Part 2: In the Nursery of the New.
Last time out we considered the limitations inherent within the current framework for capitalism, and the call for a vastly upgraded operating system.
In this second part, we explore what the future might hold, and what the business landscape could look like. In Part 3, coming soon, we will ask what the impacts, opportunities, and risks for businesses might be.
Then, in Part 4 we will look at how such an economic transformation might come about, along with the challenges involved, and how business leaders can help shape the future.
“The best way to predict the future is to invent it.”
R Buckminster Fuller
The conventional model for capitalism is found wanting in terms of the benefits to our society, the impact on our planet, and for our continued economic prosperity. The call for change rings loud – capitalism requires a new operating system, and needs to be re-booted if we are to avoid the ultimate recession.
The visions for a better future are seductive, but we need to move beyond high-level statements, and get to the nuts-and-bolts of what a more sustainable system will look like and, quite importantly, how it will operate for our collective benefit.
So what next?
What could a blueprint for the future look like?
It is possible to synthesise a set of principles for sustainable economy, drawing on the range of elements identified by some of the visionaries we looked at in Part 1. They all offer partial views that contribute to the whole, and are surprisingly consistent.
That said, I would not pretend for a minute that this article could provide the definitive answer; there can be no substitute for a fully comprehensive exercise to develop a robust, shiny new operating system, based on rigorous joined-up design principles in meeting specific goals.
But what we can achieve, within this space, is provide a sketch of what could be. As Bob Massie nicely puts it, “we are in the nursery of the new”, so here goes.
Less growth, more wellbeing
A more holistic approach to developing and managing our economies, based on human happiness and wellbeing, not simply in terms of money and wealth, but with values and morality back in the equation.
We will be weaning ourselves off the myopic focus on growth and GDP. Living within limits means that growth will diminish to a level of consumption, just necessary to maintain today’s standard of living, instead of aspirations to enhance it.
This points to a new paradigm, showing how we can manage without growth, and perhaps even achieve prosperity, making the shift from dumb to smart growth – involving business models based on ideas such as generosity, creativity, and resilience, focused on doing the right things, based on real need rather than greed.
This signals a real move away from materialism and the consumer economy, and weaning ourselves off the pastimes of shopping and watching TV.
At a time when we see a looming energy crisis, it is still quite staggering that in the UK we spent £16.1bn on advertising in 2011, in a vain attempt to perpetuate our consumer culture (which doesn’t seem to be having the desired impact on GDP), but could only achieve £3.8bn investment in renewable energies during the same period.
Through necessity, we will need to see a shift in priorities.
With a broader view of what capital means
At the core of capitalism is of course the economic concept of capital – usually expressed in terms of land, machines, and money. We now need to take a broader view, possibly on the lines of the Five Capitals Model – based on human, social, manufactured, financial, and natural capital.
Financial capital still plays an important role, enabling the other types of capital to be owned and traded, but a broader view helps us understand the relationship between different aspects of capital, and the need for balance and optimisation. In a similar vein, environmental, social and governance (ESG) metrics will become increasingly important within investment decisions.
In terms of business action, companies will increasingly use integrated reporting, in line with the formats developed by the Global Reporting Initiative (GRI) and the International Integrated Reporting Council (IIRC) – to better inform both business executives and investors on the interactions between different forms of value and capital.
Adding real value, where it is needed
We will increasingly see businesses taking a values-based approach, putting money and business back in the service of people and planet, to support social and environmental balance, and generate real, living wealth – what might be called profit with a purpose.
This will involve a change in emphasis from ‘goods’ to ‘betters’, in order to create a meaningful payoff that matters in human terms – and to create ‘shared’ or ‘thick‘ value, with meaningful differences for customers in the process. This will enable companies to create new arenas for competition, instead of just dominating existing ones.
We could see a move towards more locally rooted economies with more independent, locally-owned, ‘human scale’ enterprises, devoted to serving the needs of people, community and nature. This would involve greater emphasis on ownership by responsible local investors, with an active interest beyond profit.
Aligning with the circular economy
The big picture challenges of climate change, energy, resources and economy are converging to create a perfect storm, and need to be addressed at systems level – solutions will be all about optimisation of the whole system, rather than maximisation of one element.
The new economics of interdependence recognises that we do operate within one system. This calls for a shift in the production mindset; away from value chains to value cycles, whereby resources are renewed, rather than exploited – towards the circular economy. Capitalism configured for a tiny, fragile, and crowded world.
Enabled by a well-functioning money system
In reality this is perhaps where most reform is needed, but where it is perhaps hardest to deliver change, not least because of a mass of vested interests and incumbents.
But we need a well-functioning money system, one that can direct money to where it connects underutilised resources with unmet needs, and will provide jobs for everyone seeking employment – an economy working for the people.
This would involve making credit readily available at affordable rates in response to local needs and opportunities that build real community assets and enhance community health and happiness. It is also important to support family-wage jobs that eliminate the need to borrow to support basic consumption needs.
The system would also need to eliminate financial speculation, usury, and fraud.
Away from speculative bubbles, towards creating longer-term real wealth
We need to move away from illusory assets based on financial bubbles, the abuse of power by banks in creating credit (money) from nothing, of corporate asset stripping, baseless credit ratings, and creative accounting, that led us to financial, social, and environmental break down.
We also need a new lens through which we can evaluate potential investments and avoid the risks of stranded assets, i.e. those investments whose value could be dramatically influenced when major externalities, such as the price of carbon or water, are taken into account.
The significance for institutional investors is their exposure to rising environmental costs that contribute to economic and market risks, which can affect asset values and investment fund returns. It is naturally in the interests of investors to reduce the risks and costs associated with externalities within their investment portfolios.
This points to the coming transparency on the total-cost-of-ownership of our economies, our businesses, and our investment strategies. And the numbers involved are serious. According to a study commissioned by UNEP in 2010, environmental damage caused by human activity in 2008 was estimated to be $6.6 trillion, equivalent to 11% of global GDP – a huge economic impact, that cannot be ignored – and a price that has to be paid, somewhere down the line.
In a healthy economic eco-system we need to see more locally owned enterprises – to enable responsibility, risk and reward to be more closely aligned with true ownership.
This also aligns quite nicely with the principle of subsidiarity – raised by Charles Handy almost 20 years ago – aimed at promoting greater levels of commitment through membership, a financial stake.
Perhaps we will see new forms of loyalty share, to encourage longer-term holdings and ownership on the part of investors. Alongside the introduction of new corporate formats, like B-Corps, loyalty shares could open out the time-scales over which businesses operate, and the outcomes they prioritise.
Capitalism also needs to be configured to allocate resources differently, so we can respond better to demand and supply shocks.
Re-distribution appears to be an inevitable consideration, in a system that has created so much inequality. Raising taxes on the rich, along with additional financial reforms are essential elements in a fairer economy.
Based on collaboration – striving together
The word ‘competition’ is originally derived from the Latin ‘competare’, which actually means ‘to strive together’, and nothing to do with the ruthless, myopic and destructive approach we seem to have adopted in more recent times.
From the root of this true understanding, Porritt creates a foundation from which economic policy needs to be designed if we are to meet the sustainability challenges of today. It’s the essence of what he describes as ‘cooperative capitalism‘.
Founded on new institutions & greater systemic resilience
We seem to be in a time of revelation, where old institutions are falling apart on almost a daily basis – in politics, banking, the press, police, sport, entertainment, and business. There seems to be no end to the unravelling of what we once thought of as solid foundations.
Constructive capitalists are not just about building better products, services, strategies, or business models: they are building better institutions first.
It is possible to develop a six-part policy agenda to rebuild a system of community-based and accountable institutions, devoted to financing productive activities that create good jobs and generate real community wealth. This is radical, and includes the involves breaking-up the mega banks and implementing tax and regulatory policies that favour community financial institutions.
Now, stand back, and just take in this sketch for a moment. Keen-eyed readers amongst you may well notice at this point that the range of attributes called for tends to align with those in more socialistic or communalistic systems of economy – minus any potentially oppressive elements, of course.
But such features would also be quite similar to what Adam Smith originally envisioned; an approach more to do with mindful responsibility, than the more selfish aspects associated with the current model for capitalism.
And let us remember, as Lester Thurow pointed out back in the 1990s, the advantages of the communalistic approaches in their collective action for the greater good, has led to the rise of economic power in Asia over the last twenty years or more. There is certainly something to be said about a less individualistic approach, given the nature of our challenges.
The features covered also begs the question: At what point does capitalism change so much, that it becomes something else? Should we seek a new term, that not only better describes how the system would work, but which might also allow us to leave behind any unnecessary ideological baggage of the past? I wonder.
But the key question for us here is: How is this going to be good for business? More on this next week, in Part 3 of this series.
I owe a big debt of thanks to the seminal work produced by David Boyle, John Elkington, John Gray, Al Gore, Charles Handy, Umair Haque, Tim Jackson, David Korten, Paul Krugman, Lester Thurow, Jonathon Porritt, Klaus Schwab, Andrew Simms, Peter Victor, and many others, that has made this synthesis possible, and allowed me to make some inroads into thinking about the future impact and opportunities for business.
To read Part 1, click here
This article was originally published on the 2degrees network
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Michael Townsend is the Founder and CEO of Earthshine Solutions. He is passionate about promoting the benefits of sustainable business, and author of The Rough Guide to Sustainable Business (forthcoming). Michael is an engineering graduate and MBA: a business transformation leader with over twenty-five years experience in a range of sectors. Michael has developed “best in class” performance for a range of organisations, including Norwich Union (Aviva) Insurance, BAA, British Airways, Mace, The Home Office and Gazeley, amongst others.