Sustainable Economy: Can we change how we do business?

Sustainable Economy Discussion links: Part 0, Part 1, Part 2, Part 3

Continuing our discussion of the Sustainable Economy, last time we talked about the position of workers. Today we’re going to focus on the business side of things. How business practice is structured in such a way that it’s very difficult to be sustainable, and how it might be structured to make it easier run our economy in a way that doesn't kill us all.

3 Steps to a Sustainable Economy?
In our new book, Enough Is Enough: Building a Sustainable Economy in a World of Finite Resources, we argue that … we can build an economy that meets people's needs without undermining the life-support systems of the planet. Big changes are needed to achieve such an economy. Some are fairly obvious, like limits on resource use and waste emissions to ensure environmental sustainability. Others are less apparent (but equally important), such as limits on income inequality to improve societal health. There is a growing consensus that these changes are needed, but less consensus about how business would function in an economy where the goal is enough, not more.

The shift to an economy of enough requires business to change in three critical ways:

1. Shared Value business model
The first is a shift toward new business models that generate shared value. Shared value goes beyond the conventional notion of "corporate social responsibility" in which a company might donate some of its profits to charity or adopt a fair-trade policy but still pursue activities that are fundamentally damaging to society or the environment. Instead of taking responsible actions only as an afterthought, businesses would be driven by a sense of purpose to enhance the communities and conserve the ecological systems where they operate.

What might be vectors that encourage businesses to behave in such a way?
What vectors are preventing them now?

2. Alternatives to shareholder-owned corporations
The second critical change is towards ownership structures that are less prone to growth than shareholder-owned corporations. Two good examples are co-operatives and public interest companies. A co-operative works to achieve a goal that benefits its members, and it also distributes decision-making responsibilities and earnings to them. As purpose-driven organisations under democratic control, instead of profit-driven organisations under autocratic control, co-operatives are better positioned to achieve objectives beyond the balance sheet. Success stories like John Lewis in the UK and Mondragon in Spain are demonstrating how co-operatives can outperform conventional corporate structures and achieve desired results for society.
Another significant ownership structure, the public interest company, is also gaining traction around the world. In the past, people who wanted to work toward a social or environmental purpose had to choose between establishing a for-profit business (which limited their ability to achieve the purpose) or a non-profit organisation (which limited their ability to realise financial gains). But new legal forms now exist that combine features of both. In the US, 15 states have passed laws that allow businesses to charter as Benefit Corporations, or "B Corps". B Corps integrate pursuit of the common good into their DNA. A similar situation is unfolding in the UK with the development of "community interest companies". Close to 8,000 of these have opened for business since the scheme started in 2004.

3. New Economic Measurements
The third critical change involves new indicators of progress. Although indicators of financial value such as the FTSE and Dow Jones Industrial Average have been climbing to impressive heights, indicators of social and environmental health have been falling off the cliff. When scientists recently reported that the concentration of carbon dioxide in the atmosphere had reached 400 parts per million – higher than it's been in over three million years – most corporations collectively shrugged their shoulders and continued with business as usual.

Below are two concepts, that are more about economy-wide choices than individual business choices, but I want to discuss their feasibility in the context of individual businesses.

Fair Distribution
Since continuous growth and sustainable scale are incompatible, growth cannot be relied upon to alleviate poverty, as has been done (ineffectively) in the past. If the pie isn’t getting any bigger, we need to cut and distribute the pieces in a fair way. In addition, poor people who have trouble meeting basic needs tend not to care about sustainability, and excessively rich people tend to consume unsustainable quantities of resources. Fair distribution of wealth, therefore, is a critical part of sustainability and the steady state economy.

Efficient Allocation
The conventional economic thought focuses almost exclusively on efficient allocation of scarce resources. The dominant thinking is that free and competitive markets, along with prices driven by supply and demand, result in efficient allocation of goods and services (in the absence of pesky, omnipresent externalities and market imperfections). Efficient allocation is also important in a steady state economy – ecological economists support many market strategies to accomplish efficient allocation of resources – but only after achieving sustainable scale and fair distribution. Efficient allocation, although a valid criterion for managing and using resources, means very little in an unsustainable or unjust economic system.