Wilderness talk on growing pains of capitalism

Over the summer I was asked to take part in a debate at the Wilderness festival  on “Growing Pains: Natural Capitalism and the role of business in sustainability”. I had three messages: 1. Not all growth is ‘bad’ growth; 2. Not all profit is ‘bad’ profit; and 3. businesses must lead by shaping a better form of capitalism.

My audience was broadly left-leaning and distrustful of markets after receiving lots of negative rhetoric on growth and profit. This is why my main messages may appear defensive; I wanted to speak to where I believed people were starting from. If I was speaking to a business audience I would have had different messages (‘we can’t just rely on markets’). I delivered my talk as follows.

I’ll start with a story. In the 19th century the rapid growth of cities resulted in poor public health. There were lots of diseases transmitted by touch, especially in the slums. A company called Lever Bros sold a soap – Sunlight Soap - which played a role in transforming people’s lives. People used the soap along with the newly-available running water and the waste water could flow into new sewage systems.

Fast forward more than 100 years and Lever Bros is now part of Unilever. Last year Unilever announced the Sustainable Living Plan (known as the USLP) with three goals:

• Halve the environmental footprint of their products
• Help more than 1 billion people take action to improve their health and well-being
• Source 100% of their agricultural raw materials sustainably

(Full disclosure: Forum works closely with Unilever, including on the USLP. This post only contains publicly available information.)

Why did I tell this story? Because it illustrates my three messages.

1. Not all growth is ‘bad’ growth. The incredible growth of the Victorian economy had negative impacts, but it also financed the building of public infrastructure like a sewage system. Rising household wealth meant people could meet fundamental needs much easier – including buying soap for hygiene. All this was part of improving public health, and the result was lower child mortality and longer lives.

When we’re talking about growth it is important to separate out the different things people mean (following Paul Ekins in Economic Growth and Environmental Sustainability: The Prospects for Green Growth).

There is economic growth – the increasing financial value of paid-for transactions as measured by GDP. Then there is welfare – how satisfied we all are. Until recently mainstream economists and politicians assumed that economic growth automatically increased welfare. We are learning that the picture is more complex. The latest evidence I’ve seen suggests that, once people have the income to meet the basics, financial wealth is not as important as feeling that you’ve done well compared to your peers. Growth is not necessarily good.

Another thing people mean when they talk about growth is energy and material throughput - how much stuff we use to live our lives. Using more stuff is bad for the environment. It takes from sources, driving deforestation, soil depletion and so on. More stuff also means more waste, which the environment struggles to cope with. Carbon emissions are leading to climate change because nature cannot scrub out the carbon dioxide fast enough.

Up until now economic growth has used more stuff. It is true we have become more efficient, using less stuff per dollar (known as ‘relative decoupling’). But these efficiency gains are wiped out by increasing scale of the economy. There hasn’t been the ‘absolute decoupling’, where we have a larger economy without increasing the stuff we use. (See Tim Jackson‘s instant classic Prosperity Without Growth for more.)

But ‘good’ growth is possible. Unilever is an example of a company trying to do absolute decoupling. Unilever is an example of a wider attempt to have ‘green growth’.

2. Not all profit is ‘bad’ profit. At Forum for the Future we believe a sustainable business achieves commercial success by delivering social value within environmental limits. This is exactly what Unilever is trying to do.

At the launch of the USLP Oliver Morgan, London School of Hygiene and Tropical Health said, “Soap is the most cost-effective health intervention. Governments don’t get people to use it; marketing does.”  If Unilever succeeds it will have helped people meet their needs, increased public health and made a profit. Surely that would be a good thing?

3. The role of businesses it to lead and shape a better form of capitalism. Finally, Unilever knows that it cannot achieve its ambitious goals by itself. It will need to act, with others, to re-shape many of the systems it is part of. In my post of the launch I quoted the CEO as saying, ”We must attract the right investors. If you buy into our approach to long-term value creation… then invest in us. If not, I respect you as a human being, but don’t invest in us.” Clearly, he’s trying to change the financial system. Unilever is also working on consumer behaviour, tea supply chains and more. It is trying to shape a better form of capitalism.

Now, capitalism is the worst system devised – except for all the others (to misquote Churchill). But despite its negatives, democratic capitalism has a better record than anything else in helping people choose how to lead their lives, just compare the record of West and East Germany (as John Kay does in this article from 1997).

We’re in a weird historical moment where a vocal minority have convinced us that there is only one version of capitalism – free markets and hyper-financialisation. But there have been many capitalisms over time, and there are many across the world today.

We all face huge and urgent challenges. A sustainable form of capitalism is the only way to mobilise human ingenuity and institutional resources at the scale and speed required. We don’t have time to speculate about an alternative – while getting no traction in the political realities of today. We have to start from here and now.

Certainly, the capitalisms we have today are not sustainable. Most growth is ‘bad’ growth, much profit is ‘bad’ profit. There are companies preventing a sustainable future, whether deliberately and unintentionally.

There is a ‘societal case’ for action, but that rarely translates down to a ‘business case’ for individual companies. We need markets to be framed by proper regulation and institutions; we need consumers to change behaviour; we need investors to shift expectations; and more. Then there will be more of a business case, and there will innovation at scale.

So in summary. Not all growth is ‘bad’ growth. Not all profit is ‘bad’ profit. The role of business is to lead and shape a better form of capitalism. We need to find a sustainable capitalism or at least shift things so that whatever is next can flower and flourish. Creating a better form of capitalism of the task of our generation.

I’d love your thoughts on the talk, post them below.