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Noreena Hertz and a New Economic System

Mon, Nov 23, 2009

Featured, Leading Change

I majored in economics in college, where I learned all about the beauty of free markets. As a management consultant for the past decade, I’ve had the opportunity to work with small companies as they apply those lessons. Companies compete, grow, and evolve. Sometimes the growth comes at a (non-economic) cost but seemingly things improve. The mantra is always pure – let the company serve the shareholders, so they in turn can take care of the employees, the community, and the world around. It generally works, kind of, sort of. Productive employees (usually) benefit and capital moves throughout the economy.

I’ve worked extensively with CEOs, but it is the rare CEO who thinks cooperatively. Why would they. They are trained to compete. And the market is not forgiving of those who don’t compete well. This means there is often a body count, and perhaps worse, there is little regard for that body count. Sure, companies want to take care of the environment. But this only occurs to the extent that the consideration comes with an economic benefit. This topic has been covered ad nauseum, but companies don’t question growth to consider the (perhaps intangible) benefits of ‘doing good.’ The economics I learned as an undergraduate provide the working model.

Football players are taught to hit hard. You can’t ask them to slow down. They are playing within a system that rewards hard hitting. Piles of data on the repercussions of hard hits is unlikely to change the behavior. The injuries will only decrease when the regulations change. They system has to change. This market does not seem rational.

So just as with football, we have a system problem. The economic system I learned in college does not discourage injury. We could then question whether the market is rational. Companies will take on green initiatives that provide ROI, and they’ll talk nicely about cooperating, but they’ll ultimately compete. Injuries are a way of life.

When it comes to changing the system, one of my favorite voices belongs to Noreena Hertz. I was very happy to see her profiled in the recent issue of Fast Company. Hertz is well regarded for having foreseen the financial collapse and has gained international stature for her insight into the market’s failure. I love many quotes in the article including this blurb:

She’s also hoping to help shape the next generation of bankers. “I am shocked at how little reexamination is going on within traditional business schools,” says Barnard president Spar. “It’s scandalous.” This fall, Hertz will jump-start that process as the new chair of globalization, sustainability, and finance at the Duisenberg School of Finance, a new advanced-degree school in Amsterdam that has put ethics and critical and long-term thinking at its core–a radical departure for the dismal science.

Hertz advocates for co-operative capitalism, where “co-ops work within a market-economy framework and are profit oriented” and ample rewards are present to encourage cooperation and sustainable practices. It is easy to be skeptical about the practicality of this. But there are reasons for optimism. Take a look at what is happening in France, where the country is looking to measure economic growth in measures that are broader than GDP, and that account for things like the environment. Granted, there is a long road ahead but just to have this issue getting international attention is hopeful.

Hertz is working on a number of projects to explore the ways that new systems can support a healthier form of growth. I feel hopeful when I read her work. Some cooperative tools are in use so perhaps the hope is reasonable. Whether you prefer carbon taxes or cap-and-trade, both are regulations that change the system and in doing so, should spread cooperation between groups that would be otherwise opposed. This is a beginning. Governments could also work together on a gas tax, using the tax, as Thomas Friedman writes, to discourage things that are bad for society such as gas guzzling cars and overuse.

What does this mean to a person running a business? Clearly, managers are busy enough now. I have never met a manager who is looking to take on economic policy at the national level. But maybe it is time to start laying a foundation. There are several things to do now:

  • Anticipate. Know that this is coming and the sooner you plan for some change the more ahead of your competition you’ll be. For example, imagine that carbon were taxed. How would this change the way you manage your supply chain? Use this as a forcing function to drive innovation. Start by convening a Green Task Force to identify opportunities to become lean and save money.
  • Teach. I have encountered enormous ignorance on the topic of green. I am not talking about the ignorance that denies that global warming is occurring (as insane as that makes me….). I am talking about managers who don’t believe there is an economic opportunity behind it. Start by running some very basic training sessions. Post the company’s utility bill and challenge the company to lower it. Scale up from there.
  • Advocate. Yes, I do think you should find the time to contact your congress person. Write a letter. Talk to a friend. Advocate for what’s good for your business, and the planet. Circulate the names and email addresses of your local congress official within your company and ask staff to contact that person on behalf of the company.

I could endlessly quote the Fast Company article, but just go read it. It is provocative and worth your time. If the rules change companies will change their game plans and will adapt well. We’re kidding ourselves until then, settling for a level of performance that is more damaging than this age should tolerate.

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1 Comments For This Post

  1. jdk1178 Says:

    Having read some of Noreena Hertz’s views on co-op capitalism, I too am hopeful but mostly skeptical. Bringing a better balance to government intervention and reigning in some of our recent excesses in the financial markets seems to be the right direction. Ms. Hertz is eloquent and she is a visionary, but I remain cautious about her ideas coming to fruition until we see some clear cut policy and results. Reducing emissions through carbon taxes and cap and trade clearly seem to be one crucial step. But we need much more than that. What are some of the other tangible steps that you think will be put into place to further global sustainability?

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