Global Sustainability: How can Business Schools Contribute?
Oct, 2008
By Dr Robert Burke, MBS Futurist
Humankind faces real problems but human-caused global warming is not one of them according to some climate change scientists. Climate will change regardless of human interference. A changing climate regulates water, renewable energy and food production. It's inadequately sustaining these resources which threaten human survival, rather than actual climate change.
Business schools can contribute to global sustainability. The important starting point is to stop doing a lot of what we are now doing. This means stop teaching that the only way to measure success is to measure increased growth and consumption.
Instead we need to move beyond business as usual. Currently the goal for business is to find ways to create economic value. A company creates economic value when it generates positive net cash flows over time. There are various ways to measure economic value, but all compare the value of profits generated by the firm against the value of capital supplied to the firm.
Remake the measures
Instead economic value should measure natural capital and social capital. Simplistically this means that if your product requires cutting down a 100-year old tree then you must immediately replace that tree with 100 one-year old trees, or 50 two-year old trees etc. It does not mean you replace a 100-year old tree with one sapling!
With social capital it means making sure that what you do today will not adversely affect future generations. If it does then don't do it.
Another man-made measurement that should be unmade is the use of the gross domestic product (GDP).
The US-based group Redefining Progress claims that GDP treats crime, divorce and natural disasters as economic gain; GDP treats the depletion of natural capital as income; GDP increases with polluting activities and again with clean-ups; GDP ignores the drawbacks of living on foreign assets; and GDP ignores the depletion and degradation of natural resources.
There are other measures that give us a more holistic measurement such as the genuine progress indicator (GPI). It broadens the conventional accounting framework to include the economic contributions of the family and community realms, and of the natural habitat, along with conventionally measured economic production.
The GPI takes into account more than 20 aspects of our economic lives-such as crime & family breakdown, household & volunteer work, income distribution, resource depletion and pollution-that the GDP ignores. And it estimates the economic contribution of numerous social and environmental factors which the GDP dismisses with an implicit and arbitrary value of zero. It also differentiates between economic transactions that add to well-being and those which diminish it. It then integrates these factors into a composite measure so that the benefits of economic activity can be weighed against the costs.
The GPI provides a more accurate barometer of the overall health of the economy, and of how our national condition is changing over time.
While per capita GDP has more than doubled from 1950 to present, the GPI shows a very different picture. It increased during the 1950s and 1960s, but has declined by roughly 45% since 1970. This decline rate has increased from an average of 1% in the 1970s to 2% in the 1980s to 6% so far in the 1990s, per capita. The growing divergence between the GDP and GPI is a warning that the economy is stuck on a path that imposes large-and as yet unreckoned-costs onto the present and the future.
Specifically, the GPI reveals that much of what economists now consider economic growth, as measured by GDP, is really one of three things: 1) fixing blunders and social decay from the past; 2) borrowing resources from the future; or 3) shifting functions from the community and household realm to that of the monetized economy. The GPI strongly suggests that the costs of the nation's current economic trajectory have begun to outweigh the benefits, leading to growth that is actually uneconomic'.
The great irony is that although the GDP is going up, generally on a global basis, the GPI is going down. The GDP is a fantasy which should be abandoned.
Changing mood
There is a changing mood in the business world. We can no longer expect to survive in the manner we thought we could or, more to the point, should.
Unchecked and unconscious consumerism is at the root of many of the world problems. We need a change in consciousness. Rampant consumerism has given us the legacy of depression and insomnia which are at epidemic proportions. We still live in a society where the richest 2% have over 50% of global wealth and the poorest 50% of world have less than 1% of global wealth. This is not sustainable!
We also live in a society that the World Health Organization tells us that a third of the world's population is well fed, a third is overfed and a third is starving with someone dying of hunger every 3.6 seconds. Since 1980 obesity has tripled in adolescents and we now have more than one billion people overweight with 4 million of those dying of overeating currently each year-one every half a minute.
What are we doing?
Traditionally a business school studies factors that effect the running of a business, mainly a short-term horizon-issues that concern today's investors. It should also study factors that affect civilization.
Like my colleague Richard Searle, I personally I don't go along with the argument that sustainability and profits are perfectly synergistic. I think there will be real costs and real losers, and that capitalism itself will need to change and adapt, especially beyond this consumerist stage of capitalism, and that will take some real leadership from many quarters!
It is critical to rethink what it means to be human and what we mean by growth. We need to shift our activities from regulatory management to leadership.
More information: Dr Robert Burke, futurist, Melbourne Business School, r.burke@mbs.edu, tel: +61 3 9215 1182
