A change in season calls for a change of ideas

Summer is ending and Autumn is beginning, but the turn of the seasons isn’t the only change we should be thinking about; as parliament returns and our politicians deal with both old and new problems, now is a good time to think about our economic system. In The Nature of Business: Redesigning for resilience, Giles Hutchins sets out a new business paradigm and explores why our current system is not sustainable:

“We live in a world of paradoxes. While the drive for economic growth is often rooted in a desire to improve the well-being of the stakeholders that the organisation or economy seeks to serve, there have been winners and losers. There have been great benefits and also great costs.

The currently prevailing view of the purpose of business is this: to provide goods and services to meet the perceived needs of the customer in order to generate profit for shareholders. The more the customer consumes, the better, as more goods and services are sold, and hence more profit gained. This is what we refer to today as ‘consumerism’. Consumption-based growth has become the driving force of economic growth, which in turn provides employment, providing income for consumers to consume more, in turn fuelling more economic growth. This prevailing business view is incomplete in at least two aspects.The-Nature-of-Business-Cover-with-border-20150708

First, business is primarily focused on providing ever more goods and services to generate more profit. This profit is determined by an economic value (and cost), disconnected from social and environmental value (and cost), incurred through sourcing, production and consumption. There are a number of ‘externalities’ that are not incorporated within the economic value and cost (the organisation’s balance sheet does not include a wide range of social and environmental costs and benefits). In other words, social and environmental value (the benefits and costs to all stakeholders) are not included within the current prevailing measurement of economic value. The consumer’s price paid does not reflect true, complete value. Nor do the producer’s costs incurred reflect true, complete cost. Hence, the prevailing approach to value, cost and profit is incomplete.

Second, the goal of business is to satisfy the needs of the customer. In so doing, the clever business mind seeks to encourage the desires of the customer so that their needs best align to the products and services of that business. This would seem sensible business. Hence, business invests in marketing, communications, media and advertising to help generate a demand for the goods and services it produces. In turn, the needs of the customer (the human) become influenced and encouraged by business. Does it matter if the influenced needs of the human no longer contribute to their present and future well-being? If the human consumes the product or service due to a perceived need and feels satisfied for a short period, then is it good business? Alas, we develop an economy that encourages human needs that are not always (perhaps seldom) aligned to the real well-being of the human. More sobering is that this can affect social and cultural norms by encouraging the pursuit of perceived needs and desires over the pursuit of betterment through values, character and wisdom. Hence, the prevailing approach to need (and well-being) is incomplete.

The vast majority of global human ingenuity is currently focused on generating incomplete value for incomplete needs. This incompleteness, I would argue, greatly contributes to the amount of trouble and strife in the world today.”

To read more just go to www.greenbooks.co.uk, where you can order this and other Economics titles, such as the soon-to-be-published Fair Economics, out 10th September 2015.

Buy Fair Economics at www.greenbooks.co.uk/fair-economics

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