ONE OF business’s quaintest boasts is that it lives in the real world. Actually, the world that it inhabits is a fantasy one: only in a dream could it endlessly consume its own natural capital and expect society to absorb the ever-mounting costs of its profit-maximising ways.
But real reality is beginning to intrude. On the day this column was written, in a discussion on the Today programme the government’s past and present chief scientific advisers agreed that human-induced climate change was the ‘the most serious challenge that humanity has faced in its history’. And the day of reckoning is approaching fast. Just one example: when Chinese car and paper use reaches US levels (no longer unthinkable), it will absorb all current oil and paper production.
Optimists suggest that technology will solve all that. Ultimately, however, the grim reaper in the shape of the second law of thermo dynamics trumps even free-market capitalism. So if capitalism is the problem, what is the solution?
Jonathon Porritt’s answer, in his chunky Capitalism as if the World Matters , is… capitalism. Capitalism, he admits, ‘is the only game in town’. Not only is there no time to conceptualise any other big idea, but in its most important institutions, companies and markets, capitalism possesses the only instruments that can credibly turn the situation around.
Porritt spends much time justifying this position, no doubt looking over his shoulder at his colleagues in the green movement. But it’s not as surprising as it looks. Although it’s true that industrial processes and consumerism have brought us to the present pass, some islands within it are already compatible with sustainable concepts. While ‘lean’ manufacturing, for example, is often portrayed as being about resource productivity (doing more with less – and there’s plenty to do here, given that 90 per cent of materials extracted for building consumer products ends up as waste), its real significance is that it reverses the demand cycle, the process only beginning with a customer order. It also works best with local sourcing and long-term relationships.
But the real point is a larger one. Capitalism is a system, albeit a sub-system of the biosphere as a whole. What’s key to its drive and momentum is not some metaphysical concept like the ‘free market’ or even the profit motive. It’s the ecology of capitalism: the dynamic, systemic interaction of markets and companies together, each obeying its own distinct logic, within the rules of the game. Companies compete to provide better solutions, markets decide on winners and losers and regulation decrees what success is.
Regulation is not some kind of foreign intruder in this process – a tiresome armchair umpire – but an integral part of it. Consider Formula One. The story of Formula One is intense technological competition within specifications laid down by a governing body. Each time an advance threatens to make races less competitive or attractive to watch, new regulations are imposed, driving further innovation. Like a sailing boat’s forward movement, innovation is driven by the twin pressures of competition (wind) and regulation (water) on the teams (keel).
It is hard to see organisations such as the CBI, to which Porritt unsurprisingly gives short shrift for its kneejerk rejection of all regulation, in the role of an F1 team, welcoming new regulation as a stimulus to innovation, leading-edge branding and new partnerships. In fact, it is an irony of the present situation that trade and employer associations find themselves in the parodic position of denying capitalism’s adaptability while progressives who have for years ignored this quality have turned into its most enthusiastic supporters. Writes Porritt: ‘What one suspects they don’t like is the idea that the self-same market forces that they venerate may well turn out to be the most powerful driver of change in our inevitable transition to a sustainable economy.’
It’s true that in this vision many large companies would be propelled out of their comfort zones, obliged by competition to focus much more on the dynamic processes of innovation than the static ones of collecting rents on their existing advantage.
But some leading companies have already made this step. GE is not a name that springs readily to environmentalists’ lips, but (crudely) its decision earlier this year that saving the planet was great business was more significant than the totality of corporate responsibility programmes to date.
Belying the whingeing of corporate pressure groups, companies like GE and some of the motor companies are now calling on governments to tighten environmental regulation to level the playing field and prevent rivals from free-riding on low minimum standards.
Naturally, this is in their commercial interests. But that’s the point. As Porritt emphasises, looking for significant results from corporate responsibility is pointless – it’s a distraction and a fig leaf (not least for governments) at best when the current rules of the game, entirely financially framed, make bad behaviour rational. As with F1, what’s needed is rules – comprising both carrots and sticks – that bend the purpose of the whole system to competitive innovation and make bad behaviour irrational. And only governments can frame those.
Just how far there is to go in this respect – and just how far governments lag behind the leading companies – was illustrated last week when the Chancellor casually tossed aside the requirement for firms to include an operating and financial review (OFR) in their annual reports. The OFR, in preparation for years, is just the kind of statement of long-term sustainability that is needed to complement the financial snapshot.
Despite its initial promises, bringing the government to sticking point on the environment will be tough. In the meantime, Porritt is right to emphasise the opportunities in sustainable development rather than the well-rehearsed Doomsday scenarios. As the environmental movement has learnt the hard way, proving that a course of action is wrong isn’t enough by itself to change anything.
Porritt’s book is a brave and important working draft for an essential positive alternative. It’s not always an easy read – but then saving the planet isn’t trivial either. As the distillation of unparalleled experience on the frontline and formidable reading, it is the best account of where we are now and how we might move ahead. He’s right that the world matters and right again that saving it requires us to recycle rather than throw away every scrap that we’ve learnt about managing companies and markets.
The Observer, 4 December 2005