The world is running out of time
WASHINGTON — A recent report from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services serves as yet another wake-up call. Human activities, the report concludes, have put an unprecedented 1 million species at risk of extinction. The oceans that supply food and livelihoods to more than 4 billion people are under threat. If we do not take immediate action to reverse these trends, the challenges of playing catchup later will probably be insurmountable.
For decades, most of the major economies have relied on a form of capitalism that delivered considerable benefits. But we are now witnessing the implications of the Nobel laureate economist Milton Friedman’s famous mantra: “The social responsibility of business is to increase its profits.” A corporate-governance model based on maximizing shareholder value has long dominated our economic system, shaping our accounting frameworks, tax regimes and business-school curricula.
But we have now reached a point where leading economic thinkers are questioning the fundamentals of the prevailing system. Paul Collier’s “The Future of Capitalism,” Joseph E. Stiglitz’s “People, Power, and Profits” and Raghuram G. Rajan’s “The Third Pillar” all offer comprehensive assessments of the problem. A capitalist system that is disconnected from most people and unmoored from the territories in which it operates is no longer acceptable. Systems do not work in isolation. Eventually, reality asserts itself: Global trade tensions reemerge, populist nationalists win power and natural disasters grow in frequency and intensity.
Simply put, our approach to capitalism has exacerbated previously manageable social and environmental problems and sowed deep social divisions. The explosion in inequality and the laser focus on short-term results (that is, quarterly earnings) are just two symptoms of a broken system.
To maintain a well-functioning market economy that supports all stakeholders’ interests requires us to shift our focus to the long term. In some ways, this is already happening. But we need to channel the positive efforts underway into a concerted campaign to push systemic reforms past the tipping point. Only then will we have achieved a feedback loop that rewards long-term, sustainable approaches to business.
Most important, we must not succumb to complacency. Short-term tensions over trade and other issues will inevitably capture the attention of people and governments. But to permit the latest headlines to distract us from impending environmental and social catastrophes is to miss the forest for the trees.
Having said that, the impetus for driving positive change cannot be based on fear. The looming crises are both real and terrifying, but repeated warnings to that effect have diminishing returns. People have become immune to reality. Long-term change, then, must come from a readjustment of the market and our regulatory frameworks. Although consumers, investors and other market participants should keep educating themselves and pushing for change, there also needs to be a thorough and rapid reexamination of the rules and norms governing capitalism today.
We need to impose real costs on market participants who do not change their behavior. That won’t happen through speeches, commentaries and annual reports. The market economy is a powerful force that needs direction, and regulators and market participants themselves are the ones holding the compass. It is time to get serious about establishing the direct financial incentives and penalties needed to drive systemic change. Project Syndicate
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Bertrand Badré, a former managing director of the World Bank, is CEO of Blue Like an Orange Sustainable Capital.
