2013-03-13

Co.Exist

We Need To Redesign Our Economy To Make It Work For Profits, People, And The Planet

To make a world that can support all the people that live in it and use its resources, we need businesses to take a strong role in finding new ways to account for more than just the bottom line.

When the richest quarter of the world’s population uses about half of our global resources--and take the liberty to produce half of the global waste--while another third live in poverty, it is clear that our economic and societal systems are failing us.

That is even before we have reached the point where our planet needs to accommodate 9 billion mostly urbanized and aging people. Add in the rapidly growing middle class in China, India, and elsewhere who also want their share, and it is easy to see that our current path is unsustainable.

Over this hangs the cloud of climate change, which is already having huge consequences. Scientists agree that we face the risk of even more severe floods and droughts, which is clearly related to our addiction to fossil resources, necessitating an inevitable transition to renewable, alternative energy sources.

And we need to address food and water security too, for we cannot accept that 2 billion people are malnourished, half of whom go to bed hungry every day. These urgent global challenges surely provide the impetus to redesign our economic system.

We need a new approach that recognizes the importance of profit, but which gives equal weight to the impact of economic activity on our planet and its people, too. In short, a triple P approach in which societal, ecological, and economic value creation are seen as three equal goals for business. This is not just a matter of applying business ethics; we also need to embed this in our economic and business system, using new legal and accounting rules, so as to recast the role of business in society.

Why? Because the impact of the private sector has increased enormously over the last 50 to 100 years. Some of the largest companies now have cash balances that are bigger than some countries’ GDP. The harm companies can do, but also the good, is impacting our planet and its people on a scale never seen before. And it is private companies who, with their technological expertise and innovative power, can provide the answers to the world’s biggest challenges.

I believe that with this increased power comes increased responsibility. We can no longer rely on the traditional paradigm, where governments and the private sector have their separate realms (with international institutions helping on issues crossing national boundaries). The challenges we face are so big that we need companies to take more responsibility, working together with governments and international institutions in private-public partnerships. Nobody can address these issues alone.

The transition from the current fossil age to a new bio-based, renewable age is one such challenge. To go forward here, we need to go backwards to a time when we lived off the land, using renewable resources like the sun, wind, and water. We need to use these truly renewable resources in a much more innovative manner than in the past. Therefore we are working to harness the power of second generation biotechnology so that we can use all of the molecules from agriculture, including so-called residues, to produce food, fuels, and materials.

We need an overhaul of our economic system to enforce this new corporate responsibility. This will not be the end of capitalism, as some say, but we will be using the capitalist system’s own tools to change behavior.

First, to get to a more circular economy where sustainability is an integral part of business decisions, we need agreed systems to measure the impact of our economic activity on people and the planet. Today, we have accounting systems, like IFRS, to calculate profit, which are much more complex than simply revenue minus costs. We need similar systems that supplement the profit calculation with a company’s impact on our planet, its use of the world’s resources and externalities, and its ecological footprint. We need an aligned definition and calculation of what is sustainable. Something similar needs to be developed for the people dimension, looking to the impact of companies on people with respect to health, wellness, labor, and other societal aspects.

When these have been agreed, we can move to the second stage, where people and planet metrics become accepted tools for company valuation, alongside profit. If company leaders know that analysts are following their societal and ecological ratings as closely as their profits, they may feel stimulated to make business decisions differently.

Accordingly, we should anchor value creation (or destruction) on the people and planet dimensions in the overall valuation of companies. One approach might be to introduce differentiated tax regimes depending on companies’ performance or contribution on the ecological or societal axis. A logical complement to such an approach would be to consider increased taxing on the use of scarce resources, whilst diminishing taxes on labor. This would help to tackle the scourge of unemployment and could make it easier to create jobs for older people as well as in certain services that society wants but that have become almost unaffordable.

Moving to such a new model will not be easy. Change triggers resistance. So this transition will require coordinated leadership. Governments, civil society, and business will need to show courage. Asian leaders have a significant contribution to make, since their region will see the greatest increase in resource use and their economic models are rooted in different philosophies than those in the West. The business community will also need to join forces. We need to pool our ideas and resources to achieve global progress like governments do at the UN. We could call this approach United Businesses.

Together, businesses have the power to deliver tremendous progress, and a unique ability to make this world a better place. But this will happen only if we see the economy not as a goal in itself, but as a means to contribute to our planet and its people. This is a notion that we have more or less lost over the last few decades. We should redesign our economic system for a sustainable future--starting right now.

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7 Comments

  • Christopher Vietorisz

    Would it be feasible for a country to harmonize all taxation into a single, annual progressive tax on entities' total accrued wealth?  Taxing income rather than wealth, I believe, is ultimately the root cause of wanes in economic opportunity in recent decades, as well as the cause for governments' budget deficits.

  • Joost Lindeman

    Completely support your thinking. It does feel like adding more complexity which too easily could mean - resistance. The people hold the key and I hope they will prefer those solutions that are better for our planet.
    I hope we can innovate ourselves in time to solve the global wicked problems and I believe we can. For instance: 
    1. energy should not be an issue as we have the sun which gives all the energy we need. Companies hold innovation back though.
    2. water should not be an issue. We live on a water planet. Ok 99% of water is salt but I am sure we can solve that thing. 
    3. making people smart so they can chose wisely and build good companies should not be an issue. We have the technology available with people having mobile phones. 
    Etc etc. We can solve the planet. The only danger being, will we use the innovations wisely, do companies and governments allow us. Or do they stop us as they want to protect the status quo and the stakeholders...

    Rgds
    Joost Lindeman

  • Icerunner6

    Your suggestions are admirable, but what empirical evidence are they based on that show they would work? Won't taxing resources simply allocate more to the richest as they will be able to afford those products as any tax is usually passed down to the consumer with a price increase?

    Its easy to pontificate, but without legitimate research to understand possible unintended consequences from such policies, then this will never gain any traction

  • SMG

    If we need to reduce the population, why not just let the 2 billion malnourished die? Not the most popular/moral view, but it is still an alternative. Many African countries will never be self sufficient, why not let a dead country die? By handing out aid, all we do is prolong suffering. If we're running into food/water/energy shortages in the west, how can we be expected to sustain countries elsewhere?

    These are logical views, but no doubt people will rage at these views.

  • Rakesh Gaikwad

    I am reproducing some part from above -

     To go forward here, we need to go backwards to a time when we lived off the land, using renewable resources like the sun, wind, and water. We need to use these truly renewable resources in a much more innovative manner than in the past. 

    When the richest quarter of the world’s population uses about half of our global resources--and take the liberty to produce half of the global waste--while another third live in poverty, 

    These 2 Billion People correspond to the above para 1.. What is required is to reduce the energy consumption by the Richest Quarter para 2,,

    So what is logical?.....

  • Kokok

    How heartless of you. Also, there are resources enough to meet the basic needs for people all over the earth (dispute this if you want). Today's shortages exist because our economic system has horribly misaligned or imbalanced priorities (like war and the bottom line).

  • Renato

    Great down-to-earth writing! It is not difficult to imagine that social and environment aspects should be taken into account in company valuation, if we notice the disastrous effect that unemployment and decreasing purchasing power have in companies. Because more and more consumption isn't sustainable, but DIFFERENT consumption can be. I think one of the key issues is courage to be more long-term and altruist oriented. Short-term and selfishness won't take us anywhere.