Sustainable Business Transformation

Management Consulting Services | Hemant Puthli Associates


  • Click on the logo to visit facebook business page

  • Follow me on Twitter

  • Advertisements
  • Hemant Puthli


    Founder & Principal (click on the picture to view profile)

  • Archived Posts

  • Subscribe

  • Subscribe to blog updates - enter your email address

    Join 441 other followers

  • Site Visits

    • 29,833 since 14 Aug 2009


Archive for the ‘Economics’ Category

The Quest for a Sustainable Economic Model – An Essay in Three Parts

Posted by Hemant Puthli on April 8, 2012

“All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.” – Adam Smith in “The Wealth of Nations” Book III, Chapter IV

“Business leaders today face a choice: We can reform capitalism, or we can let capitalism be reformed for us, through political measures and the pressures of an angry public.” – Dominic Barton, Global Managing Director, McKinsey & Company

________________________________________________________________________________________________________________________________

Stagnating economies, helpless governments, depressed markets, diffident businesses, angry citizens. Is there a way out of this quagmire? What could point us in that direction? Without promising any categorical answers, this essay in three parts attempts to: (in Part I) understand how we got here, (in Part II) assess where we are today and (in Part III) look at what might unfold as the road ahead 

This essay does not aspire to be a formal, academically complete dissertation of the kind presented by an economic historian or a political scientist. It does not purport to be either an authoritative chronicle of our history or an all-encompassing narrative of our present condition or a forecast for the future of our species on this planet. Instead, it captures the observations and findings of a curious mind in its attempt to study the etiology of some major forces that have impacted our lives in the last few decades, leading to the severe systemic failures whose fault lines started to show about four years ago and the full dimensions of which are only now becoming clear. 

A lot happened in the last 300 years, and this first part of the essay tries to put in perspective only those events and phenomena that have shaped the socioeconomic and political zeitgeist of our present times. 

________________________________________________________________________________________________________________________________

Part I: Understanding the Past

Around three centuries ago, the Age of Enlightenment and its attendant Revolutions – the Industrial Revolution, the American Revolution and the French Revolution – permanently reoriented the social, economic and political vectors of progress and redefined the trajectory of human civilization. The work of prominent inventors, economists, philosophers, social reformers and political revolutionaries such as James Watt, Adam Smith, Jeremy Bentham, Benjamin Franklin, Thomas Jefferson, George Washington, Jean-Jacques Rousseau and Voltaire, to name a few, triggered a series of changes through the 18th and 19th centuries. These changes – some incremental, some dramatic – fundamentally transformed continents on both sides of the Atlantic over those 2 centuries. Orthodox and rigid feudal hierarchies were broken down or relegated to irrelevance. A largely agrarian society ruled by dynastic monarchs gave way to industrialized economies in nation-states governed by elected representatives of the people. In addition to Land and Labor, a third dimension – Capital – became a vital cornerstone of economics. What came to be called the “Industrial Age”, framed in the ideological context of classical liberalism, brought along a new kind of prosperity and placed it within reach of common folk.

The world witnessed even more dramatic change as it entered the 20th century. The work of prominent scientists like Einstein, Heisenberg and Schrodinger changed the way the world looked at the universe. The atom was smashed and nuclear energy was harnessed – for constructive as well as destructive purposes. Leading manufacturers perfected the art and science of mass-production of goods in large volumes in a relatively short time using a smaller number of workers. Mass-produced and affordable automobiles changed how middle-class people got from place A to place B. Not only did Man learn to fly, but also managed to set foot on the moon and send several unmanned probes into the solar system and beyond. The discovery of penicillin opened a whole new chapter in modern medicine. Life expectancy nearly doubled. World population quadrupled in just a hundred years, despite mass destruction on an unprecedented scale (two World Wars, many other international conflicts and numerous genocides, that together accounted for the loss of close to a hundred million lives). Activist-reformers like Mohandas Gandhi, Martin Luther King Jr. and Nelson Mandela demonstrated the power of non-violent civic protests to move (or remove) oppressive regimes. Colonial imperialists gave in to demands for independence and assertions of the right to self-determination from the outreaches of their dominions, and relinquished control to sovereign nation-states. The influence of social liberalism urged capitalist governments (more so in Europe than in America) to address issues such as unemployment, health care, education, civil rights and social justice. Thanks to rapid advances in telecommunications, broadcasting and data processing technologies, the “Information Age” was born, adding a fourth dimension – “Intellectual Capital” – to three-dimensional Industrial Age economics, to represent the new “Knowledge Economy”.

Plus ça change plus c’est la même chose

Unlike imperial feudalism (and its Indian manifestation, religious casteism), the secular polity of industrialized republics enabled citizens, including those of humble background (or “low” birth) to shape their own destiny. While the old order consigned people to their fate by an accident of birth and confined their lives to the boundaries of the specific cell of the societal matrix that they were born into, the new order accorded official sanction to the inalienable rights of all citizens to equally enjoy the same degrees of freedom, allowing for unencumbered upward mobility through socioeconomic strata (at least in theory) based on each individual’s ambitions, abilities and achievements.

Despite these dramatic changes, the core socioeconomic architecture withstood the tectonic shifts of these new Ages. While the quintessentially feudal arc of civilization (of the time) did bend – towards liberty, equality and fraternity – it did not break. A new combination of money and political power, accessible to common citizens of a republic, replaced the old combination of patrimony and inhered aristocracy that was reserved exclusively for those of noble birth and kept beyond the reach of commoners. Hierarchies based on nobility were brushed aside, only to be replaced by hierarchies based on economic and political control, built by capitalism and its doppelganger, communism. A late entrant on the world stage (born out of two other Revolutions in the 20th century: the October Revolution in Russia and the Cultural Revolution in China), communism made an early exeunt in one case and in the other, is currently undergoing its own unique drama of metamorphosis before a global audience. But even communist regimes that championed classless society needed some form of command-and-control architecture to organize their realms and maintain order.

Left or right, might continued to be right – the pyramidal shape of power structures hardly changed much. The harbingers of the new era of prosperity were exalted as the new lords and masters. In capitalist economies the nouveau riche emerged as the new upper class whose conspicuous consumption was designed to flaunt their newly amassed wealth to gain entry into elite social circles. Though slavery (in the United States) and casteism (in India) were abolished by law, old prejudices still remained. Centuries of social oppression, supposedly compensated by the patronage of whimsical aristocrats acting out of noblesse oblige, gave way to economic exploitation in the new capitalist model, ostensibly redeemed by the personal altruism of arriviste industrialists and (later) the institutionalized caritas of Corporate Social Responsibility (CSR) programs. In the new totalitarian communist republics, individual and political freedoms were suppressed in the name of the “great leap forward” towards an egalitarian society.

And so dominance of one kind gave way to dominance of another kind. The barbarism of Ivan the Terrible and Genghis Khan resurfaced as the Industrial Age despotism of Stalin and Mao in the communist republics of the Soviet Union and China, matched equally by the fascism of Hitler and Mussolini in capitalist Germany and Italy. The tyranny of aristocratic feudalism was replaced by the authoritarianism of leaders of neo-feudal republics, on both sides of the infamous “Iron Curtain” that defined a bi-polar world. While this new avatar of feudalism manifested in the form of dirigistic oligarchies in communist countries, in the United States it resulted in crony capitalism and plutocracy in the form of the robber barons of the gilded age and the military-industrial complex in later years, for which an entity called the corporation served as the linchpin.

Portrait of the Corporation as a Psychopathic Person

The corporation became the most powerful non-state actor in the theater of the Industrial Age, exerting strong influence on politics and impacting all levels of policy-making and governance. In the documentary film The Corporation (released in 2003) Mark Achbar and Jennifer Abbott study the behavior of corporations, in much the same manner as psychologists analyze people, and conclude that corporations exhibit behavior that would be classified as psychopathic when observed in humans. Reproduced below are excerpts from the synopsis of the film.

In the mid-1800s the corporation emerged as a legal “person.” Imbued with a “personality” of pure self-interest, the next 100 years saw the corporation’s rise to dominance. The corporation created unprecedented wealth but at what cost? The remorseless rationale of “externalities” (as Milton Friedman explains, the unintended consequences of a transaction between two parties on a third) is responsible for countless cases of illness, death, poverty, pollution, exploitation and lies.

[…]

The operational principles of the corporation give it a highly anti-social “personality”: it is self-interested, inherently amoral, callous and deceitful; it breaches social and legal standards to get its way; it does not suffer from guilt, yet it can mimic the human qualities of empathy, caring and altruism.

A few years after this film was made, a study conducted by psychologists in the U.K. tested senior managers and chief executives from leading British businesses and compared the results to the same tests on patients at Broadmoor special hospital, where people convicted of serious crimes were held in custody. The study found that on certain indicators of psychopathic traits, the executives’ scores matched or exceeded those of patients who had been diagnosed with psychopathic personality disorders, consistent with the message of the film.

During the making of the documentary film, Canadian law professor and legal theorist Joel Bakan wrote the book “The Corporation: The Pathological Pursuit of Power” in collaboration with Mark Achbar. The book traces the corporation’s rise to dominance and urges restoration of the corporation’s original purpose, to serve the public interest, calling for re-establishment of democratic control over the institution[1].

While the film won many awards and was generally acclaimed for being balanced in its approach of including a variety of different views, strident advocates of free market capitalism dismissed its scathing commentary as propaganda by left-leaning activists[2]. Ironically, the film was also criticized by Maoists for “depicting the communist party in an unfavourable light, while adopting an anarchist approach favoring direct democracy and worker’s councils without emphasizing the need for a centralized bureaucracy” (quoted from the Wikipedia page). Clearly, neither capitalists nor communists liked to be seen as psychopathic, though the former emphasized their moral superiority over the latter by pointing to the latter’s horrific crimes.

“If You Think I’m Bad You Should See The Other Guy”

On the eastern side of the Iron Curtain, communist totalitarianism gave a far more gruesome and macabre meaning to institutionalized psychopathic behavior (Stalin’s pogroms and Mao’s purges stand out even today as the most shocking instances of organized mass murder on a scale yet unprecedented in human history) making the evils of capitalistic institutions, in comparison, look about as diabolical as the antics of mischievous school children out on a picnic.

In its initial stages though, communism looked like it was the “right answer”. Lincoln Steffens, an American journalist and reformer visited the Soviet Union in March 1919 and on his return, uttered the famous words: “I have seen the future, and it works“. He went on to comment on the “confusing and difficult” process of a society in the process of revolutionary change, writing that “Soviet Russia was a revolutionary government with an evolutionary plan”, enduring “a temporary condition of evil, which is made tolerable by hope and a plan” (quoted from the Wikipedia page).

However, there was nothing temporary about the denial of personal and political freedom to common citizens of Soviet and Chinese republics. Economic conditions steadily deteriorated in various parts of the Soviet Union, while the government remained preoccupied with the arms race with America and its allies. Despite many protests, especially from the non-Russian minority communities, repression continued unabated till the late 1980s. In China the Tiananmen Square protests, demanding economic and political reforms, were brutally quelled by the State. Demands for autonomy and social and cultural freedom in Tibet continue even today, and though the movement enjoys international support, it has been effectively kept in check by the Chinese authorities.

Just as the Industrial Age saw the deconstruction of feudalism, the Information Age precipitated the dismantling of Soviet autocracy and compelled Chinese statists to rework their economic ideology. Two key weaknesses in the design of communism as the ideal socioeconomic model rendered it unsustainable: (i) the intrinsic inability of the model to foster innovation (a direct result of precluding free enterprise and competition) at a time when consumers in free market economies enjoyed abundance of choice in all categories of goods and services, and (ii) the intrinsic inability of the model to prevent abuse of individual freedoms and civic liberties by the autocratic regimes that it spawned (a direct result of concentrating power in the hands of the State) at a time when elsewhere in the world such freedoms were taken for granted, and free-thinking technocrats of the emerging Knowledge Economy, empowered by access to resources, tools and networks, openly communicated and exchanged ideas with one another.

The Golden Age of Capitalism: a Cornucopian Paradigm

According to many economic historians, the “Golden Age of Capitalism” and the rise of the consumerist society in the two decades or so following World War II were but a natural consequence of the Great Depression[3] from the decade preceding that war. This is consistent with the theory of business cycles, as envisaged by John Maynard Keynes, that anticipates fluctuations in Gross Domestic Product (GDP) caused by phase lags in production and consumption and other factors such as fiscal and monetary policies.

Despite the Great Depression, the 20th century was the most economically prolific period in history.  According to a recent study 55% of all the goods and services produced since 1 AD were produced in the 20th century. Much of this was due to the strategically and pro-actively planned promotion of a consumerist culture in America in the aftermath of World War II, quite possibly taking a cue from a paper titled “Price Competition in 1955” published in the Journal of Retailing, Spring 1955 by economist and retail analyst Victor Lebow.  Excerpted below are Lebow’s “best-known words” from that paper (source: Wikipedia):

Our enormously productive economy demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfactions, our ego satisfactions, in consumption. The measure of social status, of social acceptance, of prestige, is now to be found in our consumptive patterns. The very meaning and significance of our lives today expressed in consumptive terms. The greater the pressures upon the individual to conform to safe and accepted social standards, the more does he tend to express his aspirations and his individuality in terms of what he wears, drives, eats- his home, his car, his pattern of food serving, his hobbies.

These commodities and services must be offered to the consumer with a special urgency. We require not only “forced draft” consumption, but “expensive” consumption as well. We need things consumed, burned up, worn out, replaced, and discarded at an ever increasing pace. We need to have people eat, drink, dress, ride, live, with ever more complicated and, therefore, constantly more expensive consumption. The home power tools and the whole “do-it-yourself” movement are excellent examples of “expensive” consumption.

It is not clear whether Lebow was actively advocating a consumerist culture or cynically apprehending its preponderance. It is also not clear whether the policy makers of the time took Lebow’s advice into account in envisioning an economic future for America. Notwithstanding these ambiguities, what seems clear now in hindsight is Lebow’s prescience of the design principles of post-World-War-II capitalism. Not only did this strategy work, it “rocked”. Leading historian and academic Niall Ferguson’s recent book lists consumption (and the consumerist lifestyle) as one of the 6 killer apps of prosperity that have made the “West” more successful than the “Rest”.

Consumerism: The Benchmark for Calibrating Progress

The resounding success of consumerist capitalism has entrenched in our minds – in the West as well as among the Rest – the baseline definition of progress. We have been so deeply conditioned to treat the cornucopian abundance of such booms as “normal”, that after every bust that invariably follows every boom, this “Golden Age of Capitalism” is what we seek to return to. When we find we just can’t, we reset our expectations to a “new normal” – one that advocates austerity measures but doesn’t change the culture that drives consumerist aspirations and lifestyle goals. This leaves us frustrated and angry.

What we don’t realize despite occasional reminders by insightful thinkers, is that consumerism as the path to socioeconomic utopia is an idea whose time has gone, as Tim Jackson, economics commissioner on the U.K. government’s Sustainable Development Commission, explains in his TED talk. If the entire population on planet Earth were to adopt the same consumerist lifestyle as citizens of the Western hemisphere, we would need more than one planet Earth to provide the natural resources needed to support that level of consumption. Physicist and blogger Tom Murphy points out that if one were to “do the math“, it would be obvious that growth has an expiration date. However, developing countries like India, even today, aspire to reach their own golden age of prosperity, unmindful of the pitfalls of Western-style consumerism, though studies[4] show that over-harvesting of natural resources to support growing consumerism could lead to disastrous consequences.

There are many insidious implications of stretching the consumerism formula too far, as the industrialized free market economies did over the second half of the 20th century. Competitive forces in a market economy put considerable pressure on pricing of goods and services, and corporations respond to these forces by developing a variety of strategies aimed at reducing costs at each step of the supply chain (sourcing/ procurement; production; distribution/ delivery). Many (but not all) of these cost-cutting strategies involve “externalization” of costs (as noted in the synopsis of the film “The Corporation” excerpted above). The cost incurred by the corporation (and therefore, the unit cost to the consumer) is indeed lower, but when seen from an overall ecosystem perspective, several cost components are merely taken out of the corporation’s accounting system and transferred on to externalities.

Some examples of the “unintended consequences” of these types of cost reduction strategies include: exploitation of migrant/ overseas workers (sweat shops, child labor, human trafficking and slavery); un-/ under-employment of local labor; neglect of employee health and safety standards; unfair land acquisition and/ or eviction of residents from sites targeted for new plants/ factories/ other corporate premises; depletion of natural resources that cannot be replenished; release of untreated harmful effluents into the ecosystem; careless disposal of waste (non-biodegradable, in many cases) that can be toxic; change in the habitat of local flora and fauna and reduction in biodiversity.

The Grammar of Plutarchy

Clearly, such indirect ramifications of fierce competition among corporations in the consumer supply chain adversely impact social harmony and the ecological balance. The cheaper-faster-better mantra usually turns out to be worse and more expensive in the long run, for corporations’ stakeholder ecosystems and host societies as a whole. However, the powers that be, who benefit from the status-quo, would not have it any other way. This model works for them and they are the ones who call the shots.

Plutarchy, a portmanteau word that conflates plutocracy (rule by the wealthy) and oligarchy (rule by a few), is probably the word that best describes the collusion between the State and the Corporation, based on the nexus between affluent business tycoons and politicians. Drawing on our perspective on the evolution of Industrial Age capitalism over the last 3 centuries as described above, and on the insights shared by observers and analysts highlighted above, we may conclude that capitalist plutarchy is founded on the following underpinning beliefs and imperatives:

# Beliefs Imperatives
1. Consumerism is good. A consumerist culture promotes the good life by granting citizens the liberty to choose from an array of products and services for each category of needs. Competitive forces in free markets trigger innovation, increasing variety. The pursuit of happiness finds its rewards in consumption. Create and sustain a culture of consumerism. Design economic policies, social norms and traditions, and cultural values that spur an ever increasing demand for consumer goods and services, and in doing so facilitate the growth of corporations that constitute the value chain of consumerism.
2. Free markets are good. The freer the market the better. A totally free global economy will develop market-based solutions to all socioeconomic problems anywhere in the world[5]. Promote the advocacy of free market economics by funding and supporting economists, intellectuals, think-tanks and opinion makers aligned with this philosophy.
3. Cronyism at the top of the pyramid is but a natural and inevitable consequence of economic hierarchy. Cooperation among the wealthy and powerful ensures survival and mutual prosperity. The crony network should be robust enough to protects its members and their business interests by controlling policy making, regulation and governance processes, and exclusive enough to make those outside of it curry favors to gain admittance. Cultivate influential politicians, bureaucrats and lobbyists, powerful regulators and enforcement officials, clever accountants and lawyers and upright judges with a formidable reputation. Include media moguls and executives of publishing houses aligned with free market/ consumerist ideology. Become the definition of success. Exemplify the “lifestyles of the rich and famous” and set it as the gold standard for people’s aspirations (in the U.S., that would be the “American dream”)
4. Governance and regulation are necessary evils. The smaller the regulatory footprint the more manageable it is to get your way around it, and the cheaper it is to finance its implementation and administration. Laws and policies must be seen to represent the best interests of the common people and must appear fair and just. However, there must be adequate provisions to support the interests of the crony network. Gaming the system, bending or breaking rules is OK if you can get away with it – this is the natural instinct of self-interest. Minimize the scope and scale of government. Keep taxes as low as possible (small government requires less funding). Ensure that the regulatory framework contains adequate loopholes and escape hatches (known only within the circle of cronies) that can be exploited by cronies when necessary. Hire “fixers” who can resolve complex compliance issues, by working outside the system if needed. Leverage the crony network to ensure that corporate misconduct and administrative malfeasance by its members remains hidden, or even if exposed, goes unpunished.
5. Propaganda works. Mass media can help shape public opinion. Deny a truth vehemently and often enough, and it becomes an untruth. Assert a lie stridently and often enough (“Emperor’s new clothes”) and it becomes the truth. Hire smart PR and advertising agencies. Leverage the crony network to control the media. Silence critics, contrarians and whistle-blowers and demonize them[6] as anti-national and enemies of capitalism/ true democracy.
6. Authoritarianism is the only real form of leadership. People in general respect and fear authority – they will genuflect before it and take orders from it, thanks to the discipline of obedience taught by religion. However, there could be the exceptional rebel. Social activism and protests are organized forms of anti-establishment rebellion and can be dangerous if not checked. Grassroots/ participatory democracy is synonymous with anarchy and should be avoided. Always remain in control, on “top of the food chain”, at the apex of the power pyramid. Ensure that this power structure is never threatened. If it is, nip the bigger threats in the bud. Allow some room to smaller threats, to demonstrate tolerance for freedom of expression, and leverage that allowance to advertise democratic values. Always keep grassroots activism in check. Never let things get out of hand, and if they do, then respond by astroturfing or greenwashing or any other tactic money can buy.
7. There will be always be a divide between the rich and the poor. This is God’s will, and cannot be changed[7]. Where the gap is too wide, charity helps reduce the disparity. Charity is an obligatory duty to be performed by the rich towards the poor, and provides the rich with an opportunity for penance should they feel guilty about overindulgence in economic greed. Ergo, charities should never make money. Donations are also a useful tactic to keep the underprivileged dependent on the generosity of the privileged, and therefore preclude them from developing entrepreneurial skills. This helps in creating evidence that they are lazy and parasitic[8], and also reduces future competition. Indulge generously in eleemosynary acts, for not only is charity the best solution to poverty, it is the best path to a venerable image of moral righteousness. Use charity to keep the status-quo. Maintain the gap between the “haves” and the “have-nots” by designing charity programs in a way that makes recipients dependent on donors while simultaneously making them feel indebted. Leverage that indebtedness when needed. If you must “teach people to fish” make sure to remain the thought leader or else risk creating better fishermen who may surpass you. Squeeze all the possible mileage out of charitable acts to earn goodwill and save on taxes.
8. This is as good as it gets. This model of civilization (i.e. consumerist free market capitalism in a democratic republic led by the righteous elite) has worked for several years and has proved to be the best path to prosperity. It may be imperfect but it is better than all other alternatives that can possibly exist. It has produced more prosperity and delivered more personal freedoms than any other system of organizing social and economic activities of a people. If this model doesn’t work for a certain set of individuals, it is because they are indolent and/or incapable of enterprise or industry. Objections and criticisms pointing to minor imperfections in this model, when accompanied by suggestions for improvement, are valid and are to be welcomed in the name of openness and democracy. Other objections and criticisms, to the effect that this model is fundamentally flawed, can only come from lazy leftist losers, and are therefore invalid and need to be summarily dismissed. Neutralize them using the devices and machinations of crony authoritarianism. As per the principles of Manifest Destiny[9] this model must be replicated globally and it is the moral duty of the leadership of the free world to ensure that it is.

.

None of this might come as a surprise to the average reader who has been “in the system” for some time and seen up close these beliefs and imperatives playing out in various aspects of our daily lives. This neo-feudal model of Plutarchy has become such an integral part of our cultural DNA that we seldom stop to think about its validity today or its ability to support future generations. And if we do, our response is likely to be a resigned shrug accompanied by: “It is how it is” and an impatient wave of hand dismissing the suggestion that there could be, and perhaps should be, alternative models that might help us build a better future for a larger number of people over a longer period of time.

However, towards the last few decades of the 20th century, as the golden age of capitalism started losing its luster, various groups of people – thinkers and doers alike – in various parts of the world rose to challenge the validity of this model despite its resounding success. According to them, the relentless pursuit of this consumerist model of utopia, by an exponentially increasing world population, could only lead to dystopia.

Sturm und Drang, Reprise

The many philosophical, artistic, cultural and social movements that took root in the wake of the devastation and misery wrought by the two World Wars – existentialism (Sartre, Camus et al.), surrealism (Dali, Magritte et al.), the theater of the absurd (Beckett, Ionesco et al.), film (Kubrick, Tarkovsky et al.), rock music (The Beatles, The Doors et al.), civil rights (Martin Luther King Jr., Nelson Mandela) – inspired and shaped the socio-cultural revolutions of the 1960s and 70s. In a throwback to the Romanticism that emerged in the late 18th/ early 19th century as a reaction to the Industrial Revolution, these two decades witnessed a widespread backlash from civil society (especially youth/ students), protesting the inhumanity of war (in particular, the use of nuclear weapons) and promoting world peace; protesting the indiscriminate exploitation of natural resources and promoting ecological balance; protesting racial and gender discrimination and promoting a more inclusive and egalitarian social outlook.

The hippie movement fostered a subculture that campaigned for love and peace and harmony with nature, and prescribed sexual freedom, experimentation with drugs and indulgence in Eastern mysticism as catalysts to self-exploration and self-actualization, unconstrained by the conventional morality of a materialistic technology-driven world steeped in social protocols and (according to them) a false sense of propriety. Authors, musicians and other artists of the “Beat Generation” encouraged a rejection of the status-quo established by the “masters of mankind” and unleashed the angst and frustration of repressed youth worldwide. James Michener’s novel “The Drifters” traces the story of six young characters as they navigate their lives, rejecting lifestyles dictated by an authoritarian establishment, in their honest search for meaning and purpose. As a work of fiction, this novel serves as an excellent documentation and reference point for the intellectual chaos of the youth of the time and their quest for a new reality that was more free and fair, and more environmentally and socially responsible.

When it became apparent that the counterculture spawned by hippies and beatniks (the “baby boomer” generation, in today’s parlance) was incapable of solving world problems (or in fact even sustaining itself as a revolutionary movement), many of these non-conformist “revolutionaries” gradually found their way back into the mainstream, to not only conform to it but in many cases further strengthen and propagate its principles. However, many others dug their heels in and took the fight deeper into the various spheres (environmental conservation, global development, social justice, feminism, etc.) that collectively constitute “green politics” and form its intellectual, ethical and cultural ethos.

The Green Movement and the Genesis of Sustainable Development

In the late 60s and early 70s several initiatives aimed at focusing global attention on ecological issues were launched, of which Greenpeace and the Green Party are prime examples. The foundation of green politics rests on the “Four Pillars” defined by the Green Party: Ecological Wisdom, Social Justice, Grassroots Democracy and Nonviolence. These four pillars “define a Green Party as a political movement that interrelates its philosophy from four different social movements, the peace movement, the civil rights movement, the environmental movement, and the labour movement.” (quoted from Wikipedia).

Since 1970, Earth Day has been observed every year as a day on which events are held worldwide to increase awareness and appreciation of the Earth’s natural environment. “The name and concept of Earth Day was allegedly pioneered by John McConnell in 1969 at a UNESCO Conference in San Francisco. The first Proclamation of Earth Day was by San Francisco, the City of Saint Francis, patron saint of ecology. Earth Day was first observed in San Francisco and other cities on March 21, 1970, the first day of spring in the northern hemisphere.” (quoted from Wikipedia).

In the United States, the Environmental Protection Agency (EPA) commenced operations in late 1970. Many other countries set up their own EPAs, charged with responsibility of defining national standards and regulations aimed at protecting the natural environment and also conducting environmental research and disseminating information to create awareness.

Over a decade or so, the scope of the Green Movement expanded into other initiatives such as Sustainable Development. The United Nations World Commission on Environment and Development released the Brundtlandt Report in 1987, which defined Sustainable Development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This central idea continues to be at the core of the thinking that has emerged over the years and today offers itself as the North Star to the ideation around evolving a better world. This theme runs through the next two parts of this essay, as we go on to discuss our present circumstances and envision strategies for the future.

________________________________________

Endnotes

1. Quoted from the web-page about the book:

Beginning with its origins in the sixteenth century, Bakan traces the corporation’s rise to dominance. In what Simon and Schuster describes as “the most revolutionary assessment of the corporation since Peter Drucker’s early works”, The Corporation makes the following claims:

  • Corporations are required by law to elevate their own interests above those of others, making them prone to prey upon and exploit others without regard for legal rules or moral limits.
  • Corporate social responsibility, though sometimes yielding positive results, most often serves to mask the corporation’s true character, not to change it.
  • The corporation’s unbridled self interest victimizes individuals, the environment, and even shareholders, and can cause corporations to self-destruct, as recent Wall Street scandals reveal.
  • Despite its flawed character, governments have freed the corporation from legal constraints through deregulation, and granted it ever greater power over society through privatization.

2. It is worth noting here that, thanks to the draconian power of McCarthyist witch-hunts of the 1950s which managed to expunge all forms of socialist/ collectivist ideologies from American intelligentsia, people enjoyed freedom of thought only as long as they did not advocate communism. Even today, articles pondering over the wisdom in Karl Marx’s ideology are peppered with apologia in an attempt to clarify and reiterate their pro-capitalism position. A recent post in the blogs sections of Harvard Business Review titled “Was Marx Right?” is an instance in point.

3. In a recent New York Times article comparing the current economic crisis with the Great Depression, David Leonhardt writes:

Economists often distinguish between cyclical trends and secular trends — which is to say, between short-term fluctuations and long-term changes in the basic structure of the economy. No decade points to the difference quite like the 1930s: cyclically, the worst decade of the 20th century, and yet, secularly, one of the best.

[…]

Partly because the Depression was eliminating inefficiencies but mostly because of the emergence of new technologies, the economy was adding muscle and shedding fat. Those changes, combined with the vast industrialization for World War II, made possible the postwar boom.

4.  “If the levels of consumption that … the most affluent people enjoy today were replicated across even half of the roughly 9 billion people projected to be on the planet in 2050, the impact on our water supply, air quality, forests, climate, biological diversity, and human health would be severe.” (Excerpted from “The State of Consumption Today“; source: “State of the World 2004” published by the Worldwatch Institute.)

5.  This belief is based on the assumption that materialistic ambition of individual entrepreneurs invariably results in benefits to society, though the motive is purely based on personal gain. Adam Smith used the metaphor of an “Invisible Hand” that guides free enterprise in its intention to maximize profits, to produce outcomes aligned with the common good. A logical corollary to this belief is, in the words of John Maynard Keynes, “the belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”

6.  Economist Paul Krugman in the New York Times op-ed “Panic of the Plutocrats“: “Anyone who points out the obvious, no matter how calmly and moderately, must be demonized and driven from the stage. In fact, the more reasonable and moderate a critic sounds, the more urgently he or she must be demonized …”

7.  Paraphrased from the opening line in John Winthrop’s sermon “A Model of Christian Charity“, in which he called for the establishment of a virtuous community – “City upon a Hill” – that would be a shining example to the rest of the world. It may be noted that many American politicians throughout the country’s history, including present times, have made references to Winthrop’s metaphor in their speeches, suggesting that his vision remains a keystone of America’s view of itself and its relationship with the rest of the world, even today.

8. This goes against the Protestant work ethic that forms the spirit of capitalism and therefore constitutes a strong moral judgment, liable for punishment in the form of poverty.

9.  See Wikipedia page on Manifest Destiny. Relevant excerpt:

Historian William E. Weeks has noted that three key themes were usually touched upon by advocates of Manifest Destiny:

  1. the virtue of the American people and their institutions;
  2. the mission to spread these institutions, thereby redeeming and remaking the world in the image of the U.S.; and
  3. the destiny under God to do this work.

.

Advertisements

Posted in Economics, Environment, Governance, Organization, Politics, Society, Technology | Tagged: , , , , , , , , , , , , , , , , | 6 Comments »

HPA Perspective on Sustainability: FAQs – 5

Posted by Hemant Puthli on May 10, 2010

This is the fifth in a series of 6 posts on our perspective on sustainability. Our first post focused on our definition of sustainability and the second explained what we mean by ’social relevance’, ‘environmental responsiveness’ and ‘economic viability’. The third dealt with the notion of ‘Common Good’ in contrast to ‘Self-Interest’, and why the pursuit of the Common Good leads to better sustainability. The fourth post discussed the challenges along the path to sustainability in a competitive situation and also elaborates upon the key areas of difference between partnerships and competitive relationships.

This post looks at the sustainability theme from an investor’s perspective and explores how it plays out for the shareholders of an enterprise that embarks on a sustainable business transformation journey.

Shareholders are interested in two things, generally speaking: earnings or dividend per share, and appreciation of the share price in the stock market. How can corporations meet shareholder demands if they pursue Sustainable Business Transformation the way you define it? Why would shareholders invest in or care about social relevance or environmental responsiveness?

Let me ask you this – as a shareholder, which of these two alternative scenarios would you prefer: (a) get higher returns in the short-term but remain uncertain about future returns, or (b) get moderate returns in the short-term but be confident that such returns will continue to accrue over a longer duration? Which scenario represents more value to you? Clearly, a majority of the population would prefer the latter. (Note that this excludes short-term speculators, who are an exception to the rule since they have different financial goals and risk appetites.)

Sustainability Tilts The Balance

The mandate to business therefore is to focus more on the promise of sustainability of profit in the long run, rather than on maximizing gains in the short run at the risk of uncertainty about the future. (Unfortunately, the practice of quarterly reporting of results tends to encourage focus on the short-term in terms of the company’s approach to performance as well as investor outlook.) The challenge to businesses on a Sustainable Business Transformation journey is to move their investors from scenario (a) to scenario (b). It is imperative that businesses educate their shareholders and inspire confidence in them, to believe that they will sustain a certain level of returns in the long run. A lot depends on the quantum of shareholder trust earned and enjoyed by the business. Businesses that haven’t worked on generating the kind of credibility which is a pre-requisite for that kind of trust may not be successful in building investor confidence along these lines.

The problem today is that the number of players with short-term interests is rapidly increasing, to become a considerable force in the financial markets. This is happening because of the combination of two factors: perceptions of scarcity and uncertainty about the future on the one hand and temptations to make a quick buck in markets that have become too complex to regulate effectively on the other. And this in turn is leading to the devolution of the principle of common good into its primitive version of instinctive self-interest. Such trends erode (as opposed to support) sustainability and must be arrested and reversed. It’s like traffic rules: what might happen if more people break rules just because a few guys broke them and got ahead.

This is one of the biggest challenges faced by the Sustainable Business Transformation journey and can only be addressed by increasing awareness and educating investors relentlessly. We are not saying it is easy — on the contrary, it is an uphill task, but we have to start somewhere, otherwise the logical extension and spread of such trends will result in anarchy. Hopefully some of the regulatory reform in the wake of the global financial crisis will plug gaps that could be exploited to make a quick buck and discourage reckless opportunism, at least to an extent.

There are already several organizations that focus on Socially Responsible Investing (SRI). Their purpose is to educate, encourage and enable investors to develop investment strategies aimed at the more holistic view of sustainability. Similarly there are other trends that are gaining momentum of late: social enterprise and social entrepreneurship, which essentially deal with the application of the principles and disciplines of enterprise and entrepreneurship to socially and/ or environmentally focused work. Historically, this has usually been the domain of non-profit charities funded out of philanthropic or ethical considerations. The new social entrepreneurship movement is changing that paradigm, by proving that social/ environmental projects can run just like any other business, except that its customers (and possibly also its core stakeholders) belong to different types of communities compared to traditional businesses.

This brings us to a very interesting observation: as traditional profit-oriented businesses become more socially and environmentally focused (either due to SRI or other pressures or arising out of their own realization), social development organizations will become more like regular businesses, with a sharp focus on efficiency and returns. These worlds will soon start resembling each other so much that they will finally merge into a single approach to all business, focused on the triple bottom line.

Our next and final post in this series will deal with the urgency of the need for businesses to embrace sustainability.

Posted in Economics, Strategy | Tagged: , , | 1 Comment »

HPA Perspective on Sustainability: FAQs – 4

Posted by Hemant Puthli on March 25, 2010

This is the fourth in a series of 6 posts on our perspective on sustainability. Our first post focused on the HPA definition of sustainability while the second explained what we mean by ’social relevance’, ‘environmental responsiveness’ and ‘economic viability’. The third dealt with the notion of ‘Common Good’ in contrast to ‘Self-Interest’, and why the pursuit of the Common Good leads to better sustainability.

This post discusses the challenges along the path to sustainability in a competitive situation and also elaborates upon the key areas of difference between partnerships and competitive relationships.

Are you suggesting that in a poker game winning players should start losing on purpose so that they can win eventually? How does sustainability work in a competitive situation? Why should a business yield any ground to competition? What is the common good when it comes to competitors?

For any given player in a poker game, the game represents a group of competitors, not an ecosystem of stakeholders acting in partnership with that specific player. A poker game, like all competitive games, is about winning and losing i.e., a zero-sum game. Such games are designed to result in winners and losers – everybody cannot win! Otherwise, where’s the fun? Zero-sum games hone the spirit of competitiveness and the ‘killer instinct’. Real life is neither a closed system nor is it close-ended in time, whereas games have a definite beginning and a definite end, a fixed set of players, clearly laid out rules and a finite, pre-defined number of possible outcomes. Zero-sum need not apply in all real-life situations. Unfortunately, though, not everyone sees that, and people tend to default to zero-sum thinking. Through our work, we hope to bring about an attitudinal shift that makes people look for win-win first. By default, every situation can result in a potential win-win outcome for all, unless there is evidence that is has got to be win-lose. This is one of our key messages.

Win-Win Partnerships Are Sustainable

Partnerships are based on interdependence. It’s not about one side winning and the other losing – that simply won’t work. In a partnership everybody must have a win, by and large, or else the partnership is not tenable. You may have micro-situations where someone wins (or wins more) and someone else loses (or wins less) and that’s OK. But if one partner wins almost all the time while the other loses almost all the time, the partnership is just not sustainable – it defies the very interdependence it is based on. This is empirically self-evident and does not need to be proved as a theorem using deductive logic. The business stakeholder ecosystem is a value network of interdependent partners, not competitors. Mature and responsible players will look to negotiate a win-win outcome in situations where partners have different needs and bring different agendas to the table.

That said, let’s go back to the poker game analogy. Let’s envisage a very real situation, in which a few friends meet on weekends and play poker. This can continue ad infinitum as long as it doesn’t happen that a single player consistently wins and eventually leaves the others broke. In a card game there are two factors that determine the outcome, broadly speaking – the cards one is dealt and the skill with which one plays them. A player cannot control what cards are dealt to them and you could call this the luck factor. If a player starts to do that, it is called cheating and we’ve already talked about why that’s not sustainable. What a player can control is their own card play, but not the cards that arrive in their hand in a given deal. Hence it is a statistical near-impossibility that one player wins all the time, assuming fair play and assuming a more or less even distribution of skills around the table. This is also how it works in competitive scenarios.

Sustainability does not mean that a better player should allow others to win. Players should follow rules. If one player’s skills are outstanding and they end up winning most of the time through fair means, notwithstanding the luck factor, then they should look to play in their own league if they want to keep enjoying the game. If they play with significantly lower-skilled players, they will take away all the wealth and others will go bust. Game over.

In business this is the equivalent of one player dominating the market by leveraging their ‘sustainable competitive advantage’ and edging out competitors. They don’t yield any ground consciously, but over time, but they could become complacent and the other players could overcome barriers, make a comeback and give them a run for their money. Life is open-ended and keeps going on indefinitely and today’s loser may become tomorrow’s winner. Games, like novels and movies, are close-ended and finite.

The common good in a competitive situation will be evident in issues that impact the long-term growth of the industry and market as a whole. That’s where competitors may collaborate on initiatives to consolidate and stabilize the economics of that industry and to improve and grow the market. Or they may simply share best practices to improve efficiency in non-competitive areas. Note how automobile manufacturers in the US came together to approach the Government for help recently. Also note how Toyota’s performance is different from, say GM’s, thanks in part to their green initiatives, while other automakers simply went on a downward spiral, thanks in part to their alignment with the vested interests of oil companies.

To summarize, we are saying that when it comes to partnership, it is most sustainable to ask the question “What’s in it for me?” after answering the question “What’s in it for my partner?” as compared to either not asking “What’s in it for me?” at all (i.e., charity), or only asking “What’s in it for me?” (i.e., primitive self-interest).

Our next post will look at the sustainability theme from an investor’s perspective and will explore how it plays out for the shareholders of an enterprise that embarks on a sustainable business transformation journey.

Posted in Economics, Environment, Society, Strategy | Tagged: , , , , , , | Leave a Comment »

Case Study in Social Entrepreneurship: Grassroutes

Posted by Hemant Puthli on March 15, 2010

[Content sourced from Inir Pinheiro, the social entrepreneur behind Grassroutes, and edited by Hemant Puthli]

India’s remote villages are now attracting city dwellers who are eager to step away from the stress zones of their office cubes and the complexities of urban life, in search of clean air and a simpler, earthier way of life – if only for a few days.

The village of Purushwadi is 140 miles (220 km) away from Mumbai city, the hub of international business and the financial and entertainment capital of India – a hot, grimy, polluted, noisy and crowded metropolis of at least 20 million people living in the greater metropolitan area. But in a few short hours, inhabitants of the “Maximum City” can reach a different world, where they can swim in the crystal clear waters of a river, help farmers thresh wheat, chop wood with a long handled axe, and eat home–cooked meals with peasants in the dim light of their rustic homes. Purushwadi is perched high above mean sea level, in the jagged hills of Maharashtra. Life for the locals has hardly changed for several centuries. These simple farmers live in mud-brick houses with dried cow-dung floors and earn their income from the cultivation of rice, wheat, millet and pulses. There is no electricity or running water and the day revolves around hard work in the fields under the harsh rays of an unforgiving sun. As a tourism destination, this is not exactly a beach resort with plenty of five-star properties to choose from, each with a world-class spa to rejuvenate yourself. Villages like Purushwadi offer you rejuvenation of a different kind — deep hands-on contact with raw, authentic rural Indian life in its natural habitat. Tourists to Purushwadi say that their journey has been worth it, just for getting a refreshingly different perspective on life away from the daily routine of making money and climbing the career ladder.

About 70% of India’s population of 1.1 billion lives in the villages. As mega-cities like Mumbai expand, fuelled by the country’s economic boom, the gap between the urban rich and the rural poor widens as never before. It is not difficult to see how this could result in the making of a socio-economic time-bomb. Responsible rural tourism is one of the most effective ways in bridging this gap and bringing these disparate communities together. Responsible rural tourism involves, for example, bringing city slickers and urban youth groups from places like Mumbai to villages like Purushwadi for a weekend. These tourists are keen to experience the poetry of the earthy life in rural India, of being in touch with nature and of spending a couple of days with people who live by modest means through simple farming. Grassroutes is a responsible rural tourism movement that is building a network of village tourism destinations across India, wherein the tourism model is owned, managed and run by local village communities. Grassroutes has made it possible for people to get into such villages and realize the true beauty of rural India. Their idea is to get communities to connect. The revenue generated through tourists trips is used to supplement the income of the villagers – and more importantly, encouraging and enabling them to stay back and continue with their lifestyle instead of heading to the city to look for work. According to Grassroutes, the poor and marginalized do not need charity or sympathy — they need opportunities to provide for themselves. And Grassroutes’ mission is to provide them with precisely those opportunities, while also providing urban dwellers a chance to experience something unique and special.

Grassroutes’ vision entails the conservation and promotion of local lifestyles, knowledge systems, environments, economies and traditions by enabling and empowering local communities to access sustainable opportunities. Grassroutes recognizes that lack of access to opportunities is one of the greatest challenges facing rural India. And this in turn leads to exploitation of already over-stretched natural resources, migration to larger towns and cities, which in turn leads to congestion in those urban centres. At a more intangible level, this also results in erosion of local culture, traditions, lifestyles and sense of community. The Grassroutes model has three key aspects to it: (1) facilitating the development of the village as a tourism destination (2) marketing and product development of tourism in the village and (3) quality control and monitoring of tourism in the village.

Grassroutes selected responsible rural tourism as a means of creating sustainable opportunities keeping in mind the fact that tourism is one industry that represents the greatest multiplier effect in economic development. Tourism also provides a platform for interaction that facilitates cultural osmosis and exchange of thought and understanding. These factors, coupled with the fact that entry costs are relatively low, make responsible tourism a very attractive opportunity for social entrepreneurs looking to engage in sustainable development. Historically, tourism has also been the greatest exploiter of local communities and responsible rural tourism is a model that reverses that trend. Responsible rural tourism places the local community at the epicentre of the tourists’ journey while also giving a great experience to the tourist, thereby mitigating the down-side of tourism. The ultimate aspiration of Grassroutes is to create sustainable opportunities in rural India which would give local communities the impetus needed to maintain and celebrate their unique way of life, leading to conservation of local lifestyles, traditions, knowledge systems, biodiversities and local economies.

For more information please visit http://grassroutes.co.in or drop them a note in the comment box below.

[Disclosure: HPA is assisting Grassroutes through mentoring and advisory on strategy and general management issues]

Posted in Economics, Environment, Society | Tagged: , , | Leave a Comment »

HPA Perspective on Sustainability: FAQs – 3

Posted by Hemant Puthli on February 1, 2010

This is the third in a series of 6 posts on our perspective on sustainability, and deals with the notion of ‘Common Good’ in contrast to ‘Self-Interest’, and why the pursuit of the Common Good leads to better sustainability. Our first post focused on our definition of sustainability while the second went into details on what exactly we mean by ’social relevance’, ‘environmental responsiveness’ and ‘economic viability’.

Why should anyone want to focus on the so-called ‘Common Good’? What is wrong with plain old ‘Self-interest’? Is one approach sustainable and not the other?

Interesting question, because it helps get to the very root of the matter. Self-interest is a very interesting principle. It is the most natural, the most Darwinian if you like, principle that you see in nature. Seen in the context of humans, it has the potential to evolve from its more primitive and instinctive version i.e., seeking to derive benefit to self by directly accessing value, to a more mature and rational version i.e., seeking to derive benefit to self through value returned by contribution to the ecosystem around self. Animals are not sapient beings and cannot possibly behave in a manner that reflects the latter version, but humans have an opportunity to transcend instinct, act rationally and move towards a better world. In its more evolved form, the principle of Self-interest becomes synonymous with the principle of Common Good – so it is no different, in essence. Do bear in mind that nowhere have we touched upon the concept of charity or philanthropy. Self-interest alone is good enough and will support sustainability, provided it sublimates into its more evolved form. This line of thinking is consistent with age-old homilies such as: ‘You reap what you sow’ or ‘As you give, so you get’ or ‘What goes around comes around’, which are simplified versions of similar thoughts.

In order to test whether a strategy or policy or an approach or a principle, let’s call it X, is sustainable, one may simply ask the question: ‘If everyone were to follow or practise X would it lead to a more prosperous, harmonious and better world?’ and if the answer is in the affirmative, then we may conclude that X is a sustainable idea. While on old aphorisms here’s another adage that resonates with this test: ‘Do unto others as you would have others do unto you’. If everyone were to act in the interest of common good it is likely to result in a feeling of abundance in the long run, whereas if everyone acted out of primitive self-interest it is likely to result in a feeling of scarcity, given the same amount of wealth in the system.


Sustainability Continuum


Apply the sustainability test to other impulses such as Greed or Cheating, and verify the results for yourself. Greed is not a sustainable strategy, and neither is Cheating – the global economic crisis bears testimony to that. It is possible that a few have benefited from it in the short run, and we are not passing moral judgement on them here. All we’re saying is that it is not sustainable. Again, let’s be clear that this is about the plain and simple economics of longevity, not about morality or religion!

The next post in this series will discuss the challenge of sustainability in a competitive situation and will elaborate upon the difference between partnerships and competitive relationships.

Posted in Economics, Environment, Society, Strategy | Tagged: , , , , | 8 Comments »

HPA Perspective on Sustainability: FAQs – 2

Posted by Hemant Puthli on December 1, 2009

This is the second in a series of 6 posts on our perspective on sustainability, and deals with a set of questions around what we mean by ‘social relevance’, ‘environmental responsiveness’ and ‘economic viability’, and how vital it is for businesses seeking a path to prosperity to aim at these goals. (The first post in this series dealt with questions about our definition of sustainability and how it may be similar to, yet different from, other connotations associated with the term.)

You talk about ‘being socially relevant, environmentally responsive and economically viable’. What do these terms mean? How is this any different from Corporate Social Responsible (CSR) plus Green IT plus traditional profitability, all rolled into one? Isn’t it simpler to talk about concepts that are already known, using words that people already understand?

We’d love to use words that people already understand. After all, making ourselves understood is the first thing we need to do, if we are to be successful in our business goals as Trusted Advisers to our clients. Trouble is, the ideas we are talking about have not established their own vocabulary yet, and in many cases, are just slightly different from similar sounding concepts, and so we made up our own terminology as we thought-through issues around sustainability. We hope our terminology sticks! Let’s take these three terms one by one and then get to the other related questions.

First let’s set the context by mapping all stakeholder communities that make up the ecosystem of a business enterprise. We use the term stakeholder here in the same sense as the ‘Stakeholder Theory’ propounded by R. Edward Freeman in the 1980s and it is useful to clarify this because sometimes people confuse stakeholders to mean (only) shareholders. In our context, a stakeholder is any entity (could be a legal entity such as a business, a not-for-profit organization, an institution, a cooperative, or just a community or group of people) touched or impacted by the business. Increasing globalization of the creation and delivery of goods and services is adding to the diversity and complexity of the types of entities in the stakeholder ecosystem. As you can see from the diagram (below), the stakeholder ecosystem of a business enterprise has a core and a periphery, surrounded by the society in which the enterprise functions and the world at large.


Enterprise Stakeholder Ecosystem

Enterprise Stakeholder Ecosystem

Being socially relevant means constantly striving to anticipate and fulfil specific needs of all stakeholder communities in the ecosystem — including first, the customer community, followed by other stakeholders in the core ecosystem of the business: its stockholders, its alliance partners and suppliers and its employees. Being socially relevant also means constantly striving to meaningfully engage, partner with and contribute to participants in the peripheral ecosystem within which the business functions — comprising industry associations, market institutions, the media, special interest groups or collectives formed by communities that its operations involve or impact, and the various institutions that form part of the legal and regulatory framework within which the business conducts its affairs. For a large globalized business, this could represent a much wider scope in terms of size, scale, diversity and complexity.

Being environmentally responsive means constantly striving to increase the level of awareness within the business ecosystem concerning environmental issues such as climate change, energy conservation, waste management, etc., so as to lead to a commitment of resources by the business towards improving conditions in the locations where it operates (or has other interests) or at the very least, neutralizing the impact of the business on the environmental conditions at those locations.

Being economically viable means constantly striving to remain profitable in the short as well as the long run. It is obvious that economic viability is vital for success, since a business cannot effectively achieve its goals while its survival is constantly threatened by financial problems. However, businesses that narrowly focus only on their own profitability in purely ‘single bottom line’ terms, to the exclusion of the other goals, or, worse still, to the actual detriment of their host society (or societies, as in the case of globalized businesses) are unlikely to prosper in the long run.

Social relevance and CSR do appear to be similar, and to a large extent the activities of a business that strives to stay socially relevant may not appear to be very different from what they might have been doing by way of CSR. The important thing is the attitude of the business: while CSR is essentially based on some kind of altruistic or charitable notion, social relevance is based on the belief that pursuing the common good of the stakeholder ecosystem will drive sustainable profitability. The roots of CSR type of thinking go back to the feudal concept of noblesse oblige. In the post-Industrialization era this has translated to the notion that prosperous businesses – the ‘new nobility’ of free market economics, are morally obliged to help underprivileged communities. We are not saying this is wrong, or even that it is not sustainable: we are only saying that it is a comparatively less sustainable approach than one where businesses see themselves as partners of, and not as patrons of / donors to, communities in their ecosystem for mutual benefit. (For more on this please see earlier HPA posts — one on Charity 2.0 and another containing an embedded video clip of a TED talk by Jacqueline Novogratz.)

Green initiatives have typically put environmental issues ahead of everything else, and Green IT, as the name implies, tends to focus on how to make the IT function as a whole more eco-friendly. While this is not a bad thing as such we believe that the emphasis should be on a holistic, three-dimensional approach to sustainability rather than a one-dimensional one. There is a lot of learning that could be borrowed from Green IT and we are not suggesting that Green IT initiatives must be abandoned, just that they be re-aligned to the broader and more holistic idea of ‘Sustainable Business Technology’.

As to why X is not the sum of A+B+C, I would say that the new definition of profitability (and please do look up the Wikipedia entry for triple bottom line for more on this) is a function of the lasting impact of the business on its ecosystem and the economic benefits accrued to the societies that host the business. There continue to be discussions and debates on quantification and measurement of economic impact of social and environmental efforts even today and a large part of the body of knowledge in this area is still evolving as we speak, but there is little doubt that it is an idea whose time has come and is here to stay. A silo-ed approach does not produce the same results.

The next post in this series will deal with the notion of ‘Common Good’ in contrast to ‘Self-Interest’, and why the pursuit of the Common Good leads to better sustainability.


Posted in Economics, Environment, Society, Strategy | Tagged: , , , , | Leave a Comment »

Global Warning

Posted by Hemant Puthli on October 27, 2009

The Warning

If “global warming” doesn’t kill us, then “global war” will.

The Background

The new book entitled “SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance” by Steven D. Levitt and Stephen J. Dubner seems to have stirred up a hornet’s nest in the communities centered around the subject of ecological economics. Apparently the authors have injected a provocatively contrarian view into an already heated debate on why and how to control carbon emissions, by suggesting that this may not be necessary after all.  Andrew Winston, himself a noted author on the subject of climate change, very neatly sums up the state of play as regards the controversy in his recent post “SuperFreaknomics Ignores the Business Case for Sustainability” at his HarvardBusiness.org blog.

The Context

Andrew Winston’s post lays out a fair and reasonable assessment of the various positions around the controversy and presents a sound rationale as to why the focus must be on the business case for sustainability, and why the shift to a low-carbon economy is beneficial even without considering its impact on restoring the environmental balance. However, some of the reasons that he offers to support the latter argument (i.e., benefits other than mitigating climate change risks) involve perspectives that are mostly American rather than global. The post concludes with the following paragraphs:

As many have repeatedly argued, we also place ourselves at great risk globally by continuing to pour money into oil markets. We send hundreds of billions of dollars a year to parts of the world that don’t like us very much. And we place ourselves at personal risk — the National Academy of Sciences just estimated, conservatively, that fossil fuels cost $120 billion per year in health costs and cause 20,000 premature deaths (that’s more than six 9/11s if you’re counting).

So while we find new ways to pour attention on “contrarians” and have a debate that most of the rest of the world has already stopped having, we risk our health, fall further and further behind the countries we compete with (China and Germany, for example, in renewables), and become more indebted to our enemies.

Solving climate change is not really about asking people to hold hands and sing “Kumbaya,” but about political will and making it easier for business to create the low-carbon solutions we all need. Regardless of the climate science, the benefits of action and the costs of inaction for business are astronomical — and worth superfreaking out about.

While I really appreciated and agreed with the content in the earlier paragraphs of the post, I was a bit disturbed by a couple of phrases in these last few paragraphs, such as “… parts of the world that don’t like us very much” and “… (become more indebted to) our enemies”. Was this necessary? Is this one of the benefits that Andrew Winston believes is important enough for global citizens to favor control of carbon emissions?

The Issue

Clearly, in his opinion it does merit consideration, else there would have been no mention of these so-called benefits along with many other benefits that justify carbon control. Not only is this disappointing but also dangerous, for reasons that my comment to the post (reproduced below) highlights:

Thank you for a sane and rational assessment of the various discussions to date on what seems to have become a highly controversial and polarized subject. It’s time people like you brought a mature and balanced approach to the climate change round table, and I hope voices such as yours are being heard in the relevant quarters. We (i.e. mankind) have already lost a lot of time and we simply cannot afford to lose more, especially on the inane polemics provoked by contrarians.

I was just a tad disappointed, however, with your comments towards the end, especially in the third and second paragraphs from the bottom. Statements like “We send hundreds of billions of dollars a year to parts of the world that don’t like us very much” smack of an “us-and-them” standpoint on world affairs and therefore don’t have a place within a global perspective on a global problem. You take a distinctly American / Western Hemisphere position when you say something like that and I do appreciate the sense of patriotism, as it were, implicit in the underlying sentiment. However, there’s a thin line between patriotism and jingoism, generally speaking, and clearly there’s no place for the latter when it comes to developing solutions for a planet in crisis. If there are parts of the world that don’t like “us” very much, then it is up to “us” to find out why and try and fix it, to the extent we can. There are already many divisive forces that want to deepen the chasm between the “us” and the “them” that you implicitly refer to in that statement, and one must be careful not to play into those hands. President Obama’s vision of a more inclusive foreign policy and his approach towards global diplomacy are highly welcome in this regard.

The fact that you are sending hundreds of billions of dollars to parts of the world that don’t like you very much should not, taken on its own stand-alone merit, be a reason for you to be less dependent on oil. There are already abundant and adequately strong reasons for weaning yourself away from dependency on fossil fuels, as you have cogently argued already (in this post as well as elsewhere, in your body of work), and including this one weakens the argument rather than strengthens it. The global socio-political landscape is yet another dimension to the global environmental problem, though sadly not many are focusing on this while addressing climate change issues. IMHO, it is only an integrated view that will work, or else we will end up trying to fix one problem at the expense of exacerbating the other.

Talking about “parts of the world that don’t like us” and “our enemies” is very 20th century / cold-war / Bush-era kind of talk. The new global diplomacy is about inclusiveness, about engagement and partnerships, about forging new relationships with allies and adversaries alike, in areas where collaborative action is critical for the preservation of life on the planet as we know it. And leveraging the collegial spirit of these new relationships to resolve conflicting agendas in other areas that are perhaps bilateral and/or less critical at a global level.

Summary

The world can end in many ways – with a whimper (deterioration of the environment, over a period of time) or with a bang (war between the have’s and the have-not’s, in a shorter span of time). Our prime interest is in not letting the world end, any which way. Environmental balance as a goal is merely a means to a greater end. So is world peace. Neither makes sense in itself / by itself / for its own sake, if we can’t have the other as well.

Post Script (added Oct 28)

Andrew Winston’s response appeared a few hours later (time-zone difference adjusted). And this is what it said:

Thanks to all for your comments. Hemant, you make a good and fair point about my language on ‘us’. I was perhaps being too casual in my tone and agree that we need cross-border cooperation on a grand scale to handle a problem as thorny and global as climate change. Regardless of where the hundreds of billions of money for oil goes (to U.S. ‘enemies’ or not), it’s a waste of resources that we could use to build infrastructure and invest in the long-term health of our economy and education…or whatever your priorities might be. We can build a more profitable economy by basing it on resources with zero variable cost (renewables). On this point, see this week’s cover story on how we can get to 100% renewables for all our energy by 2030 — it’s not only possible, it’s economic.

to which I wrote back:

Thank you, Andrew. I appreciate your acknowledging my point – it is refreshing to see that, given that the zeitgeist consists of provocative contrarians with hard stands and closed minds, as your post and its linked contents point out. I do hope delegates to Copenhagen later this year demonstrate a level of maturity in working towards the common good, and eschewing such inane polemics and self-centric political chicanery that this book has stoked.

 

Posted in Economics, Environment, Politics, Society, Strategy | Tagged: , | Leave a Comment »

The Art of Giving

Posted by Hemant Puthli on September 25, 2009

Further to the last post (below), on the subject of Charity, here’s an interesting talk by Jacqueline Novogratz, the founder of Acumen Fund.

Clearly, it’s time to change the way we give!

Posted in Economics, Operations, Society, Strategy | Tagged: , , , , , , | Leave a Comment »

Charity 2.0: Partnership, Not Patronage

Posted by Hemant Puthli on September 21, 2009

While it is a fact that several charitable organizations, the world over, are doing good work in helping developing communities, societies and economies, it is also a fact that there are charitable organizations that are either wasting resources or subverting the very causes that they claim to espouse or, worse, doing both. This is mostly because the idea of charity, arising as it does out of a present-day variation of the feudal concept of ‘noblesse oblige‘ (which in turn arises from a benevolent variation on the theme of self-interest) carries within itself the seeds of its own failure. Presented below are examples of some of the risks that are intrinsic to charity initiatives:

1. Power: Charity tilts the balance of power in favor of the donor. It provides the donor with political leverage over the recipient, and therefore gives the donor the opportunity to determine the scope, pace and extent of the recipient’s development and also the opportunity to influence other incidental factors that impact the recipient’s growth and future prosperity. This could lend itself to abuse in situations where such power falls into the wrong hands. In many cases, charity has prevented recipients from evolving solutions that might have been better than the ones the donor is willing to fund or provide for. In such cases, charity serves as a strategy to suppress potential competition.

2. Dignity and Dependency: Charity tends to deprive recipients of their dignity and self-esteem, especially in situations where it does not provide them with opportunities to independently improve their own socio-economic conditions. Charity also undermines the basis for catalyzing entrepreneurship, drive and innovation in recipient communities and instead replaces it with a ready justification for complacency. Recipients grow dependent on aid and are not equipped to deal with a future that does not bring in as much aid as they require.

3. Dumping:  Charity easily becomes the vehicle for handing-down legacy products and technologies that are ready to be retired from their lifecycle or, worse, are being withdrawn from donor-side markets due to known defects or harmful effects. Obsolete products are usually more expensive to maintain, and defective / harmful products are clearly undesirable. In some cases, recipient communities could be used as testing grounds for new products (especially in the life sciences sector) whose impact is not clearly known. This is another potential area of abuse.

4. Wastage: Since charitable initiatives do not have a profit motive, there is no incentive to control wastage of resources (including money). Such organizations are open to the risk of becoming fertile grounds that breed inefficiency and/or corruption (if not one, then the other; worst case, both). In order to avoid this, controls need to be enforced through external audits and tighter internal checks and balances, both of which add to costs and thereby drain scarce resources.

A more effective approach to socio-economic development would be to shift the paradigm, from a traditional not-for-profit donor/recipient model built on patronage, to a ‘social enterprise’ model that is based on the same economic principles and financial disciplines of mainstream for-profit businesses, and which builds on a spirit of partnership. The fundamental difference between these two models is characterized by the fundamental difference between the spirit of patronage arising from self-interest and the spirit of partnership towards a common goal.

While the partnership-based social enterprise approach also brings its own risks (such as the potential to levy usury interest on loans), adequate competition in the social enterprise domain would go a long way in checking such exploitative tendencies and monopolistic opportunism. Suitable regulatory mechanisms (including the requirement for better corporate governance, and for standards in performance reporting) would also help in ensuring that social entrepreneurship initiatives retain integrity in their efforts to promote growth and development. This may not be a perfect solution, since every approach brings its own risks, but it would certainly be more sustainable than one based purely on the charity of patron communities.

There’s an old proverb that goes “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” To that, social enterprise can only add “Help him set-up a fishing business and you put him on the path to prosperity in his own lifetime as well as for his future generations.”

Posted in Economics, Governance, Society, Strategy | Tagged: , , , , | 17 Comments »

Taking “Green Shoots” Literally

Posted by Hemant Puthli on September 4, 2009

Food for thought from TED Talks …

As we reboot the world’s economy, Geoff Mulgan poses a question: Instead of sending bailout money to doomed old industries, why not use stimulus funds to bootstrap some new, socially responsible companies — and make the world a little bit better?

Hope the right people are listening!

Posted in Economics, Environment, Society, Strategy | Tagged: , , , , | Leave a Comment »