Where do we come from? Where are we going? What does that mean for business?
Right now, our future isn’t looking too bright. There is growing mistrust in the economic and political system, global concern over our planet and the consequences of centuries of pollution as well as the dramatic effects of global warming. Equally, we are witness to the terrifying spectre of the rise of populist parties leaning to the extremes. These are only a few of the factors that are driving the loss of confidence in economic stability and growth. Also, local and global institutions and the apparent inability of business, society and the government to respond to these challenges are completing the uncertainty puzzle.
During this agitated time, the question “why is this happening and who is to blame?” is conspicuous. It would be easier if there was a single answer but there are a variety of factors one can point the finger at. Is it the constant growth of technology, or is globalisation, immigration, religion, political tensions or governments? All these factors are mere branches or pieces of an intricate puzzle. The unique-culprit approach societies seem to focus on makes more challenging the finding of a common solution for the issues that are undermining most global economies. However, all of them share a common root, the lack of trust.
People are growing more and more aware that business and economic growth solely no longer provide them with what’s necessary for a comfortable lifestyle. Because they are constantly flooded with news of political and economic scandals, this lead them to think the system is taking advantage of them while they struggle to make ends meet.
Trust in business is arguably reaching an all-time low. To the loss of faith in society and economy, people are adding businesses to the same grey bag. That’s not a good sign. Losing societal trust means losing clients so the bottom line suffers inevitably. For businesses, on the other hand, maintaining quality standards and adapting their models and operations to the needs of society are crucial elements they can no longer put aside.
To arrive safe and sound where we are headed, we need to understand the steps we’ve taken along the way. That’s the intention of this article, providing you with a look at the causes that are shaping – or unshaping – business and society stability today. To do that, we have to look back to the period that fundamentally changed our economic system and the way we do business, the post-Second World War.
Travelling back to post WWII
The almost apocalyptic Second World War (WWII) forced the world to rebuild itself. Then was when a new cycle started although we still live with the aftermath. The reconstruction triggered an unprecedented alignment between economic growth and social progress that influenced the way business was done.
Three drivers of seismic change shaped post WWII:
Globalisation, bringing with it the creation of worldwide economic institutions which facilitated the trade of capital, goods, information and the cross-border migration of people. It ultimately drove significant increases in international trade.
Technological advances, spurred on by telegraphs, telephones and radio to mobile phones, internet and computers, eventually to include advances in healthcare, biotech, robotics and artificial intelligence.
Financialisation, with its view of value based mainly on GDP (Gross Domestic Product) at a macro level and shareholder value at a corporate level.
These drivers and the institutions that developed with them had an extraordinary, positive impact on society, bringing prosperity and a better quality of life.
Indeed, the first steps towards a globalised economy and financial systems started during this period. Deregulations and lowering of trade barriers opened the doors to new markets, new communications and transport technology, enabling companies to do business abroad.
What followed was a long growth wave that lasted 45 years, when the economic engine worked exceptionally well and in alignment with local societal needs. It was the time of an unprecedented exchange of talent and knowledge, pushing innovation and productivity forward like never before.
From a business perspective, industry leaders focused on maximising shareholder value which, in turn, led to better decisions for employees, customers, creditors and the community.
The world considered economic development as an engine for business opportunities and to offer citizens a chance to meet their needs. The effectiveness of it determined how well society needs were met, and the opportunities that arose from them.
However, as these three drivers evolved, so did their essential nature and their combining effect. As each driver reinforced the other over time, the divergence between economic growth and social progress grew to a point that it placed the current economic system under strain.
Consequently, the creators of shareholder value no longer bring the expected societal value.
Also, during this postwar period, nature and the planet’s natural resources weren’t considered in the societal part of the business equation. Nature was a background player, that influenced individuals and their behaviours. The Human Being adapted to it without question, much like adapting their clothes to the season. Nowadays, we’re confronted with the limits of our planet, and Nature unwillingly takes the front stage.
How Man entered the geological scene
Let’s take a quick time travel to today.
The growing inequalities between developed and under-developed countries and the finite limits of our planet manifested through dramatic climate and extinction events worldwide are the two main challenges of humanity nowadays.
These two urgent issues on the agenda prove that the economic and social mechanisms in place, both locally and globally, no longer result in the positive effects we grew so accustomed to, over the years. Business success was linked to the success of the society it operated in. But that was the past.
The post-WWII growth wave up until the fall of the Berlin Wall taught us how to adapt to a new reality whose new rules, systems and technology induced a radical drop in the levels of poverty and extended the human lifespan.
But, as we mentioned before, Nature wasn’t that present in the new world we built. It has always shaped the human behaviour, but silently, on the background.
Now, she is forced to go mainstream, not because it has taken an active role in our way of living, but because we’ve left it behind. When we look at the damage our planet has been enduring for centuries and how rapidly natural resources are growing scarce, we realise the good old days aren’t longer what they used to. Oblivion or inattention to it isn’t an option. No.
We’re now on Earth’s most recent geological time period, one almost completely human-influenced, the Anthropocene. This means that, based on overwhelming global evidence, Earth system processes are now altered by humans. We define how nature should adapt to humans and how (and if) nature will survive.
F. Schumacher, German-British statistician and economist wisely said: “Modern man talks of a battle with nature, forgetting that, if he won the battle, he would find himself on the losing side.”
How far from the truth was he?
The radical change in the three drivers
The nature of the three key drivers has changed so radically over time that there’s a risk they’ll continue to move further away from societal needs in the upcoming years forging a bigger and bigger gap.
What stems from the growing disconnection of the three drivers plus all the factors we previously mentioned, is a fractured society. 82% of the wealth generated last year went to the richest portion of the global population – the 1% – while 3.7 billion people, the poorest half of the world, saw no increase in their wealth, according to a report released in 2018 by Oxfam; and 2.1 billion people still lack access to drinking water.
Events like these, and others we have already mentioned, led to the erosion of trust in mainstream global institutions, including governments, business and the media.
Technological advances are overwhelming because they are happening at an unprecedented pace, in with non-seen before capabilities. The rise of artificial intelligence-based technology in various industries is changing the way we work. There is a growing fear of automation conquering gradually the job market, and the workforce not being able to periodically upskill to compete with it.
Today, we find ourselves at a crossroads. For decades, globalisation, technological advances and financialisation worked as a system to create both economic growth and social progress, but sticking to them in their present form is anything but sustainable.
If we continue on this path, the trends we see now will only continue or, worse, accelerate: sluggish growth or no-growth in advanced economies; continuous erosion of the working and middle classes worldwide; growing unemployment in large sections of the world, due to constant change of the market needs and technology, particularly automation. These factors will only feed political uncertainty and instability, and the growing levels of mistrust.
We need to reframe the drivers alignment to avoid a very unpleasant future.
Being virtuous is the key to the future
First, we need to remind you of something important. While the situation seems dire now, it’s crucial not to lose sight of the progress and positive impact each of these drivers has had. Well-managed market economies have delivered economic growth and social progress successfully and will continue to do so, just not the same way as before, but with a different strategy and a different aim.
The globalised world is a reality, issues and opportunities don’t respect national boundaries. From technology and migration to taking action and save our planet, these are factors that affect countries individually but need a common, sustainable and global cooperation to be resolved.
There’s no going back to the world our grandparents knew. We’re globally interdependent, financially intertwined and technologically enabled.
So, how to go about it? Here are six things businesses, social actors and governments can consider in the search for a more sustainable, common future:
1. Rethink the purpose of economy.Economy is the engine that matches the needs of people and their communities with opportunities through practices, behaviours, rules, engaging with human skill as well as technology and capital to do so. We need to agree on reaching acceptable societal outcomes, leveraging the local economy while keeping in mind the global agenda.
2. Both financial (GDP) and societal target outcomes should be framed. The role of the government and citizens is to articulate goals that reflect the needs of local communities and countries in general. Human needs must be prioritised, consistent with the concept of a hierarchy of needs.
3. Measure the intangible factors.So far, GDP at a macro level and shareholder value at a micro level were the two primary indicators of success. GDP figures reflects prosperity on average, based on shareholder value and growth of production, leaving significant portions of societal issues unaccounted for. That includes environmental concerns. On a business level, non-financial reporting might be the way to go, showcasing the companies’ impact on society and the environment, while re-building the lost trust of stakeholders and clients.
4. Re-imagine local communities.Human needs, social progress and economic success are best identified and managed at a local level. There’s a need to consider how to live in this increasing interdependent world while encouraging local initiatives. It’s the government’s role to create the conditions necessary to make this happen, encouraging the economic engine to match human needs, opportunities and challenges.
5. Governments and businesses need to team-up. They should develop policies that align with broader objectives, especially in the context of global business operating locally, and ensure they deploy their capital and influence on creating societal value. For example, by motivating their corporate responsibility agenda with the SDG goals and including ESGs in their decision-making process.
6. Technological impact is inevitable, see the bright side. There’s a growing fear that technology will harm livelihoods and the job market. The apocalyptic scenario is one way of seeing the future. The other is where emerging technologies can help meet societal needs by creating new industries and new jobs. While global and local economic and financial systems need to evolve to make this happen, we also need to focus on (re)educating and upskilling people for a future technology-enabled environment.
A healthy economy needs a healthy society and vice-versa. The current economic and business models no longer match the societal needs and only the fractures grow larger. This doesn’t mean we need to come up with a new model of growth, but rather turn the current model into one of virtuous growth. How? By being able to address the current global issues and keep a stable development. This far from easy, as we human as stubborn and creatures of habits. But for the sake of our future, change in pivotal.
What we think
Valérie Arnold, Corporate Responsibility and Sustainability Leader at PwC Luxembourg
To get a virtuous model going, we need to realign local and global economies, their societal needs and business models, while considering our planet’s limits. We’re currently sabotaging the planet because we’re incapable of fully grasping the seriousness of the situation and adapting to a new, unavoidable reality. The old way of doing business is no longer sustainable, but we haven’t come up with any other to take its place. We have to make due, but change never comes easy. Global economies and businesses must be able to work together to produce societal and environmental value. Because if we don’t succeed, we are all history, and the clock is ticking.
