedregions of the North, the CEO's of the largest corporations have formedbusiness coalitions for the expressed purpose of realigning the nationalpolicies of their governments with the directives of the new global economy.In the United States, for example, the Business Round Table which includesthe heads of 42 of the 50 top corporations in the world (including 7 ofthe 8 top commercial banks, 7 of the 10 largest insurance companies, 5 ofthe 7 largest retail chains, 7 of the 8 largest transportation companies,and 9 of the 11 top utility companies) has been the driving force behinda wave of new public policy directions ranging from NAFTA to the Contractwith America.

        "In Europe, the mainline coalition of big business is the EuropeanRound Table of Industrialists while in Japan it is called the Keidanren.Here, in Canada, we have the Business Council on National Issues which,comprising the CEO's of the 160 largest corporations in this country, virtuallyoperates as a shadow cabinet in Ottawa. Over the past 15 years or so, thesebig business coalitions have waged relentless campaigns around deregulation,privatization, free trade and debt elimination along with a variety of morespecific economic and social policy changes. Armed with a network of policyresearch institutes and public relations firms, they are able to marshalexpert analysis, develop policy platforms, conduct opinion polls and organizecitizen front groups to change the direction of government policies. Needlessto say, their success rate has been nothing short of phenomenal.

        "As a result, nation states have surrendered most of the powersand tools they once possessed to regulate the operations of transnationalcorporations to serve the economic, social and environmental needs of theirown peoples. Around the world, governments have been deregulating theireconomies at a furious pace. Between 1991 and 1994, as many as 3 69 outof a total of 374 major pieces of legislation introduced by national governmentsregarding investment by corporations, were designed to eliminate regulationson corporate practices. Under the new free trade regimes like NAFTA, foreigninvestors not only have the same rights and freedoms as domestic firms,but national governments are also compelled to remove foreign investmentrequirements, export quotas, local procurement, job content and technologyspecifications.

        "In effect, these and related measures have led to a radicalre-invention of the roles and responsibilities of governments in a democraticsociety. (I realize here that we have all had varying experiences with therole of the state in our respective countries, including corrupt and militaristicversions, but I am primarily speaking here about what is happening to socalled democratic governments). Intervention by governments in the market,where necessary, to regulate the operations of corporations on behalf ofthe public interest or the common good, has become a thing of the past.Indeed, governments are getting out of the business (insofar as they wereever committed) of ensuring that the basic life needs of their peoples ---food, clothing, shelter, education, employment, health care, clean environmentetc. --- are met through the provision of social programs and public services.Instead, the prime role and responsibility of governments now is to servethe interests of transnational corporations by securing a favourable climatefor profitable transnational investment and competition. In other words,'democratic governance' (imperfect though it has been) is now being supplantedby a form of corporate governance.'

        "These trends, in turn, are further re-enforced by new formsof governance at a global level. The recently established World Trade Organization(WTO) is designed, for all intents and purposes, to act as a global governing body for transnational corporate interests. The WTO is equipped with legislativeas well as judicial powers. It has a mandate to eliminate all barriers tointernational investment and trade. Under the WTO, a group of unelectedtrade representatives will, in effect, act like a global parliament withthe power to override the economic and social and environmental policy decisionsof national states and democratic legislatures around the world which failto comply with the new rules for international investment and competition.Given their established linkages with the trade representatives of membercountries and the role played by big business coalitions, the world's majorcorporations are ensured of a pivotal and powerful presence in the new WTO.

        "In short, what we are experiencing here in the twilight yearsof the 20th century is a massive shift in power --- out of the hands ofnation states and democratically elected legislatures and into the handsof transnational corporations. Indeed, we are rapidly moving into a newpolitical era in which the destiny of peoples on this planet, North as wellas South, is increasingly determined by transnational corporations who havelittle or no public accountability. This is what some of us are callingthe new age of corporate rule. It is a period in which the political rightsof citizens are superseded by the political rights of transnational corporations--- to property and investment, to mobility of capital and technology, tocontrol over life forms (patents). In this new world order, the securityof investors takes precedence over the security of citizens. For countries like India, this means that foreign security forces are now training localpolice to protect "the life and property of foreign investors."

        "To say the least, these are disturbing trends for those ofus who are deeply committed to participatory development. For the ways in which corporate power has come to dominate public policy making constitutes a fundamental violation of democracy. Corporations, after all, are designed to maximize profits and growth, not serve the basic development needs ofpeople and communities. Nor are they, for the most part, publicly accountable for their operations. As long as these systems of corporate rule are inplace, our chances of making real progress in the field of participatorydevelopment are seriously jeopardized."


        David T. Brown, Ph.D.



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