Thoughts on Creating a Sustainable Capitalism

An interesting news item made me ponder on the how optimum the current market is for creating and acting on new ideas.

The news item was about Canadian research on obesity and how the researcher was regarding obesity as an auto-immune disease which impacts T-cell production by reducing the so-called “Good” T-cells and increasing the “Bad” T-cells. The researcher indicated that already they had found ways of normalizing T-cell production in mice and that potential treatments for humans are on the horizon, the implication of which would be a potential for reducing obesity, type 2-diabetes, and the plethora of diseases associated with obesity.

From a health perspective, such a discovery has amazing potential for reducing the costs of health-care, especially in developed countries where obesity is prevalent. But that same discovery could be devastating for the long term and potentially even short term profits of drug companies that have invested billions in research for treating symptoms.

At this point, it is a hypothetical problem but leads to the old question: Do drug companies hide cures, do oil companies buy up technologies up like cold fusion, do auto companies crush electric cars to protect current investments? Do large multinationals buy up threatening new technologies in order to protect their original investments in outdated technologies at the peril of greater human interests?  What does or should a top executive pay the most attention to when they make decisions: personal reward, company profits, shareholder dividends, their own sense of power to make decisions, building a legacy or ethics?

Asked the opposite way: Can we make a better system of economics for propagating new ideas which uses profit potential in different ways? Can we create incentives in our economic system that would consistantly encourage executives to make decisions based on any one of the above motivations and still come up with the same decision, ideally the one that benefits human society the most?

I’ve pondered this question quite a lot and along with a few solutions proposed by others, I have a few ideas of my own.

There certainly have been instances in the past of executives making unethical decisions for the sake of profit. We only need to look as far as Enron, Union Carbide and the likes of Bernie Madoff to find examples of unethical decision making. And there are many others. On the other hand, there have been many recent examples of executives introducing sustanability into their organizations and, while we can argue it’s just smart business, at least some are motivated based on ethical grounds. 

It’s not hard to argue that people follow their beliefs, even when their beliefs are inaccurate. Executives who act unethically, form defensive beliefs that, in their own minds, justify their actions. Unfortunately, the current market system does little to provide incentives for those beliefs to change. It lacks sufficient incentives for increasing and sharing knowledge or for introducing new technology at rapid pace and, instead, provides profit incentives for protecting current infrastructure, (e.g. the carbon economy, the lead industry, use of plastics) and potentially outdated technologies because change is costly and delays in change provide financial opportunity to squeeze more rewards out of old research and investment dollars, even if these are damaging to the environment or human causes.

What can we change in our market system that will encourage and provide incentives for money to flow more quickly to those technologies and solutions which will best benefit humankind as a whole?

Scenario 1
If someone were to come up with the cure for all cancer in the form of a pill, what would happen if the cure were released?

  1. Those afflicted with cancer would benefit immediately from better health.
  2. Those with loved ones having cancer would be relieved of the burden of watching their loved one’s suffer and die prematurely.
  3. Those who are burdened with the costs of health-care for loved ones would save massive amounts on their long term expenses.
  4. Those who are currently spending their time on solving an age old problem would be free from that dilemma and could spend their lives on new and more productive challenges.
  5. Government health-care costs would be drastically reduced, or at least in the area of cancer research and treatment.

This is all good.

But there are also some negative consequenses from a commercial perspective.

  1. All the people who were involved in the development and administration of treatments, which incidentally probably numbers in the millions when we include pharmacutical, health workers, researchers and others, would be largely un-needed for the work they are most qualified to do, particularly after the cure had been administered to all who need it. Health workers, researchers and others would need to find new avenues of service. Not unfixable, but a major challenge.
  2. Major Pharacuetical firms would find themselves having major investments in reseach, intellectual property and related production facilities with potentially no further use.
  3. Investors equity and dividends are related to the on-going sale drugs for treating symtoms. Take the disease away and company revenues and profitibility would ultimately suffer resulting in a loss in equity and dividends.
  4. With a decline in share price, executives may find themselves without the support of their shareholders and the lucrative profits which justify their salaries and bonuses.

As with all production, eventually the usefulness for a product comes to an end as it is superceded by another product. In this case, however, the requirement for many related products would be all but eliminated or drastically reduced from the market without any further production except by the one or two companies who are producing the magic pill. There would be no recurring revenue.

Most of us would look purely at the moral implications and realize that not sharing such a cure would be morally reprehensible. Some people feel cynical about executive salaries anyway and would hold little sympathy for the executive who lost their salary in the process of doing good. And since the greater good of the world would be served there is no question that such a cure should be shared, right?

But to just dismiss the issue isn’t the best solution. My personal belief, however erroneous or naive it might be, is that CEO’s, underneath their exterior drive for profits, also share in human nobility. Just as other human beings, they have weaknesses and they faulter at times and make decisions based on the wrong criteria. The incentives to hold a short term view are simply too strong to ignore.

So let’s ask the following:

  1. Can we design a better market system that rewards changes, that encourages and rewards people for doing “the right thing” vs. the most profitable, that encourages and aids the movement of employees from positions which can or should be eliminated into roles which better utilize their talents on solutions that are actually needed for the common good and which may be more satisfying for them? Can we find better ways to pay them for completing their service sooner and help them to go on to new activities?
  2. Can we reward executives for creating dynamic organizations that are designed to adapt technologies for new purposes and which benefit the future of the planet vs. continuing to drive bad behaviour?
  3. Can we design a system to intice investors to flow money into organizations which are profitable because they are focused on the common good rather than companies which defend outdated technologies, those that encourage renewable resources vs. those that don’t, those that encourage partnership and mutual benefit vs. dependency of the customer base to prolong profits, and those that promote permanent solutions vs those that treating the symptoms and prolong issues to protect shareholder interests?

In a truly moral society, wouldn’t we want the best of both worlds?

Scenario 2
An accusation was leveled at the automobile manufacturers and oil producers the first time the electric car movement was crushed (Who killed the electric car?) Whether or not this accusation is true is irrelevant to the discussion. The simple matter remains that current market system fails to reward oil companies for transitioning to renewable energy sources. True, those changes are slowly coming anyway, but is it necessary to be forced to into making changes by the threat of global collapse and irrepairable damage to the planet?

Opposing drivers in the Market.
Whether we like it or not, the force that drives the continuation of behaviours, bad or good, is inertia. We continue to do the same thing unless another force is acting. Bad behaviours will continue until good behaviours have a driver. The most prevelent driving force is where the money flows (at least until our very survival is threatened).

The concept of sustainability is now proving that economic benefits can arise from sustainable behaviours (e.g. as identified in the IEDC Climate Prosperity Workbook and many other studies) yet the market forces are only changing very slowly toward this direction. Why? Because this is consumer and cost driven. If the consumers are convinced to spend money on sustainable products and they are available, they might buy them provided they are less expensive than alternate products. If there is a consumer need, CEO’s will ensure that their companies will meet those needs. Otherwise, they might not. If alternate energy sources are less expensive, they will change, otherwise it is doubtful.

What changes can be made to the market system that will cause all parties to benefit from change? 
How do we change our investment system so that new and better ideas are widely shared and investment dollars are rewarded when the new ideas are adopted and the old out-dated investments are retired? If a drug company or researcher actually did find a cure for cancer, how would we entice the CEO’s of major pharmacutical companies to do everything in their power to share these solutions while protecting them from negative financial consequences? Is there a way to funnel saved health-care dollars and other saved dollars back to companies and shareholders to reward ethical behaviors? Can governments make policy to award larger research dollars to companies who prove themselves as experts in discovering cures vs. those who merely develop treatments and tax companies heavily on profits especially after their initial investments have been paid off? Can they create policy to favour permanent solutions vs. repeatative solutions? Can we create more companies that investors back, not because they have intellectual property or create profitable products, but because they have learned to share ideas and developed expertise in reducing or eliminating consumption while continuing to serve the public need and are therefore better positioned for the future where certain resources become scarce or too expensive?

What changes in the market would reward the behaviour of oil industry executives and their workers to wind down dirty operations in the oil patch in favour of clean and sustainable production, including in the development of bio-fuels, hydrogen, and other renewable energy sources and using oil only for creating a sustainable world? No doubt consumer demand is a part of this scenario but how do we create other drivers in market so that investors and CEO’s will take a leading vs. lagging role? In other words, how do we provide a better world view or paint the picture of a future that they actually want to invest in and which is self-fulfilling? Let’s face it, under the current market economy, no one want’s to create a product or service that people won’t buy because it is still too expensive, and no one wants to get rid of infrastructure that is profitable, even if it is outdated.

A few thoughts that came to mind while pondering this dilemma:

Encouraging long term thinking
Yvan Allaire’s – Black Markets Business Blues book suggests that one of the main problems with the current economy is the short term thinking. He goes on to suggest re-regulation and revision to the multi-tiered stock structure (i.e. common and prefered stocks) to reward and encourage long term investors. Longer term thinking in terms of capital investment not only helps to stablize economic markets and encourage long term industry growth, it also provides an opportunity for company executives to re-think their production in light of the need for a sustainable future with reduced consumption of resources and energy. But would executives take the opportunity, knowing that investors would not abandon them over additional spending on renewable energy sources such as geothermal, solar and wind, in order to yeild long term savings? True there are some who would still focus on short term numbers but there are many savvy executives of good conscience who would most certainly take the opportunity.

A Bleak Outlook
Eric Janszen, in his column, paints a strong argument for a potentially bleak future in the US economy after the initial rush back into the market begins to settle. The only potential saving grace he sees is the urgent need for sustainable development, although he sees this potential bubble as something different than the high tech and housing bubbles of recent past. Driven by the urgent need to adopt alternative energy and green products, this bubble is likely to have less intensity than previous bubbles that were more greed and speculation driven. Consequently he contends that it needs to be supported by Government stimulus in the green sector until the secondary driver (i.e. combating rising oil prices) starts to kick in again. Alternative energies are already becoming competitive but not yet at a very compelling price point. And Janszen argues that it doesn’t create enough jobs to put everyone back to work which means that taxation won’t cover the massive US debt. This being the case, Janszen poses the question of where the money will come from for the next round of stimulus. Some countries have already downgraded the US. In what I’ve read so far, he offers no long term solution, only an insightful warning of what is to come.

A Shift to Services
I’m an optimist who is convinced that the world will eventually figure it all out. It’s human nature to find solutions to address current problems. The only question is, how large do we allow the problem to become before we act on it and how much will we suffer as a result of waiting before fixing it. I’m convinced that there must be a better way to help us see a new light at the end of the tunnel and make sure that we’re out of the tunnel before that light becomes the train. I also believe that part of the solution is in helping Executives to understand their own nobility and spiritual nature. It’s always a sensitive subject in bringing spirituality into the work place, but after all, when we are dealing with the need for transformation, we need to impact all elements of the human being, not just the physical and emotional drivers.

What can executives, business owners and investors do to change the current outlook and what opportunities are arising?

Many of us are familiar with open-source software approach. The concept involves sharing ideas (in this case through freely distributed source code) and making revenues off providing specilization of associated products and related services. With a need to reduce consumption of material for the sake of sustainability, perhaps a service oriented, idea sharing market vs. a product and intellectual property oriented market place would be a key to both rapidly increasing the spread of new ideas, decreasing material consumption and enhancing the quality of life.

When we think about the Great depression, we think primarily of the negatives. What were people doing? We recall pictures of men hopping rail cars wandering from place to place hunting for jobs where-ever they could find someone with money or food and a need. Perhaps people didn’t have as much, but they did survive and they did so by offering services to each other. Now we have the internet. Searching for needs can be done on-line if provided we have good sites for listing and finding these needs. E-lance and other simlar sites are examples of where you can bid on work that people and companies list. But these sites need more exposure and refinement and, in this time of needing to reduce fuel consumption, better sites need to be designed to help us geographically match needs. Google, e-lance, workopolis and collaborative software tools could be used together to get more employers and private individuals with needs communicating with more independent suppliers. No need to hop on a train-car anymore to find the next job. We could get local listings of long and short term jobs, talk to the employer, get hired, do the job, get rated and move on to the next job. And many of these services can be provided without even moving from our homes.

During the Great Depression, consumerism dropped considerably because consumers had very little money. The ironic upside to this period from the perspective of the planet was a drop in consumption of resources which most likely gave the planet a chance to rest. According to positive pschology findings, it turns out that people actually adjust to their economic situation fairly well. In other words, if you’re generally optimistic and happy, your going to be happy if you have less “stuff” and even if your economic situation isn’t all rosy. Researchers have found that getting your first 3 series BMW is just as likely to make you unhappy because you quickly adapt and now want the 5 series BMW. As it turns out, lower expecations lead to easier fulfillment and greater happiness.

If we plan ahead for more a more service oriented model and market where information and service opportunities are more visibly shared, perhaps we can avoid severe down turns and increase GDP while reducing consumption. If we optimize service linking technologies we may also have a new place for investors to invest, (i.e. in people), perhaps even our own sort of micro lending system (like were we invest in people’s training and get some return from their revenues.

If we get used to paying each other reasonable rates for services that we don’t want to do anyway and get paid reasonable rates for services that we do want to do and are good at, we would have a greater opportunity to survive by doing what best utilizes our strengths.

What is it about an economy that actually serves us well and how do future looking investors and executives capitalize on that?

Basic needs must always be met. Agriculture, building homes, infrastructure, education, health will always be part of the long term equation and industries serving those needs are bound to survive. But they are also likely to change. Agriculture will need to feed more people per unity of energy and water but may need more human resources. Homes will need to consume less space, less material, eventually almost 100% recycled and live with NetZero energy and water and CO2. Mining, at some point, will need to decline immensely and recycling will need to address almost all of our resource needs. Infrastructure may look more like the cars in Cuba from the 1950′s that have been cut off from parts suppliers almost forever but continue to function. We will need to learn how to take existing infrastructure and find creative ways to care for and update it almost entirely through reduction, recycling, rebuilding, re-using adding only what is required for additional population. Education will need to shift so that sustainability is built in. Similarly with health care.

My guess is that there will be a growing role for CEO’s and companies who specialize in adapting their respective companies to new commercial realities and investors will benefit if they can find those CEOs and follow them with their money.

What should executives focus on?

For one, they need to focus on becoming more agile in the way they work. If you can’t provide a “thing” to make someone happy due to shortage or expense of raw materials, instead, provide a “service” that makes them happy. As new materials and energy resources become more expensive, those who have learned to reuse old materials in creative ways will be ahead of the curve. Executives who creatively adopt NetZero policies and rapidly move toward them will be the recognized leaders of the future. As with products, services also need selling. Sell a product and you make money but may also damage the environment. Sell a service and you use human resources to provide for human needs and wants with little or no damage to the environment, particularly if you can sell that service locally.

Establishing an approach based on sharing of ideas, collaborative ventures and providing more value added services accomplishes a few things. First, idea sharing in the public domain means that more people can work more quickly to enhance those ideas. Second, ideas don’t come in such large increments because projects are known in advance. This leads to a more progressive but smoother learning curve. As future ideas are anounced before todays developments are even complete, we can better plan for the full product lifecycle.

Taking a more agile approach to development wiill get the highest value activities done first. Executives skilled in agile approaches will win because they provide better value and are first to the market and first to new markets when they arrive.

Profits currently protected by patent rights are always at risk. Profits from shared information in the public domain doesn’t suffer from this risk. Companies who base profits on rapid adaptation will always be ahead of the curve. The key resource of such a company is not what comes out of the ground, rather what comes out of the imagination, thoughts and experiences of the employees and leadership.

CEO’s that focus on the plight of humanity have a much bigger market to sell to and it’s growing daily even with the economic downturn.

As an open service oriented market evolves, progress would involve: a) registering new ideas if you have them or b) registering new needs if you have them, identifying projects you are working on, involving others who wish to work on it and selling to a ready made consumer base who have previously identified the need.

While I don’t claim to have it all right, I hope there are a few useful ideas.

Garth Schmalenberg

As always, feel free to share these ideas by e-mail, with proper attribution or through your favourite bookmarking site.

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