The United Nations Sustainable Development Goals lay out a coherent road map – widely embraced by the business community – for building a just and sustainable world. We have the technology and the brains to address our environmental problems, and we have the resources to reduce inequality. The question is not what should be done the question is how. – Rebecca Henderson
One of the most popular courses at Harvard Business School is ‘Reimagining Capitalism’. Course leader, Rebecca Henderson (author of a recent book on the subject from which the above quote is taken) is hopeful that Covid-19 could be a catalyst for reimagining a more inclusive and sustainable form of capitalism. In a recent talk for Ceres she argues that it could provide the jolt needed to the inertia of business as usual, by providing a stark warning that bad things can happen quickly and without much warning, while also reminding us of how much we depend on each other for our security and survival.
This view is echoed in the forward of the recently published report of the Scottish Government’s Advisory Group on Economic Recovery: “If the monumental scale and nature of this economic shock is not a catalyst to accelerate change and to find new bold, radical interventions that will transform Scotland’s economy, then nothing ever will be. We must be willing to revisit old demarcation lines without bias, and to discover new methods and levels of collaboration as we navigate our path of rehabilitation, recovery, and re-imagination.”
Scotland’s Auditor General has also highlighted the opportunity presented by current circumstances:
It feels as though this may be one of those rare times, like the creation of the welfare state after the Second World War, when major change suddenly becomes possible; our challenge is how to make the most of the current moment.
Nicholson argues that free market capitalism has been the greatest source of prosperity the world has ever seen, but that it is on the verge of destroying the planet and destabilizing society. She sees three broad problems, which are linked and have intensified over the past forty years that have diminished capitalism as a force for good:
- externalities, like the true cost of carbon, not being fully priced into market decisions
- the growing exclusion of large sections of society, partly due to not having the right skills to provide freedom of opportunity and an inequitable distribution of rewards
- firms using lobbying and other forms of influence to fix the rules of the game for their benefit, to allow them to extract economic wealth, over the wider needs of society
She thinks business has a catalytic role to play, alongside others, in stimulating a re-imagination of capitalism to make it more purpose driven to make outcomes fairer and more sustainable and address these issues*. She recognises, however, that markets alone can’t achieve the required outcomes without the right institutions to provide the legal and regulatory frameworks, within which markets can operate fairly, alongside the necessary investment in public goods.
Action by individual companies can be an important starting point, demonstrating that it is possible to run a business in a way which respects the environment and benefits society at large while still making money**. Co-operation between companies across industries will be critical to scale up the impact, for example in setting supply chain standards and isolating free riders. Finance will also have an vital role to play in investing in firms that are acting sustainably, in part because there is increasing recognition that in the long run it will be impossible to diversify away from some risks, such as those associated with climate change***.
Reform will also needed to ensure the right institutional environment. Nicholson identifies the importance of a more participatory democracy and the need to reduce the ability of those with deeper pockets to purchase influence. She senses a growing recognition among far sighted businesses of the need for change in the political environment in which business operates.
It’s sometimes hard to be optimistic given the short term stresses and strains of coping with the immediate health and economic impacts of the Covid pandemic. However, the recovery phase offers opportunities for improvement driven by innovation, investment and increased resource productivity.
The pandemic has caused massive disruption to demand patterns and supply chains (some temporary, others more structural) and has demonstrated that interventions that months ago were unthinkable are possible. So there are reasons to be hopeful that purposeful businesses working alongside the public sector, third sector and academia can build a fairer, healthier and more sustainable society – but they can’t be taken for granted.
*A number of business have already indicated that this is a direction of travel they intend to pursue https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans
**This ties in with Peter Lacy’s argument that firms can adopt circular economy approaches and prosper https://www.palgrave.com/gb/book/9781137530684. Alex Edmans reaches similar conclusions about profit and social value https://www.growthepie.net
***There are indications that the attitudes of investors and central banks are beginning to change https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter