A new prosperity
Business and finance must look beyond simple measures of profitability if they are to meet the world’s social, environmental and ethical challenges, says John Gummer
In Europe, the community is engaged in an exercise that seeks to define what now constitutes good business practice. The concern is that regulators tend to judge companies with hindsight and not objectively, according to the standards that applied at the time.
Right or wrong, this process is a recognition that we don’t do business in the same way that we did twenty years ago – and we’ll change even more over the coming decades. Discrimination that today would be unthinkable was defended by some of the most reputable of companies. Conflicts of interest and lack of disclosure were of much less concern. Above all, businesses found it quite acceptable to define their purpose solely in terms of profit – without reference to their social responsibilities or consideration of their need for a licence to operate.
That’s not to say that profit is an ignoble goal. It is what keeps the world afloat, harnessing potential, exploiting expertise, encouraging innovation, and making change possible. The profit motive is a powerful driver and its absence impoverishes everyone in society. That is the lesson of the failure of Marxism. Yet to define human beings as mere profit-seekers is to demean and dehumanise them. It is to make them the slaves of the market – a serfdom as burdensome as that of any despotic regime. That is the lesson of the failure of crude capitalism.
Even then, the argument against such an attitude is not only one of high minded morality but a sober assessment of the economic effects of ignoring every human understanding apart from profit. A company soon finds that the cost of a poor health and safety record outweighs savings on a human resources department. Waste of energy and water becomes a real issue of profitability when its cost is properly measured. A refusal to respect local customs or attitudes can be an expensive mistake.
It is these realisations that have changed the way we do business and put the age of the oil barons as far in the past as that of Marx and Engels. It is not that we have gone soft. It is simply that we have recognised that making a profit and maintaining a business is much more complex than grab and get rich quick. What the Frys and the Cadburys understood in the 19th Century, Unilever and Coca-Cola are understanding today.
Yet even there we have moved on. Where the Quaker chocolate makers looked to improve the lot of their workers in Britain, a globalised society is beginning to see that such standards must be universal. Fair Trade is not just a slogan – it connects with an understanding that is much more widespread than the logo. Indeed, many companies rightly bristle at the inference that their products are the result of unfair trade. Global markets have begun to demand a degree of global responsibility that our Victorian forefathers would have hardly understood. Their paternalism was based not upon free trade but on a market engineered to do the bidding and serve the interests of the imperial powers. Today, the quest for free trade has imposed in return a growing democracy upon the market. If we want to profit, our partners, however distant and different, must profit too.
In all this, GDP looks a pretty narrow measure of a nation’s success just as crude profit figures can be thoroughly misleading about the sustainability of a business model or the likelihood of its growth. For example, Britain is richer than ever and yet its children are the loneliest in Europe, its teenagers are the most likely to get pregnant, and its young most liable to binge drinking. When one is very poor, the link between increasing wealth and increasing happiness is linear. The connection becomes strained as one accumulates ever more material goods.
What is true of the individual is true globally. The great pioneers of the 19th Century thought that the resources of the world were inexhaustible. The only question was how best to exploit them. Their energy and invention brought unthought-of wealth but at a cost which was equally unexpected. Nobody knew that the very energy that had given the world so much was destroying it at the same time. As the great factories belched out their smoke and the steam engines made short work of huge distances, the carbon they released was changing the climate of the planet on which it all depended. With the coming of oil, the motor car and the airplane gave a freedom to millions that no previous generation had dreamed of. Yet, until recently few could assess the price at which that freedom was bought.
Now, as we come to terms with the bill, society will be under increasing strain. How do we get the account in order without the enterprise going bust. That was the real message of Nicholas Stern’s crucial report earlier this year. The cold light of economics priced climate change and warned that we pay it now in reasonable comfort or we put it off and pay it at compound interest.
How to do that is the basis of our Quality of Life report , prepared as part of the UK Conservative party’s policy review. It is a programme for a green revolution every bit as exciting as the industrial revolution which gave Britain its riches. In 600 pages we have shown how, by changing the way we do business, use resources, and order our society, we can profit from a low-carbon economy. Building that socially responsible society will not be easy, but it is necessary and, started in time, is the key to a new prosperity.
This article appears in the October issue of Environmental Finance
