Capitalism and the Environment

 Changing Capitalism

                                                                                                   Posted on 1-April-2008

     Writing in Foreign Affairs of January-February 2008, Klaus Schwab, Executive Chair of the World Economic Forum has explained and implicitly commended the concept of global corporate citizenship. This, he says, should be based on five core ideas: corporate governance, corporate philanthropy, corporate social responsibility, corporate social entrepreneurship and global corporate citizenship. He describes the good work done in each of these areas by some individual businesses, and commends initiatives such as  the UN Global Compact and the Global Reporting Initiative. At the same time Schwab, while saying that some 3000 companies in 120 countries had signed on to the Global Compact, also says that last year alone some 500 companies were delisted for their failure to report on their performance in areas such as human rights, the environment, labour practices and corruption. Then he says, soberingly, : "There are not only motivational but practical reasons why business leaders shy away from social engagement. The proliferation of Web sites on the Internet and new media channels such as blogs and the rise of shareholder activism may prompt some business leaders to refrain from thinking beyond the next financial quarter. The 'short-termism' these developments promote could lead some CEO's to assume that engaging in society is not worthwhile because the value of corporate engagement is is realised only in the medium or long term. Moreover fast-changing conditions in the market may result in 'zapping', or indiscriminate decision-making, in the same way that political leaders might zigzag on a policy in response to poll results. Short-termism and zapping...can blur corporate vision. They may lead to paralytic management or a kind of corporate attention deficit disorder , whereby companies lose focus on the big picture." In conclusion, he says that the ultimate role of business in society remains to do business. Business for profit obviously, he might well have added.

     In the weeks preceding the last meeting of the World Economic Forum the British newspaper, The Economist published a special survey on corporate social responsibility, written around the question whether corporate social responsibility had come to be accepted as an essential part of their practice by businesses across the board or whether it was so much guff. The survey described companies which had adopted concern for the environment and for social issues such as education, child labour, malnutrition or provision of safe drinking water to communities in the midst of which they operated. It also mentioned companies which in a tell-tale fashion handed over the management of corporate social responsibility to their public relations departments. The Economist too said that the business of business was business and by being there it brought much good to society: mainly wealth and job creation. The newspaper's broad conclusion was that businesses adopted practices under the rubric of corporate social responsibility when such practices promised to increase their profits in the long run if not also immediately. For some companies it might be important to keep their good name and reputation for integrity and social responsibility in order to enhance their business prospects.  The obvious corollary of this conclusion is that if the acceptance of corporate social responsibility made no positive contribution to their bottom lines, businesses were unlikely to adopt the notion simply because it was aesthetically appealing.

     In his book Collapse, Jared Diamond describes at length how the American oil company Chevron had joined hands with the World Wildlife Fund in scrupulously taking all care not to cause any damage to the environment   in the area of their operation in Papua New Guinea and how their record in preserving the environment there had been an important factor in their winning an exploration contract in Norway. He tells us of the British Petroleum  office for making prognostications about the state of the world thirty years hence--a clear indication of  British Petroleum's concern with the long term. Diamond also talks of the long term damage  to the environment in the state of Montana,  caused by mining companies, many of which, when faced with the legal requirement to clean up after they had ceased operations, had filed for bankruptcy, not before awarding fat bonuses to their directors. Recent government legislation, by and large absent or permissive when mining operations in Montana started in the nineteenth century, had improved the care of the environment by mining companies. Jared Diamond describes the adoption of initiatives such independent certification of logging operations according to standards set by the Forest Stewardship Council or the beginnings of similar practices with regard to marine fisheries under the aegis of the Marine Stewardship Council; on the other hand he describes how devoid of credibility some of the self-certification by logging companies has shown itself to be. The Forest Stewardship Council and the Marine Stewardship Council have been the industries' response to campaigns by environmental groups, just us Tiffany, unwilling to face environment campaigners picketing their jewelry stores decided to buy only 'clean' gold from Rio Tinto and Du Pont in response to similar pressures from activists, ensured that the mining companies from which they bought titanium followed environmentally clean practices.

     It is certainly right for Klaus Schwab and the World Economic Forum to promote global corporate citizenship as business model for our present day world and for the years to come. It is difficult to see how in a an increasingly interconnected world businesses in one part of the world can prosper for long at the expense of social and environmental degradation in another. Yet from Schwab's tale and from that of The Economist, in part also from that of Diamond, the following become clear: with the exception of a few large companies, for the vast majority of businesses even now, short term gains are much more important than long term concerns of society and nature; and businesses and organisations  take interest in  large, long-term problems of society only under the pressure of public opinion. There is another related conclusion to be drawn. Since the first objective of business is to maximise its profit, it is incumbent on governments, whose task is to protect public interest from private greed and long term benefit from short term advantage, to regulate how businesses operate. Though this last should be axiomatic, it bears repetition in these days when unfettered market forces have been elevated to the level of divinity.

     In two of Karl Schwab's five core ideas, namely corporate social responsibility and global corporate citizenship, environmental issues and problems such as climate change, water shortage are the most important. It is becoming painfully clear that among the most pressing problems facing mankind today are the problems of the environment. Jared Diamond lists twelve problems all of which are interconnected and none which can be ignored without making the solution of the remaining eleven impossible: destruction of natural  habitats, exhaustion of wild fish and shellfish stocks, loss of bio-diversity, soil erosion and destruction of soil fertility, depletion of energy resources such as coal, oil and natural gas, exhaustion of fresh water resources, decreasing capacity of photosynthesis due to decreasing areas of the earth under plants and forests and construction of ever more houses, expressways, shopping malls and so forth, release of increasing quantities of toxic substances into the atmosphere, rivers, oceans, and the earth, introduction of alien animal and plant species in different habitats, global warming caused by human action, overpopulation and increase of per capita impact of people on the planet and its resources. Diamond's list of these twelve interrelated factors , based on a deep, scientific study of past and present societies cannot lightly be wished away. Even a superficial discussion of these twelve factors makes it clear that underlying them are two factors: overpopulation and excessive consumption and greed; other possible causes leading to this state of affairs could be ignorance till now of the harm mankind was creating to its long term  prospects on this planet or even wanton disregard for larger interests.

     Just as there is a growing consensus among experts that we have probably only a few decades in which to gain mastery over these problems, there is also every reason to think that it is not yet too late, provided that we start looking at the right solutions and dealing with the real issues immediately. Two suggested but inadequate solutions that can be quickly disposed of are: we should let the market take care of these problems and that we shall find new technologies to deal with each of the environmental problems mentioned above. The market if left to itself is unlikely to come up with any solutions and even if the cost and price mechanisms of the market introduce correctives, they will be long time coming and will come at the cost of further damage to the environment. Besides, it is difficult not to be sceptical about the efficacy of the market as a self correcting mechanism at a time when the British Government and the Federal Reserve Bank of the USA and the US Administration have had to intervene in the financial markets to deal with problems created by corporate greed. As for technology, new ones take time to develop and when they are developed they take time to be adopted. Besides, a new technology rarely comes without some hitherto unforeseen side effect. We should certainly look for viable technological solutions to some of these problems, but in conjunction with some other steps. One such step is the promotion of the kind of ideas that Klaus Schwab has written about. Campaigning by environmental activists, civil society, and educators has achieved successes in the past by not only persuading business corporations to adopt appropriate practices but also pressurising governments to legislate. More laws of the kind of the Clean Water Act and the Clean Air Act of the USA will help. In the absence of a world government, action would need to be taken by national governments.

     A look at Jared Diamond's list of twelve will make it clear that the root cause of our troubles is excessive consumption whether due to increase in population or due to continuous 'raising of standards of living'. One of the gods that died in the twentieth century was socialism of the top down variety as practised by the Soviet Union and its allies or by Mao zedong's China. With the demise of that system, the world is left with modern capitalism which depends on ever greater consumption feeding ever greater business profits which in turn feeds ever higher economic growth and ever greater accumulation. This clearly cannot go on if the diagnosis of Jared Diamond and numerous others is correct, which it almost certainly is. It is this in the nature of modern capitalism which will need to change and the endless expansion of desires and appetites to be satisfied will need to be replaced by different goals based on adequacy.

    By adequacy I do not mean asceticism, but it is impossible to define the concept of adequacy except by approximations. In a long short story by Paul Theroux an American living in a 'spiritual retreat' in India is asked where his home town is. His answer is that at different times of the year and for different purposes he lives in five or six different houses in as many places. The question to consider is: does he need all those five or six houses or would one spacious house do? How many cars does one man need? How many computers and how many television sets? Should the personal automobile be replaced altogether by mass transit systems, at least in metropolises? It is this kind of change in the ethic of modern capitalism that will be needed. Some people--Klaus Schwab? The World Economic Forum?--will need to start talking of changes of this kind.

     There is another compelling reason why  conceptions about people's needs in an affluent society will need to be redefined. In any current discussion about global warming and about ways of dealing with its consequences China and India figure prominently. Both countries with very large populations are growing rapidly and carbon dioxide emissions of both countries are increasing equally rapidly. Yet both are loath to accept limits on their carbon dioxide emissions, saying that their needs of economic growth are of greater importance to them. Their populations have the same kind of aspirations for material goods as the populations of Europe and North America. Yet it is extremely doubtful if the earth has resources enough to support a China and an India with standards of living similar to those of Europe and North America (vide Remembering Gandhi). For the First World to convincingly ask China or India to curb their consumption of the planet's resources, it will have to make a beginning by curbing its own demands on those resources. This is where the need to redefine the goals of modern capitalism comes. This goes beyond any talk about global corporate citizenship, corporate social responsibility or carbon emissions.

     It is entirely possible that what will be done to deal with the consequences of the spoliation of the planet will at every stage be too little too late. In that case mankind may yet prove Malthus right.      


 Also on this site:               Introduction to The Waste Sad Time             The Waste Sad Time    


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