links for 2010-06-22
June 22, 2010 2 Comments
Qualitative Growth – A conceptual framework for finding solutions to our current crisis that are economically sound, ecologically sustainable, and socially just
June 22, 2010 1 Comment
I came across one of the most interesting essay I’ve read for a while, entitled Qualitative Growth – A conceptual framework for finding solutions to our current crisis that are economically sound, ecologically sustainable, and socially just.
Written by a reknown US economist, Hazel Hendersen, and Fritjof Capra, physicist and systems theorist, it provides stimulating thoughts on the need to rethink the economy. In the same line than Olistik, this essay on Qualitative Growth advocates for a multi-displinary and systemic approach to remedy the fallacy of the conventional concept of economic growth as approached since the turn of the 17th century:
In the 17th century, Galileo postulated that, in order to be effective in describing nature mathematically, scientists should restrict themselves to studying those properties of material bodies – shapes, numbers, and movement – which could be measured and quantified. Other properties, like colour, sound, taste, or smell, were merely subjective mental projections which should be excluded from the domain of science.
Galileo’s strategy of directing the scientist’s attention to the quantifiable properties of matter proved extremely successful in classical physics, but it also exacted a heavy toll. During the centuries after Galileo, the focus on quantities was extended from the study of matter to all natural and social phenomena within the framework of the mechanistic worldview of Cartesian-Newtonian science. By excluding colors, sound, taste, touch, and smell – let alone more complex qualities, such as beauty, health, or ethical sensibility – the emphasis on quantification prevented scientists for several centuries to understand many essential properties of life. In the 20th century, the narrow mechanistic and quantitative approach led to major stumbling blocks in biology, psychology, and the social sciences.
While indeed the current state of sciences including economy are rooted in the development of a Descartes (methodological and statistical) – Newton (mecanical) – Aristote (framework), the Promethean belief in a certain idea of progress proves of limited relevance in complex today’s society. Complex societies with strong interdependence between societal elements are harder to grasp with usual inherited conceptual framework, which explains the emergence of new methods and discoveries (eg. complex theory in mathematics; statistician approach to atoms in nano sciences) and new social movements (eg. Qualitative Growth movement) in the XX century:
As full-cost pricing, life-cycle costing, as well as social, environmental, and ethical auditing become the norm, we can see which production processes should be increased and which ones should be phased out. Any serious engagement in this endeavor will make it evident that the major problems of our time – energy, the environment, climate change, food security, and financial security – cannot be understood in isolation. They are systemic problems, which means that they are all interconnected and interdependent.
To mention just a few of these interdependencies, demographic pressure and poverty form a vicious circle which, exacerbated by capital-intensive technologies, leads to the depletion of resources – fewer jobs, falling water tables, shrinking forests, collapsing fisheries, eroding soils, wider poverty gaps, and so on. Faulty GDP-growth economics exacerbates climate change and aggravates both resource depletion and poverty, even leading to failing states whose governments can no longer provide security for their citizens, some of whom in sheer desperation turn to terrorism.
Taking stock of the limits of quantitative, the authors discuss the danger of the conventional concept of Development, or Sustainable Development:
The distinction between quantitative and qualitative economic growth also sheds some light on the widely used but problematic concept of “sustainable development.” If “development” is used in the current narrow economic sense associated with the notion of unlimited quantitative growth, such economic development can never be sustainable, and the term “sustainable development” would be an oxymoron.
If, however, the process of development is understood as more than a purely economic process, including social, ecological, and spiritual dimensions, and if it is associated with qualitative economic growth, then such a multidimensional systemic process can indeed be sustainable. Many in business, government, and civic society now use the term “sustainability” to examine these issues, along with hundreds of new academic programs and consulting firms. Much work remains to be done in defining “sustainability” in all these contexts.
As Capra and Hendersen, Olistik believes that a multidimensional systemic vision should be promoted, including in the financial sphere through the development of non-tangible and ESG (environmental, social and governance) oriented tools.
• As new accounting protocols are adopted which fully account for social, environmental, and governance (ESG) factors, companies are being steered toward these more sustainable products, services, and practices by their investors, including socially∞responsible mutual funds, pension funds, labor unions, civic groups, and individual investors.
• Reforming international finance and monetary systems is now urgent. The G∞20 Summit in London, April 2nd, 2009, included debates about how to curb excessive leverage, risk-taking, pay and bonuses; and how to regulate speculation in currency markets ($3trn traded daily) and credit derivatives ($683trn now outstanding,15 as compared with global GDP of only $65trn).
These new rules need to be global by agreements – the only way they can work in our globalised financial system.• All these reforms will often involve shifts of perception from a product orientation to a service orientation and “dematerialising” of our productive economies. For example, an automobile company should realize that it is not necessarily in the business of selling cars but rather in the business of providing mobility, which can also be achieved, among many other things, by producing more buses and trains and by redesigning our cities.
• At the individual level, a corresponding shift of perception will turn from finding satisfaction in material consumption to finding it in human relationships and community building. Such value shifts are now promoted by many civic groups as well as by some television series
Such reforms would ensure “sustainable” or rather long-term solutions, from a micro to macro scale, to social and environmental challenges:
The fundamental interconnectedness of our major problems makes it clear that we need to go beyond economics to overcome the global economic crisis. On the other hand, such systemic understanding makes it possible to find systemic solutions – solutions that solve several problems at once. For example, changing from chemical, large-scale industrial agriculture to organic, community-oriented, sustainable farming would contribute significantly to solving three of our biggest problems: energy dependence, climate change, and the health care crisis.
Numerous systemic solutions of this kind have recently been developed and tested around the world. They make it evident that the shift from quantitative to qualitative growth, using all the new quality-of-life and well-being indicators, can steer countries from environmental destruction to ecological sustainability, and from unemployment, poverty, and waste to the creation of meaningful and dignified work. This global transition to sustainability is no longer a conceptual, nor a technical problem. It is a problem of values and political will.
Tougher personal executives’ liability frameworks in the US
May 30, 2010 Leave a comment
How Capitalism Will Save Us, Forbes, 10.22.08
This Forbes article sketches post-crisis scenarios and implications on new regulations in the areas of executive remuneration and board of directors’ governance, climate change emissions and labor unions. Tougher personal executives’ liability in the case of corporate fraud being one of the most major change.
It shows that another step towards enlightened capitalism is underway in the US. If the political wind continues to blow in this direction, another wave of reforms comparable to the Sarbanes-Oxley Act will bring corporate and financials to a further level of transparency and accountability..
Olistik Team
Extract:
Some liberal political activists are advocating using Washington’s new powers to pursue other agendas, such as forcing tighter emissions curbs or mandating costly health insurance coverage. New attempts to restrict corporate pay, at least in some sectors, is a given–overlooking the unintended side effects of Bill Clinton’s attempt to limit CEO pay packages back in 1993. (The deductibility of CEOs’ salaries was capped, which led companies to use stock options as never before.) Protectionists are renewing calls for trade restrictions in the name of consumer safety and promoting “better” labor and environmental standards. Politically resurgent labor unions and other activists will push for rules on who sits on corporate boards to “better represent consumers and investors.” They want an implicit veto power over the policies of publicly held companies. They’re also ready to remove barriers, such as the secret ballot, in order to coerce workers into joining unions
…
A chilling result of the crisis will be furthering the deadly process of criminalizing business failures. In the old days when an enterprise failed, the proprietors often ended up in debtors’ prison. One of the significant advances of civilization and economic progress was the idea of limited liability, which took hold in the 19th century: Investors would be liable only for the money they actually put into a corporation; their other assets would be safe. If an enterprise failed, they lost only what they had invested. Limited liability thereby set off a positive explosion of risk taking. Our standard of living today would be where it was in the 1850s were it not for the wide use of limited liability. But in recent years, particularly after the Enron/WorldCom corporate scandals, federal and local prosecutors began actively pursuing evidence of fraud whenever a big business went bust. Yes, there has been corporate wrongdoing, and miscreants have been tried and jailed. But many noncriminal individuals have been pursued…No sooner had Bear Stearns, Lehman Brothers (nyse: LEH – news – people ) and AIG (nyse: AIG – news – people ) gone bust than criminal investigators swarmed in. They will find evidence of “fraud”–why didn’t you more aggressively mark down the value of suspect paper even if there wasn’t a market for it? Why the expressions of confidence in the soundness of your businesses when the rumors of trouble were surfacing? Lost in all this will be the fact that Lehman and AIG didn’t know they were in mortal peril until almost the very end. There will be indictments. The chilling lesson: Unsuccessful risk taking or failing in business can send you to prison.
