Towards earth-smart economics: what's wrong with economics as usual?
In the second of our feature series with Ashridge Business School, faculty members Tim Malnick and Stefan Cousquer explore the ever-changing relationship between sustainability and economics.
Why should sustainability professionals take an interest in economics - after all sustainability is win-win for business, right?
At Ashridge, we support leaders and aspiring change agents who want to help their organisations become more responsible and sustainable. Very early on in their two year journey we explore three interconnected challenges for mainstream economics. We suggest these are vital to consider for anyone serious about the business of organisation or social change.
First is the paradox of seeking infinite growth on a planet with finite resources and physical capacity.
It is clear that our limited planetary resources are being consumed far beyond the rate at which they are naturally renewed. Yet the goal behind most company activity and national economies remains ever expanding growth.
Business, societal and indeed personal definitions of progress centre heavily on notions of continued growth, even while feedback from our planetary systems tells us that consumption of water, minerals and vegetation simply cannot continue at the same rate.
Mainstream economics has no way of properly engaging with this. Waste, pollution and depletion are ignored or labelled externalities – and largely excluded from measures of success. But as the ecological economist Herman Daly points out, much of what the mainstream considers as economic growth is in fact extremely ‘uneconomic growth’ – since the trail of environmental depletion and biosphere damage left behind is ultimately a net loss for society. New economists attempt to describe a steady state economy, one that can maintain dynamic flow of activity within planetary limits.
This pursuit of endless growth is fuelled by deep assumptions that growth is a good indicator of what people and societies most value.
But increasingly it isn’t. GDP essentially measures the volume of activity where money changes hands but says nothing at all about the purpose or benefit of that activity. Thus the second challenge to consider for those trying to bring about change is what should we measure and what does success actually look like in a sustainable world?
Feminist economists like Marilyn Waring remind us that much useful human activity – bringing up children, growing one’s own food, caring for elderly relatives, is considered in mainstream terms unproductive and not included in GDP. Conversely, things we don’t want more of – buying expensive drugs when cancer rates increase, repairing damage caused by vandalism, add to growth figures because financial transactions increase.
New economists consider what people, organisations and nations might measure – to drive behaviour that leads to more of what we truly want. The Happy Planet Index attempts to measure length and quality of life as a function of environmental impact – how countries produce more real wealth for less overall impact. The Index of Sustainable Economic Welfare measures useful economic activity and costs out problems we will have to pay for down the line. B Corps are setting new definitions for sustainable businesses. These are just a few initiatives that are helping us get clarity on what success is.
As we reconsider what success and progress really look like – in our lives and organisations, the third challenge is to reflect on the nature of our relationship to money. What is money anyway, what does it do to us emotionally and psychologically?
Few economists or sustainability professionals consider this even for a moment and yet our ideas about money powerfully shape both individual and organisation strategies and choices.
Many of our programme participants want their work to become a more meaningful contribution to the world, but feel limited. On reflection, this feeling of restriction is often wrapped up in concerns about money. This is true for companies too. Strategies, visions and choices are strongly driven by ideas about money.
We suggest that, to lead real change, it is useful to notice the extent to which individual and corporate decision making, strategy and activity is driven by ideas about money – while recognising that we know very little about what money actually is and how it works. This is increasingly creative and fluid territory for pioneers to explore.
On the policy level, Positive Money campaigns for national governments to repatriate the power of money creation, handed out over the last generation or so to for-profit corporate bodies.
Cities are setting up highly developed parallel currencies such as the Bristol Pound, to build community and support the local economy. Arising from the insight that money above all mediates relationships, peer lending, social investment and microfinance initiatives are springing up allowing institutions and individual investors to know who their money is supporting and, importantly, to consciously invest money in the direction of their values and visions.
We are experiencing big shifts in our economic and financial system. New business models like crowd funding, impact bonds, block chain products, utility banking and alternative exchanges to name a few, seem to be changing how we think about money, value, identity and banking. It is interesting to observe that banks like Triodos that only lend to and invest in organisations that benefit people and environment, are growing rapidly whilst other mainstream banks are struggling.
A quiet revolution is underway wherever people consider what a worthwhile life is on a planet where we simply cannot consume endlessly in the way that we have long been encouraged to. As people reconsider ideas of progress, wealth and success they sense that we have real power to define these notions for ourselves, which becomes a key factor in leading change and innovation in organisations and sectors of all kinds.
Tim Malnick has worked in the fields of sustainability, education and organisational change for 20 years. His research and facilitation work focuses on creating spaces in organisations for people to reflect and then act on the things that really matter most to them.
Stefan Cousquer works with senior management at the intersection of leadership, innovation and sustainability. At Ashridge Business School, Stefan is a member of faculty teaching on sustainability, innovation and 21st century leadership.
edie has partnered with Ashridge Business School for this series of articles focused on growing international debate and practice around sustainability. The next part is titled ‘Earth wisdom & deep ecology’, exploring why all leaders need to explore our relationship with the rest of the living world.