Economics and Ecosophy – Why We Need to Wisen Up about Business
Economics is unmistakably the chief discipline of our age. We measure the success or failure of nations by the rate at which their GDP changes over the course of a year, and – despite regularly being reminded by psychological and spiritual pundits that material wealth is only one source of well-being amongst others – all too often we measure our own personal success or failure in life by our incomes. To paraphrase a famous word by Bill Clinton: it’s all about economics, stupid.
The economics frenzy seems to know no limits. As a best-selling book called Freakonomics and its follow up Super-Freakonomics demonstrated a few years back, every field of human activity from parenting over gang culture to the radicalization of terrorists can be profitably subjected to the lens of economic cost-benefit calculations, pun intended. As the philosopher and astute social critic Michel Foucault had envisaged in a famous series of lectures held at the Collège de France in the late 1970s, economics has indeed progressively become the be-all and end-all of human life and the final arbiter on what is good and what is not, taking over, in this capacity, the role previously held by religion.
Surely, today there are some who hold on to religious scripture as final instance and guiding principle of social life, but apart from ISIS, Boko Haram and certain pockets of the Tea Party, such fundamentalism is generally seen as an anachronistic remainder of times past. In the civilized world, even religion must be vouched for by its conduciveness to bringing about economic prosperity.
Limits of Economic Logic
Yet the economization of everything has not just given us a more productive and efficiently organized world. Discontents with the world of homo economicus abound. The persistence of world poverty, dependence on fossil fuels and other non-replenishable resources, skyrocketing global debt, and the rapid degradation and destruction of natural ecosystems are just some of the fields in which the proliferation of economic logic has yielded suboptimal results. Current patent right as inhibitor to innovation and access to lifesaving drugs could be cited as a borderline case. What these fields have in common is that they exemplify market failures. As in the case of climate change – according to special rapporteur Sir Nicholas Stern the result of ‘the greatest market failure the world has ever seen’ – we are dealing here with areas in which the self-interested profit-maximizing behaviour of businesses and corporations is not leading to desirable outcomes for society.
The persistence of world poverty, dependence on fossil fuels and other non-replenishable resources, skyrocketing global debt, and the rapid degradation and destruction of natural ecosystems are just some of the fields in which the proliferation of economic logic has yielded suboptimal results
So what should be done about it? For over a century, the well-worn battle cry of the critics of free markets has been a call for government intervention. What the economic pursuit of self-interest cannot beneficially arrange, the argument goes, should be fixed and arranged by collective power. And surely, there are some fields of social reality which may benefit from some form of government intervention – see the much maligned example of health care, or things like public transportation. But by and large we have all sufficiently witnessed the inefficiencies that generally ensue from state led social organization to know that` handing social assets over to state control is not a desirable model for the 21st century.
Various large scale social experiments of the 20th century serve as testament to this but even without considering historical evidence there is ample grounds for a critical stance towards a state-centric society. As Austrian economist F.A. Hayek argued convincingly, in an ecosystem that is as complex as an economy, a centralized agency like the state can never have enough information to efficiently allocate resources and guide the system towards an efficient use of its capacities. This impossibility is known in cybernetics and complexity science as the law of requisite variety, which states that for efficiency to be achieved a system needs to have at least as high a complexity as the system it tries to govern. This law explains both the burgeoning size of governments with high levels of state-intervention, and their eventual inability to compete with systems that rely on more decentralized forms of organization such as free markets.
The Wisdom Revolution
But if free market economics has not been able to solve so many societal needs, and state intervention is not the solution, then how should we tackle the great challenges of the coming years and decades on our planet? The answer lies in a change of our attitudes towards how we produce and share value. As a matter of fact markets are and continue to be formidable tools for the coordination of our productive efforts – a capacity which is only going to be potentiated and perfected with the rise of big data analytics. The problem is not in free markets but in the way we view, evaluate and conduct business activity. We have been focussing too much on the quantification of business efforts and not enough on the question of qualities or the why and what for of business. Our perspective is implicit in the tools and theories and even the words we use.
We have been focussing too much on the quantification of business efforts and not enough on the question of qualities or the why and what for of business.
The word ‘economics’ is composed of the ancient Greek word oikos which means a household or the flow of resources within a household, and the word nomos which means a science or system of laws. So economics is the science that measures the flows of resources and goods within our national or planetary household. While measurement and quantification of production is of vital importance, on its own it is not enough for a wise and beneficial organization of our collective lives. We also need to ask about the qualities of the values that are produced. We need to ask what sort of social, cultural or psychological values are generated by economic activity.
Are the values, experiences and forms of life that are produced by our economic activity desirable? Do they contribute to the flourishing and the growth of the planet and of our collective capacities? Here it is no longer a question of quantifying production in order to maximize it, but rather it is a question of asking about the wisdom behind positing certain values and not others. Therefore we need not only an economics, or a science of measurement, but also an ecosophy – a sophia of the oikos, or a wisdom of the right and beneficial use of energies in our planetary household. To develop this wisdom of business is partly a task for theorists like economists and philosophers, but also, and more importantly, a practical task for actual ventures and businesses. Business should not just be profitable but also wise.
Profitable And Wise
Selling crack to inner city youth, exploiting natural resources in ways that cause long-term damage to ecosystems and deplete the biodiversity of the planet, or building your business model on addictive fast foods that contribute to obesity and diseases, could all be profitable pursuits but would still be unwise. But isn’t that what the law is there for? If it’s bad then ban it and if not it’s all fair game you may think. Yet this very attitude has done more damage to business than corporate scandals and financial crises put together. Either way you look at it, there is more profit in reducing the role of government and increasing the wisdom of business. Exploiting practices that are damaging but borderline legal just because there seems to be an easy buck in them is a recipe for disaster.
Business should not just be profitable but also wise.
Firstly, unwise pursuits may be profitable in the short term but will return to hurt businesses in the long run, affecting their reputation and eroding their sources of revenue as popular awareness rises and consumers begin to walk away to more sustainable and holistic alternatives. Brand rehabilitation can be costly and time-consuming and sometimes a reputation can even simply be damaged beyond repair. Even worse, if businesses wait until society sees fit to intervene and introduce restricting government legislation, they will have lost the opportunity to take control of their own industry and define best practices on their own terms, and now instead will have to yield to lawmakers’ conceptions of how things should be done.
But it’s not only to avert negative repercussions that businesses should opt for wisening up. As the world’s leading business strategist Michael Porter has argued convincingly – despite certain shortcomings in his theoretical model – creating value that is shared with the larger community and environment of businesses is beneficial for the long-term and sustainable growth of companies. It might look profitable to be reckless in the short term but in the long term it pays to be wise. Especially since today public awareness of problematic issues is becoming ever more widespread and consumers are becoming more and more ready to pay premiums in order to support ventures that have a convincing cause and purpose.
Purposeful and holistically enriching value creation is the way forward for our planet.
Purposeful and holistically enriching value creation is the way forward for our planet. In order to proliferate this mode of business it is necessary to develop it both in theory and in praxis. To expand our theoretical purviews our economic science needs to be supplemented and augmented by an authentic ecosophy – a wisdom of the right and beneficial use of our economic powers. With regards to the practical dimension businesses need to ask themselves much more often “what’s our philosophy?” instead of only asking “what’s our strategy?”. By adopting a more holistic perspective, a pragmatic vision will emerge for ventures of how to grow together with their context and environment in ways that benefit not just immediate shareholders but a wide range of stakeholders, ultimately ensuring the long-term health and viability of both the venture and its environment.
businesses need to ask themselves much more often “what’s our philosophy?” instead of only asking “what’s our strategy?”
To help entrepreneurs succeed in the implementation of such holistic wisdom in their ventures we need nothing less than a genuine paradigm shift – a new way of seeing and doing things. New entrepreneurial tools, techniques and methods are needed. Tools and techniques such as those developed by me and my partners at the Institute for Integral Entrepreneurship facilitate the holistic paradigm shift and enable ventures to marry profit and purpose by successfully co-creating value with a wide range of participants.
It is time to wisen up about business. Our planet deserves it. We deserve it.
This post was first published on February 5th 2015 here.