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The True Cost Economy: Ecologizing Capitalism

Reinvent economy of an entire planet. This planet. In one generation. To do this, we need The True Cost Economy: Ecologizing Capitalism.

This was the theme of the panel I shared with Jean Brittingham and Randy Hayes at SXSWeco last week, and of the thoughts I share here. But actually that's not a big enough topic. We have to ecologize economics, not just capitalism, because the problem we face -- disconnection of the human economy from the living systems that sustain it, and the consequences that result -- are endemic in all modern economic systems, and perhaps in the human condition as well. (Matthew Nordan of VenRock drew, the day before, on neuroscience research showing that we are creatures wired for "more" in a world that can no longer sustain endless more.)

But humans are creatures of culture, not only biology, and culture can change. One indispensable change -- which I've seen as central to the sustainability challenge ever since my World Game work in 1972 -- is "getting prices right". Eliminating the subsidies and externalities that seem an inescapable part of modern economic life, and that distort market and minds. Absent getting the prices right, we sustainability warriors are doomed, like Sisyphus, to forever push the boulder uphill, almost to the crest, only to have it roll back down again.

As that under-appreciated progressive Adam Smith observed, some 235 years ago, perfect markets depend on perfect information. But distorted markets, whether distorted by explicit subsidies that transfer tax payments from general funds to selected beneficiaries or by the effective subsidy of pollution delivered by selected beneficiaries to the general body, whether free or controlled, renders good decision making all but impossible.

Consider gasoline. We grumble at having to pay $3-4/gallon in the US, ignorant of a true cost (including environmental impacts, health effects and the military costs of keeping the supply lanes open to the middle east) that's been estimated at $10-20/gallon! If you had to pay $20 or $15 or even $10/gallon, would you be driving the car you're driving today? Would anyone even be making it?

Consider coal. If the global subsidy to the coal industry exceeds its market cap, as some estimates indicate, then the prudent business strategy is to shut the industry down, not continue to prop it up. (And then there's the nuclear industry, still subsidized more than 50 years into its life. But don't get me started.)

How do we end "cheater economics," as Randy Hayes so pithily calls it? Like all change, this will require multiple strategies in multiple venues: activism, consumer preference, policy & regulations, standards & practices, taxes & incentives, voluntary corporate action and innovation. Here a few few specific steps that would help:
- Zero out subsidies -- recognizing that this is more a political issue than an economic one.
- Demand radical, real time transparency - whether for executives, employees, investors, activists. Give people a clear line of sight that connects actions, results and goals. People perform best with it; markets can't work without it
- Bridge the GAPP. Build nature's services into the Generally Accepted Principles and Practices of accounting. And meanwhile, keep two sets of books -- one that follows GAPP, one that puts a price on carbon and ecosystem (as Puma has recently done). At least ask the question: what is our potential risk and exposure if -- when -- these impacts become monetized?
- Get CFOs into the sustainability game. CFOs own risk and value, and can use those reality-based financials as an early warning system make visible hidden risk and value, and to guide business strategy. This is about business, not "CSR".
- Tell the truth about what matters to you. "What do we value," notes Aimée Christensen. So we have to talk abut what we value -- and what we're really here to do, as people and as companies -- and measure that. Because profit (sorry Milton Friedman) is not the purpose of business; it's the consequence. The purpose -- what you're really here to do -- is what animates.

I said at the top that we need to reinvent economy of an entire planet. As I wrote recently, "one man, Steve Jobs, transformed four industries (computers, movies, music, telecommunications) in the last 20 years. What if you took on just one?" Or as John Elkington recently asked, who will be the Steve Jobs of sustainability?

Meanwhile, maybe its time for a campaign to "end cheater economics." Maybe the invisible hand needs an invisible foot.

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This page contains a single entry from the blog posted on October 12, 2011 5:40 PM.

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