How innovation, public policy and entrepreneurship can drive sustainability. Part I

Intro

Sustainability, the ability to “meet the needs of the present without compromising the ability of future generations to meet their needs.” (UN, 1987) can be applied, analyzed and institutionalized on every level of society. Before going into depth about how public policy may or may not create incentives for sustainability one needs to recognize the fundamental issue regarding the lack of sustainability as well as the interrelationship between sustainability and entrepreneurship. The overall economic logic of continuous economic growth, which Jackson (2009) argues is both ecologically and economically unsustainable, can be seen as the main culprit of the lack of sustainability.

Growth and consumption

The relationship between use of energy, raw material consumption and economic growth has historically been largely linear, leading to the conclusion that economic growth requires a growing input of raw material and energy (Wijkman & Rockström, 2012). This correlation can be seen in the historical context of the Swedish development which largely depended on exploitation of iron and forest resources (Fellman et al., 2008). In a world where there is an increasing risk of scarcity in terms of “peak rare metals” and “peak phosphorus” (Wijkman & Rockström, 2012) holding on to a growth imperative, which most public policies are intended to foster, is not rational or realistic.

That being said economic growth is closely correlated with prosperity in terms of health and education (Jackson, 2009). However, Daly (2007) argues that GDP only reflects increased quality of welfare up until a certain level and once that level is passed the growth of the economy becomes uneconomic and thus destroys real wealth in terms of natural capital in favor of produced goods. Put simply, in order to be sustainable, a growth economy should switch into a steady state economy once a certain level of prosperity is reached. However to make things further complicated Gordon & Rosenthal (2003) show that companies operating in competitive markets cannot adapt a no-growth policy without going bankrupt in the long term and are thus subject to a growth imperative. This further enhances the belief of the company only being an instrument for the creation of profit for the shareholders (Fellman et al., 2008), thus self-reinforcing an unsustainable economic logic.

Business as usual

Desrochers (2010) argues that organizations who strive for profit can lead to sustainability, once a certain level of knowledge and technology is met within society. The argument goes that the hunt for profitability will incentivize companies to be as efficient as possible in terms of material use, additionally this strive can lead to new innovations. An example of such development is when Standard Oil first dumped waste from the oil refining in a river and later set the waste ablaze without dumping it into a river. None of those practices can be seen as particularly sustainable. However through innovation and an adherence to the regulatory authority’s request of no pollution the company managed to remake the waste into paraffin which increased profits (Desrochers, 2010). What the author fails to note is however that the unrestricted growth of companies like Standard Oil (later Exxon mobile) fuels the unrestricted growth in energy demand which fuels the unrestricted need to input raw materials which leads to deforestation, disastrous effects of oil spill, loss in biodiversity and loss of eco system services. In short breaking the planetary boundaries thus leading to uneconomic growth (Wijkman & Rockström, 2012; Daly, 2007). Additionally Exxon mobile does not seem to actively change direction in terms of investments in other energy sources. Recently Exxon mobile invested $35 billion into a natural gas company to acquire their hydraulic-fracturing expertise (CNN.com, 2014).

Conclusion

Concluding, the paradigm of the neoclassical economic worldview in which the primary goal of organizations is to maximize shareholder value (Stubbs & Cocklin, 2008) needs to be challenged and can seemingly only be challenged through public policy.

Sources:

CNN.com (2014) http://tech.fortune.cnn.com/2012/04/16/exxon-shale-gas-fracking/

Daly, H.E. (2007). Ecological economics and sustainable development, selected essays of Herman Daly. Cheltenham, UK: Edward Elgar.

Desrochers, P., 2010. The environmental responsibility of business is to increase its profits (by creating value within the bounds of private property rights). Industrial and Corporate Change 19, 161–204.

Fellman, S., Sjögren, H., 2008. Conclusion. In Fellman, S. et al. (eds.). Creating Nordic Capitalism: The Business History of a Competitive Periphery, Palgrave

Halme, M., Korpela, M., 2013. Responsible Innovation Toward Sustainable Development in Small and Medium‐Sized Enterprises: a Resource Perspective.Business Strategy and the Environment, In press.

Jackson, T. (2009). Prosperity without growth: economics for a finite planet. London: Earthscan.

United Nations.(1987).”Report of the World Commission on Environment and Development.”

Wijkman, A. & Rockström, J. (2012). Bankrupting nature: denying our planetary boundaries. (Revised edition.) London: Routledge.