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The world is stuck in a prolonged downturn--growing inequity and a spiral toward environmental meltdown--and we can't seem to find a way to turn the corner. Not surprisingly, there is much talk these days about job creators--in US politics as well as geopolitics.
Two camps seem to dominate this debate. The first camp advocates cutting taxes for the rich, under the assumption that their investment and spending will "trickle down" to everyone else. The second camp wants to focus attention on the little guy--the small and medium enterprise (SME) sector, under the assumption that assistance for "mom and pop" enterprises will enable them to grow and flourish from the "bottom up."
The reality, in my view, is that neither the "trickle down" nor the "bottom up" perspectives will get us out of the hole that we are in.
Some years ago (1978 to be exact) Filley and Aldag published a wonderful piece in the Academy of Management Journal entitled "Characteristics and measurement of an organizational typology." In this article they empirically classified organizations into one of three types: Administrative, Craft, and Promotional.
Administrative organizations are established enterprises that are run by professional managers using formal systems of reward and incentives. At best, they generate slow, linear growth since they typically compete in established industries where unsustainable practices and bureaucracy reign supreme among incumbents. And they produce few jobs, since their focus is on increasing labor productivity rather than employment. Indeed, the corporate sector (the largest of the administrative organizations) makes up fewer than one percent of the world's enterprises and has actually shed jobs over the past decade, at least in the developed world.
Craft organizations comprise the vast majority of the world's enterprises which are created by their owners for the purposes of convenience or survival. Most "mom and pops" fit into this category and their defining characteristics are informality and a desire for stability. It should come as little surprise that the small shops and microenterprises of the world produce little in the way of job or employment growth since they are seldom started or run by real entrepreneurs. Indeed, those at the low end of the income scale are typically entrepreneurs by necessity rather than choice: Given the option, most would prefer a good job for a decent wage. Expecting the world's craft enterprises to somehow rescue us from our current malaise is therefore a false hope a best and a shibboleth at worst.
That leaves us with Promotional organizations, which constitute only a small fraction of the world's SMEs. Promotional enterprises are started by entrepreneurs whose intention is to get big. They are driven by a passion for achievement and will stop at nothing to realize this dream. Most fail. But the few (less than 10%) that succeed are the real job creators and growth engines for the future.
The good news is that promotional enterprises can come from anywhere in the world and need not be focused exclusively on the development and commercialization of new technology. In fact, entrepreneurs focused on solving social and environmental problems through enterprise are some of the most passionate and driven people on the planet. Our challenge (and the leverage point for the future) is therefore to devise ways to multiply the number and success rate of this new breed of promotional enterprise.
As a co-founder of the new Indian Institute for Sustainable Enterprise, I aim to do just that--dramatically increase the number and success of entrepreneurs and intrapreneurs focused on socially inclusive and environmentally sustainable business development for the 21st century.
To realize this vision, IISE has assembled a complete innovation ecosystem to foster the creation of tomorrow's distributed and sustainable infrastructure, including an education platform, incubator, investment fund, technology bank, cluster (social) network, learning laboratory, and field support system.
The flagship offering is the Post-Graduate Certificate Program in Sustainable Enterprise which aims to create nothing less than a new model of business and entrepreneurial development appropriate to the challenges we face in the 21st century.
The real job creators will drive innovation from the base of the pyramid, creating the companies and industries of tomorrow and a more sustainable way of living for the world.
I've just returned after a full week at the Rio + 20 UN Conference on Sustainable Development.
As everyone knows by now, the "main event"--the official negotiations among government leaders--was a disappointment. The general consensus among participants was that the official agreement, spelled out in agonizing detail in a document entitled "The Future We Want," would not produce the future we want. It is, at best, an exercise in rearranging the deck chairs on the Titanic.
As the week wore on, it became clear to me that the so-called "side events" (organized by companies, NGOs, and consortia) had really become the main event. At the Rio + 20 Corporate Sustainability Forum, organized by the Global Compact, for example, there was an air of excitement, commitment, and resolve among the business leaders present. Statoil, the Norwegian oil giant, advocated the elimination of fossil fuel subsidies (totaling in excess of $600 billion each year), and setting a price on carbon. Bank of America made a $50 billion commitment over the next decade to renewable energy and a low carbon future. Siemens announced a corporate goal of $40 billion in sustainable technology by 2014 and stated emphatically that it's a race to save the planet--and their own future.
At the Business Action for Sustainable Development (BASD) "Business Day" organized by the World Business Council for Sustainable Development, session after session focused on the importance of leapfrogging to clean technology solutions and accelerating private sector initiatives aimed at eradicating poverty. Indeed, the theme for the meeting was "Scale Up." Paul Polman, the CEO of Unilever, delivered an impassioned keynote address stating that "never before in history have we been so forewarned, and forearmed at the same time."
In short, the contrast between the upbeat, well-organized side events, and the resigned, chaotic nature of the official negotiations could not have been more stark.
One day, while trapped in a 2- hour long traffic jam amid heavily armed but confused legions of Brazilian soldiers, it hit me: the official negotiations have really become little more than symbolic cover for the side events, where the real commitments are being negotiated.
Without the burden of "main event" status, the side events were able to focus on getting things done. No protesters, traffic snarls, media circuses, or distractions. While thousands gathered in Flamengo Park to raise their voices for the legitimate concerns of the 99%, the side events proceeded at hotels in Barra without interruption--and focused on how to address the root cause of their concerns. And while hundreds of women protesters would not allow Iranian President Mahmoud Ahmadinejad to leave his hotel in downtown Rio, side event organizers were busily making things happen and getting things done.
On the way back, I noticed Richard Branson was on the same plane as me. I left Rio feeling hopeful--that I had participated in something important; that there is a growing recognition that incremental greening will not deliver global sustainability; and that the leverage point for achieving this transformational change is the enterprise sector.
Twenty years ago, in 1992, the first Rio Earth Summit took place in Brazil. While it was convened amid great fanfare and high expectation, the only really lasting legacy was the creation of the World Business Council of Sustainable Development (WBCSD) and the christening of "eco-efficiency"--doing more with less--as a key private-sector based strategy for sustainable development. The governmental negotiations produced a massive volume--"Agenda 21" but little concrete action.
Next week, the Rio + 20 Summit will convene, again in Brazil. The past twenty years has produced some good news and some bad news. First the good news: Eco-efficiency has become standard practice in large corporations everywhere and is now spreading to the world's small and medium sized enterprises as well. This is a major accomplishment and has significantly reduced the impact per unit of output in economic activity.
Now for the bad news: we have not yet begun to actually slow or reverse the level of human impact on the planet. Indeed, over the past twenty years, we have tripled the size of the global economy, added nearly two billion people to the world's population, and further intensified our ecological footprint on the planet. Growth swamped eco-efficiency. Today, the science is clear: we have overshot the carrying capacity of the planet and serious repercussions are now inevitable.
In 1997, I wrote an article that appeared in the Harvard Business Review entitled Beyond Greening: Strategies for a Sustainable World. The piece won the McKinsey Award in 1997 as the best article in HBR. The article stressed that corporate eco-efficiency (greening) strategies aimed at incrementally reducing negative social and environmental impacts, while important, would not be nearly adequate to the challenge of global sustainability in the decades ahead. Even then, it was clear that "beyond greening" strategies--leapfrog clean technologies, and business models that included and lifted the four plus billion poor in the developing world--would be essential if we were to fundamentally change the course of the global economy, and set it on a course to sustainability.
In the 1990s, people spoke in terms of the need for fundamental change over the next decade or two. Indeed, the title of the WBCSD's inaugural book was "Changing Course." Unfortunately, all we got was continuous improvement through eco-efficiency.
As I prepare to leave for Rio next week, my hope is that this Summit can plant a new stake in the ground--the Beyond Greening Stake. I will do everything I can to drive this agenda.
We are running out of time.
The time has come to end the ideology wars.
For too long, discussion about environmental and social challenges has been divided into two camps: The Neo-Malthusians (here and here) and the Cornucopians (here and here).
The former forsee gloom and doom--an imminent global train wreck driven by climate change, resource depletion, ecosystem destruction, and a combination of growing population and inequality. The latter forsee an unprecedented boom driven by the creativity and innovation of an increasingly sophisticated and interconnected global economy with millions of new, well-educated people from the emerging markets of the world.
The Neo-Malthusians are the ultimate pessimists ("limits to growth"); the Cornucopians are unabashed optimists ("growth of limits"). The Neo-Malthusians project current trends into the future and see disaster. The Cornucopians assume that technology will always produce the necessary substitutes and solutions when we need them (because scarcity means higher prices and higher prices signal opportunity for innovators).
It turns out both are probably right: We face unprecedented environmental and social challenges. Markets get distorted by perverse subsidies and incumbent resistance so that the price signals that should drive innovation are delayed or deferred. Humans have difficulty perceiving gradual, slow-developing changes and tend to wait for crises before acting (the "boiled frog" syndrome). So there probably will be major disruptions and unpleasant surprises in the years ahead.
That said, humans are also infinitely adaptable, resilient, and able to mobilize rapidly when a real crisis is finally perceived. The level of creativity and inventiveness is astonishing, and we are adding millions of creative people to the stock of potential problem solvers every year. The internet enables connectivity and exchange on a scale that we could not have previously imagined. The engine of entrepreneurial capitalism is powerful and should not be underestimated. So, there is every reason to believe that amazing things will happen that totally change the landscape for the better in the coming decade or two.
Just like the Democrats and Republicans in the United States need to set aside their petty ideological differences for the good of the country (and the world), it is also time for reconciliation and synthesis between the Neo-Malthusians and the Cornucopians.
Such reconciliation means that we need to learn how to become "skeptical optimists"--optimists because of the potential for new, sustainable technologies to grow exponentially in the coming years (see, for example, Singularity University); skeptical because of the scale and scope of the challenges we face. Skeptical optimism gives us the perspective we need to solve the world's social and environmental problems through a new form of sustainable entrepreneurship and enterprise. And the time is now.
We accept it almost without question—prognostications about the future which begin with the phrae: “if present trends continue…” Extrapolating present trends into the future has become a stock technique for both those on the political left (e.g. “if present trends continue, the gap between rich and poor will continue to widen”) and on the right (e.g. if present trends continue, GDP will double again within the decade”).
Consider the following trend: China consumed more energy in the past ten years than it did in its entire history, spanning thousands of years. The vast majority of this energy was in the form of fossil fuels. If this trend in energy consumption continues, then by 2020, China would consume virtually all of the oil currently produced for export in the world today. And, by 2030, China’s oil consumption would exceed today’s total global production of petroleum. What is the likelihood that this trend continues?
Even if we set aside the obvious implications of this trend for climate change and assume that the world embarks on the all-out development of unconventional oil reserves (in the form of shale oil and tight oil), to compensate for the now declining world production of conventional oil, it is not clear that production could be ramped up at a sufficient pace to meet this exponentially rising demand.
It is important to note that similar projections of current trends into the future are commonplace in virtually every domain, including the production of food, consumption of water, and emission of greenhouse gases into the atmosphere. The reality, however, is this: it is highly unlikely that any of the current trends in the world can or will continue into the future for very long.
Nor should we expect them to. History is filled with game-changing discoveries and events that fundamentally alter the trajectory of society and civilization. Consider for a moment how future projections for energy and food production appeared in the 1890s, just prior to the explosive growth of the oil industry, automobile industry, and the rise of mechanized agriculture. No one could have anticipated how radically the world would change in a relatively short period of time.
So expect a very bumpy and exciting ride over the next decade or two. Nothing will stay the same. We are approaching a time of unprecedented turbulence, change…and opportunity.
Schumpetarian creative destruction will reign supreme. Many incumbents will fall, and entirely new industries will be born. An age of entrepreneurship on a scale that we cannot yet imagine is about to be unleased.
There is only one trend that we can really count on: Present trends will not continue.
- new urbanism
- mass transit
- sustainable agriculture
- distributed generation
- renewable energy
- bottom-up entrepreneurship
- IT-enabled development
- inclusive wealth creation
As we all know, the transformation to sustainability is the biggest business challenge--and opportunity--in the history of capitalism.
Few remember, however, that the so-called "Roaring 20's" were the time when the agricultural economy in the US actually began its steep descent. In fact, the period immediately following World War I, represented the first large-scale application of mechanized farming practices in the World. This was uncharted territory: Never before had farmers used tractors and fossil fuels to cultivate increasingly large tracts of land to grow commodity crops for a burgeoning urban population. Not surprisingly, there were unintended consequences. In the free-for-all that ensued, farmers plowed and over-cultivated their way to oblivion, causing widespread soil erosion, loss of fertility, and ultimately, the Dust Bowl.
Some would say that the collapse of the farm economy was what made the Great Depression the decade long debacle that it became. Only with the advent of the Soil Conservation Service and a whole set of other institutions aimed at regulating and improving industrial agricultural practice, did the situation turn around after the Second World War.
Fast forward to the 2000s. In 2008, the financial crisis, and the Great Recession struck. Most point to speculation, excessive debt, and an ensuing housing bubble as the "cause" of the recession. Few remember, however, that the 1990s were the time when academic finance and the financial services industry really took off. Driven by deregulation and the rapid develop of distributed computational power, exotic financial products such as CDOs and derivatives became possible for the first time.
Just like mechanized farming in the 1920s, these new tools got out of hand. In the free-for-all that ensued, financiers securitized and arbitraged their way to oblivion, causing widespread misery and wealth destruction.
The question is: where is the financial equivalent of the Soil Conservation Service?
When will we create the global institutions required to regulate and improve the functioning of this new force of nature? Until this happens, expect the New Dust Bowl to continue.
As we enter the second decade of the new century, however, the "dark satanic mills" of the Industrial Revolution are giving way to a new generation of technologies that promise to change dramatically the societal, economic, and environmental landscape. The information economy powered by the microchip has already begun to revolutionize society by democratizing access to information and empowering the repressed. Indeed, You-Tube, Twitter, and the rapid emergence of the "blogosphere" have spawned a bottom-up revolution in user-generated content.
Increasingly, the technologies of tomorrow will be decentralized, distributed in character and disruptive to incumbent firms and institutions. It is much cheaper and more energy efficient, for example, to treat drinking water at the point of use, rather than transporting massive quantities of clean water through pipes from treatment plants only to have much of it leak out or be re-contaminated before it reaches its final destination.
Indeed, we are witnessing a dramatic reversal of the logic of scale--the new diseconomies of scale.
Think about it: Over the past decade or so, we have witnessed the rise of: distributed generation of energy, point of use water treatment, community supported agriculture, microbreweries, point of care healthcare, microfinance, and sustainable construction, to name just a few. Indeed, the term "nano" has become de rigeur.
Because existing players in the utility, energy, transport, food, water, and material sectors have so much to lose, however, it is enormously difficult for the entrepreneurs developing such distributed solutions to gain traction in established markets. Yet given their small scale and distributed nature, such clean technologies hold the potential to creatively destroy existing hierarchies, bypass corrupt governments and regimes, and usher in an entirely new age of capitalism that brings widely distributed benefits to the entire human community.
And rather than depending on national governments or paternalistic social engineers to design the future for the aspiring masses, these disruptive new technologies may be best brought forward through the power of capitalism--not the capitalism of the Industrial Revolution, which enriched a few at the expense of many, but rather a new, more dynamic form of global capitalism that will uproot established elites and unseat incumbents by creating opportunity at the base of the economic pyramid on a previously unimagined scale.
This metric made sense in the 19th century, when coal (and other raw materials) were plentiful and people were relatively scarce. Now, however, exactly the reverse logic applies--fossil fuels and other raw materials are increasingly scarce and people are relatively plentiful. We now live with the paradox that increasing business productivity means fewer jobs (especially when economic growth slows), precisely at the time that we need productive employment the most.
Occupy Wall Street, the Arab Spring, the corruption crisis in India, the rural revolt in China--all of these growing social protest movements originate from the same source--a growing "opportunity crisis" driven by unemployment, underemployment, alienation, and humiliation. The time has come, therefore, to overthrow the tyranny of labor productivity and graduate to a new definition for what it means to be "productive" in business.
In the emerging economies of the world, this revolution has already begun. ITC in India, for example, prides itself on creating livelihoods for the poor in the rural areas as part of its strategy for wasteland reforestation and agricultural productivity improvement. Indeed, as commodity costs rise, it may make sense to redefine productivity--from capital intensity and labor efficiency to labor intensity and capital efficiency. In the 21st century, "sustainable" enterprise must define success by the extent to which they create productive and fulfilling employment for the people of the world.
Is business up the challenge?