A Business School Response to Shelly Morhaim’s movie “The Next Industrial Revolution”
The Next Industrial Revolution
William McDonough – A Voice Crying in the Wilderness
Left-wing organizations such as Greenpeace use non-violent, creative confrontation to expose global environmental problems and advocate for solutions. Local activist Nina Beth Cardin writes in the Chesapeake Bay Foundation magazine that a “new ethic calls for nature to be afforded rights of its own. Just as corporations have been granted the legal rights of persons, so now should nature.” In other words, “the land must be seen as a partner alongside humanity,” regardless of the financial impacts of this equality. Rick Santorum called out the NRDC (National Resources Defense Council) for caring more about fish than people, as California’s Central Valley delta water, which is vital to farming agribusiness, is diverted into the San Francisco Bay so that fish don’t get stuck in the pumps. 10,000 farm jobs have been lost because of this and regional unemployment stands at 15%.[i] Some businesses have internalized these messages and make financial decisions that may benefit the environment rather than shareholders.
However, classic free-market theory, as reflected by thinkers like Milton Friedman, is that the goal of financial management is to maximize shareholder value. According to this view, company officers who attempt to obtain results of social responsibility in their activities are essentially imposing taxes on the owners/employers who have contributed their capital with the expectation of maximizing financial return.
The environmental issues are often intertwined with cost and economic sustainability. As Univ. of Baltimore management Prof. Vince Luchsinger says “Globalization, pollution, decline of industries, human resource challenges, resource scarcity—all act as indicators showing that many of today’s business and economic models are unsustainable.” The need for energy independence is real as cost and availability of current sources become issues. The WV mine collapse and Louisiana oil leak remind us of the danger to human life and economies (not to mention fish, wildlife and oceans) as long as we rely on coal and oil.
In addition, customers increasingly value environmental consciousness. This is evident in Wal-Mart’s Sustainability Index which requires suppliers to provide an accounting of their products’ materials, energy consumed in production, waste management, biodegradability, recyclability and life cycles.
Given the ubiquity of CSR (corporate social responsibility) and triple-bottom line thinking (people-profits-planet) and its opposition exchanged in muttering retreats, I am thrilled to see Shelly Morhaim and William McDonough addressing the perceived conflict between profits and CSR. They give face to the 1987 the Brundtland Commission definition of sustainability as “meeting the needs of present generations without compromising the ability of future generations to meet their needs.” Some view environmental and corporate camps as families of irreconcilable Hatfields and McCoys. To be sure, there are extremists who lead ignorant armies into kamikaze warfare when a Yalta is necessary. Hippies, scientists and liberals wave the bloody shirt of Wall Street’s washout to assert primacy of environmental concerns over economic growth. On the other hand, flat-earth, Ugly Capitalists dismisses anything mentioning carbon or sustainability as a business ploy at best and as a giant, raging, green Incredible Hulk at worst. The voice in the wilderness cries out that an alchemist’s potion synthesizing profits and planet could be the elixir needed to heal the sick men of Wall Street and Main Street.
Indeed, green thinking is becoming institutionalized worldwide as international concerns utilize newer, efficient methods and governments mandate cleaner water and air. The sectors which could grow significantly include transportation, solar, water, power, wind, green buildings, bioengineering solutions, biomass and biofuels, fuel cells, grid-management, eco-efficient IT and hybrid batteries, landscapes, food and lifestyle.
There are certain reactionaries who “dismiss anything related to sustainability as a hoax,” writes Kate Bachman in Green Manufacturer (http://www.greenmanufacturer.net/page/earth-day-cleanup). “Maybe I’m missing something,” Bachman says “but what’s so objectionable about a clean planet, drinkable water and breathable air.” To be sure, there is too much “greenwashing” (the use of marketing tactics that exaggerate a company’s environmental efforts); some of it under our noses in SW Baltimore. Take the Maryland Green Registry (a project of the MDE) which allows voluntary self-certification to companies who take minimal steps (double-sided copying or eliminating foam drinking cups) to register.
However, Bachman continues that you don’t have to believe that humans are causing climate change to know that “toxic waste should be prevented from seeping into the water table we drink from; that the emissions from coal-fired power plants released into the air we breathe contain noxious pollutants; or that humans are accumulating mountains of trash and running out of places to put it.” Even if you accept that a business doesn’t need to have a consciousness, this pollution causes externalities which eventually are borne by taxpayers and destroys the resources that are our economic engines. Modern awareness of industrial environmental damage was first introduced by Rachel Carson’s Silent Spring (1962) and the conflagration of burning oil, debris and trash on the Cuyahoga River (1969) which shocked the nation. Recording artist Randy Newman’s jibe at this event is his song “Burn On,” where he humorously refers to the Forest City as “Cleveland: city of light, city of magic.” The EPA arose in 1970 to protect human health and the environment. Sustainability then, is really only an enlightened form of self-preservation.[ii] Why would we want to contaminate our home, ourselves and our families if there is a better way which doesn’t cost more?
With this perspective, I think we should encourage business to be profitable as its number one goal. One cannot be foolish enough to believe that having a business structure that does not make profit is a healthy one. The Invisible Hand drives markets toward efficiency. Businesses will collapse if they don’t make money, so we can’t unduly burden them. An unprofitable business is an unhealthy one, but turning a profit within a socially responsible framework could prove to be the most profitable and sustainable model.
The new B-corp legislation in Maryland (which permits businesses to incorporate as a concern which considers social and environmental bottom lines) is a fascinating attempt of business to offer a platform to resolve this conflict. I would also encourage pro-business environmental groups to take a leading role. A dizzying array of eco-labels and certifications exist and the US Federal Trade Commission is in the process of recognizing and rating these agencies. Yet a new maze of industry regulations enforcing standards of energy consumed in production, waste management, biodegradability, recyclability and life cycles would be a bitter pill for recession-time industry to swallow.
[i] Editorial. (2012, Feb. 29). “Protecting Endangered Farmers.” The Wall Street Journal, p. A20
[ii] In the words of philosopher Arne Naess, environmental ethics are simply a matter of enlightened self-interest. To present it as love for Nature is probably a “treacherous basis for conservation. (Naess, Arne,The Systematization of the Logically Ultimate Norms and Hypotheses of Ecosophy T. In A. Drengson, Y. Inoue, eds. The Deep Ecology Movement: An Introductory Anthology. Berkeley, CA: North Atlantic Books, pp.31-48. As quoted in http://www.castela.net/praxis/vol2issue2/2.2Lenart.pdf)
My own personal belief system on this issue is laid out in the Torah and its commentaries:
“And G-d blessed them, and G-d said to them, “Be fruitful and multiply, fill the Earth and subdue it, and have dominion over the fish of the sea, and over the birds of the air, and over every living thing that moves on the Earth.” (Genesis 1:28)
which means that humans are more important and have priority over animals. Yet man is also charged with an awesome responsibility toward the environment.
“G-d took the man and put him in the Garden of Eden to work it and take care of it.” (Genesis 2:15)
Ultimately, human’s role is one of domination over the natural world infused with respect for the gifts of the natural world and obligation to safeguard it.
“Look at My works! How beautiful and praiseworthy they are. Everything that I have created, I created for you. Take care not to damage and destroy My world, for if you damage it, there is no one to repair it after you.”(Ecclesiastes Rabbah 7:13)