CHAPTER TWO
The new economic system
01
Beyond GDP
02
The True Measures of Success
03
Sustainable Capitalism
04
The Role of Companies
01
BEYOND GDP
A shift is already in progress
An environment under pressure. Rising class disparity. A global pandemic. These are just a few of the global events showing us that an evolution towards a new economic system is necessary. Traditional ideologies and economic models require a shift that allows for the needs of 7.8 billion people and creates progress for all, rather than the few.
New forces are at play that are already moving us towards this re-imagined approach to the global economy and its implications at a local level.
National and corporate policies will have to shift from solely economic growth to economic and social development.
The focus is starting to increasingly be on the things that are sustainable – the overall well-being of a nation and its citizens, consumers, and producers alike.
In this new context, it’s no longer about ever growing balance sheets, but about a combination of factors coming together with economic growth. In other words, a new and comprehensive measure of development beyond GDP alone. Remember, we are what we measure. And right now we are measuring a very small part of our potential. Let’s start by looking at the current context and why it requires change.
"It's this global system that we need to have a broader approach on. Having the focus on profit for profits sake is not gonna work anymore."
— Marc Oshima
BEYOND GDP
Moving past GDP alone
A singular focus on GDP growth has been the core of all economic systems in the post WWII era. Growth, growth, growth. Unlimited growth has been the main and, sometimes, only measure globally, driving all national policy decisions as well as valuations of companies, countries, and even how we live as individuals. We have been living in a world of enough is never enough.
Economies are expected to grow.
Companies are expected to grow every three months.
People are obsessed (or are pushed by the system) with growing their jobs, salaries, and purchasing power.
Obsessive spending and consumption in the marketplace have been driving management and marketing strategies.
But nothing has pushed us to the brink more than a few people on a small street in lower Manhattan...
"Capitalism is eating itself because of irresponsible greed, and it's a shame because without capitalism, what are we going to revert to? I don't think there's another system that can sustain that type of development and progression of human technology and human advancement as capitalism. But its current state is broken."
— Joe Doucet
WALL STREET
The core of the problem
Analysts and brokers who have, for the most part, never held a job in the industries they analyze, have been dictating data driven criteria and pressuring companies towards lower and lower costs, elimination of jobs and reduction of quality. And, let’s be honest, for what?
The average return on the Dow Jones over the past 20 years has been 7.7%... All this madness for 7.7%! While day-to-day players in the market make billions speculating under the guise of unsustainable growth.
Can Wall Street change? Can it understand the societal consequences of mere numbers and charts? All questions that will push the markets to an evolution that is now inevitable.
"To a new model of capitalism, it is driven not only for the shareholder, but really driven through the stakeholder, helping them to and then onboarding them to first address the meanings."
— Jonathan Normand
"US Dow jumps more than 400 points even after job losses."
— CNBC, 2020
02
THE TRUE MEASURES OF SUCCESS
Has all this growth created success and happiness?
While this incredible growth contributed to better standards of living through the 1990s in Western and a few Asian countries, the past 25 years started to unveil the negative consequences of a practically unchecked system.
Income inequality, job losses, long-lasting environmental impact, rises in depression, forced migrations, and famine are only a few of the things we’re witnessing while the world population grows and the pressure on all of us increases.
Let’s get a better understanding of the situation. To expose the fallacy of a GDP first system, let’s look at one holistic indicator of development. It’s called the Social Progress Index (SPI).
The Social Progress Index
The SPI measures the extent to which countries provide for the social and environmental needs of their citizens based on 54 indicators in the areas of basic human needs, foundations of well-being, and opportunity to show the relative performance of nations. Think of it as quality of life. Now, if all this growth works, then countries with the highest growth should also have the best quality of life, correct? Well, not quite. As this chart reveals, the USA and China, which both outpace countries like Germany and Japan in GDP growth (2019: USA +2.1%, China +6.1%, Germany +0.6%, Japan +0.7%) are not even close in matching the quality of living standards of the other two. Bottom line: Economic growth for growth’s sake is no match for a comprehensive approach to the well being of our societies. It’s a deceptive and incomplete view of well-being. GDP growth is a necessary part of the mix. But, it’s not enough.
03
SUSTAINABLE CAPITALISM
Evolving from traditional ideologies
THE PAST
Pure capitalism
Private ownership of assets and resources
Profits are the driving motive in the market
Supports private enterprise
Focus on economic efficiency
Limited government interference
Open markets
Pure socialism
Government ownership of many assets and resources
Social welfare is the driving force in the market > complicates private enterprise
Focus on social and economic distribution > government is the decision maker
Highly regulated markets
"Only 25% of those surveyed believe that our current version of capitalism is working for society, and 85% agree that the pandemic has exposed underlying structural problems – but a full 89% agree that this moment of crisis is providing an opportunity for corporations to “reset,” and embrace stakeholder capitalism, with a focus on workers, customers, communities, and the environment."
— JUST Capital & Harris Poll Report
A NEW WAY TO LOOK AT THE SYSTEM
Sustainable capitalism
Unlike pure capitalism and pure socialism, the way forward takes what works from each and evolves what has failed. It’s not about bringing the two together.
It’s about being inspired by each to create a whole new system that still fuels innovation and personal ambition but combines it with a sense of community and responsibility, gearing it to the rest of society with all its stakeholders.
For the sake of argument let’s call this sustainable capitalism.
Sustainable capitalism:
1. Promotes innovation and research 2. Market incentives encourage business and personal ambition 3. Maximization of resources with efficient production technologies 4. Freedom of choice and decision making 5. Minimizes impact on the planet while creating benefits for all stakeholders
BEYOND GDP
A perspective on a new way to measure a sustainable economy
To a balanced view of growth it should encompass multiple stakeholders (not just shareholders).
1. Prosperity Was. Is. Will always be. A prerequisite for sustainable economic development to create capital and reinvest in innovation. But, in balance and harmony with the following two: People and Planet.
2. People We need measures that track overall and detailed well-being as well as meaningful existence for all stakeholders involved.
3. Planet We can’t just spoil the planet in the name of profits. We need to actually measure the positive impact created by business actions. The planet is our home and we can protect it if we put our mind to it.
BEYOND GDP
How is it different from the past?
- From wealth to well-being
- From individual to individuals within a community
- From competition to completion and collaboration
- From short-term focus to long-termism
"I hope that innovation happens and people keep spending, but they spend on different things and for different reasons. I don’t think It’s going away. I don’t think it should. But I think that there needs to be huge shifts in what’s underlying."
— Kelly Elsner
" I would like to see stakeholder value be considered with the equal weight to shareholders, or at least the understanding that stakeholder value adds value to shareholders. It’s not a black or white tradeoff, it's part of an ecosystem."
— Dora Lutz
04
THE ROLE OF COMPANIES
Companies are at the core of this change
For years non-profit organizations have been preaching a better and fairer approach. But, truthfully, unless there’s money involved nothing big will happen. That’s why the role of for-profit businesses working together with governments and international organizations is crucial to create the change needed:
1. Companies and their corporate strategies, business innovation, and market environment are the foundation of defining the economic system. A bottom up approach to change.
2. Government with policy frameworks, institutional support, tax regimes and bureaucracy simplifications are indispensable to align with sustainable business practices. A top down approach to change.
3. Global organizations creating collaboration at global forums and at an international level, to promote and support a new economic system. Support for change.
Let’s get into this later. In Chapter Four we’ll explore ideas on how companies can truly impact their futures.
"Companies that are trying to develop business for purpose oftentimes don't have the networks and the knowledge of the communities they want to serve. So this is where they would need some sort of partnerships with NGOs, for instance, or civil society."
— Simon Brossard
"It’s really important for Reign Walla that we continue to operate as a for profit business so that I can support myself, but also so that we can take advantage of these profit margins and funnel those margins back to the beginning of this supply chain, which is the maker."
— Allie Dietzek
"Wouldn't it be amazing if companies were driven by the needs of society rather than just their profit? Imagine a world where the market itself judges companies based on their societal and environmental impact and your stock goes up or down based on how much good you've done."
— Mayer Vafi
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