The Entrepreneur’s Mission in a Sustainable Development Model
Lecture in the Environment Seminar, Technological University of the Helvetian Confederation (ETH), Zurich, Switzerland
May 08, 1990
Until a few years ago, environmental protection was based on a concept that was fundamentally defensive. Its goal was: To avoid or to minimize those damages to nature that were caused by the activities of human civilization. Where the damage seemed unavoidable, it should be repaired as far as possible.
But the postulate of zero growth is not only conceptually a badly-designed word, but also contradictory as a substantive concept. There is no stagnation in life; evolution is a continuous sequence of growth and decay. Evolution does not know going back. The timeline of history is also for humans with free will a one way street. The return to the "good old days" is not a treatment for the diagnosis of "no future".
The postulate of zero growth also ignores the fact that many of today's business processes can not be sustained environmentally friendly, even if they are artificially slowed down in their quantitative growth. Finally, the representatives of zero growth ignore that quality, environmentally friendly and sustainable improvements in business processes create important, required and in many areas almost forced growth.
The defensive concept of environmental protection met industrial thinking at its core in any case. Not only short-term profit interests were at stake. The avoidance of further progress in science and technology would be equivalent to the abandonment of the basic motivation in industrial market economies. It was therefore inevitable that industrialists and environmentalists went on the offensive. Especially at a political level, the goals of environmental protection were often associated with fundamental criticism of the system.
In recent years, fortunately both parties found themselves forced to learn from the arguments of the opponent. On the one hand, more and more obvious and serious environmental damage was caused, which called for urgent measures. Only those who willingly blocked their views on reality were able to overlook their urgency.
On the other hand, it became increasingly obvious that poverty in developing countries increases its environmental problems. Those many people there who eke out a miserable existence can only increase their living standards through economic growth - a growth that, we as citizens of rich countries, can not refuse to them. However, this means again: new threats to the environment.
In other words: Both parties, industrialists and environmentalists had to acknowledge that both a very high living standard, as well as the under-development of rapidly growing populations lead to unsustainable pressures on the environment. We also know today that the majority of the world population for ecological reasons will never reach the level of commodity consumption of the so-called First World and is also not allowed to. So what is the optimal path of development for the Third World? What is it for us?
This learning process led to the fact that people began to understand better the condition of mankind on the spaceship earth. The result of this meaningful thinking process is probably the largest and most important step forward in the context of the interaction between man and nature: the concept of permanent, sustainable development was created.
At first glance, such a concept does not seem revolutionary, but it can easily be seen a combination of the two goals "conservation" and "growth". But the idea of sustainable, environmentally sound growth offers a completely new perspective for the industrial entrepreneur. In contrast to classic environmental protection which led to a fundamental defensive attitude through a multitude of restrictive requirements and prohibitions, sustainable and environmental-friendly growth is a challenge to forward-looking and active behavior.
Every entrepreneur, who is not entirely short-term oriented, can face this challenge positively. This enables us to finally hold on to a – newly to be defined – growth, which has no actual limits anymore in its temporal dimension. Therein, such a faith in future and a potential of success are expressed, that seemed lost since the era of carefree, allegedly unlimited quantitative growth, which came to its end in the seventies.
New Limits to Growth
Looking back on the famous book on the "Limits to Growth", it is interesting to note that in 1972, the quantitative limits for expansion of human civilization has been primarily seen in the not more secure supply of raw materials and energy in the long term. Meanwhile, many of these limits have been reached, exceeded, and if it was necessary, redefined, not only because new supplies were discovered, but primarily because scarce resources could be used more effectively, or replaced.
The borders of quantitative growth, which we are approaching quickly now, are in the area of the disposal of materials that are processed and consumed in the industrial process. This disposal of waste and used products has not been recognized as a major problem for a long time, as air and waters were relatively clean and many disposal areas were available. In the meantime, however, the quantity of waste to be disposed – whether in solid, liquid or gaseous form - and their toxic potential has increased so quickly, that the permanent disposal site is not a sufficient solution any more. Rather, it is necessary to reduce the amount of waste, or to convert it to new raw material. Especially in this area, almost unlimited possibilities of action open up for meaningful technical progress and civilization!
The concept of sustainable development
The development of human civilization can be described as environmentally friendly and durable, if today’s human activity does not affect the needs and opportunities of future generations. Put simply, this means that the material and energy cycles of our economy must be closed better. The consumption of energy and raw materials per produced unit has to be much smaller; waste materials of all kinds have to come largely back into the production cycle, and the interference with the natural landscape must be reduced to a minimum and limited to solutions, which can be inserted harmonically into the natural conditions.
Even this simplistic description shows that the durability or sustainability represents an idealistic concept and as such it can never be fully implemented in all aspects into reality. It is nonetheless a target that is useful and necessary for human survival.
Basically, the demand for environmental-friendly growth can be derived ethically from the responsibility of each free individual, when we extend the classical concept with the dimensions of global space and future time. It is a basic rule of free society that the liberty of each individual has its limitations, where it gets into conflict with the liberty of one’s neighbor. When we learn to accept not only our fellow citizens as our “neighbors”, but also the humans of the third world and when we not only accept the humans that live with us as our “neighbors”, but also our and their progeny, then we are not free in our economic activities, but we have to be considerate of all neighbors.
Given the globalization of our economy, which we as entrepreneurs claim and pursue, and given the total, global information and mobility that reaches humans today, the extension of the concept of freedom and the responsibility associated with it should actually not bother us!
Now, the following generations do not have political power yet, and the third world nations own relatively small political influence. This fact means for us as citizens of the rich industrial nations a special commitment: When we understand the responsibility of our freedom correctly, we have to represent, next to the legitimate pursuit of our own goals, also the legitimate interests of those that are not able to procure their deserved recognition.
The concept of sustainability in business practice
To achieve a sustainable, environmentally friendly development, we have to transform large areas of the industry in a fundamental way. But who determines how, when and how quickly this transformation has to happen?
Most environmental damage has complex, often multi-causal origins. Their scientific description works with hypotheses that are not subject to conclusive evidence. This could be the first major obstacle to the reorientation of a company. In the absence of certainty about these issues, backgrounds and consequences, it may seem questionable to take any decisions which can not be confirmed by relevant experience and whose consequences can not be foreseen.
And yet: here we play with full commitment. It's about the continuity of our natural resources. Therefore, we can not afford to wait until the postulated hypothetical damage of the nature actually sets in to its feared extent. A well-reasoned and interdisciplinary confirmed hypothesis, which can also be understood on the basis of common sense and general experience, should determine our actions in many cases.
In any case, managers need a high degree of judgment and personal risk tolerance in order to choose and account for an environmentally friendly re-orientation.
The management of an industrial company is subject to the laws of a highly complex cybernetic system which communicates with its environment in many ways. It receives control impulses from a variety of sources that affect its development and its environmental behavior. These pulses can lead to different directions that are often opposed to each other. Serious problem will arise from this: the pressure on the company to do something rises. However, because some steps in a certain direction could get into conflict with requirements of environmental protection, creative forces may be affected and potential progress may be prevented.
The following analysis of the most important influencing factors is based on the premise that the entrepreneur basically accepts the concept of an environmentally sound growth as such. Without any doubt, there are many exceptions to this rule, but those will surely decrease significantly in the coming years. Once the term "sustainable development" has taken a natural place in the management terminology, and when the first big successes of the transition to this new management concept will come to public, then the "depleting and polluting" industry will loose its appeal and interest very quickly. Finally, entrepreneurs are people too, and as such they have the same interest as their fellow humans to retain a healthy environment for themselves and their children.
It is the entrepreneur’s role and responsibility to lead his company. However, doing this he has no complete freedom of action. He is subject to a variety of instructions and prohibitions, incentives and obligations, expectations and influences.
To begin with, laws and regulations of all stages shape a formal framework within which a company can formulate its strategies and operate its business. Environmental laws had until now in most cases a restrictive character, in accordance with the objective of protection. This means that the state enacted primarily instructions and prohibitions, which demanded the companies to reduce environmentally damaging behavior, if possible. But this could, at best, make the act of doing business in the traditional sense be less harmful.
In the worst case, these methods were even counterproductive: State regulations, which set limits for water or air pollution, may tempt polluting industries to pollute until the maximum limit of the allowed margin is reached, rather than looking for healthier, more environmentally sound solutions. They did not encourage the entrepreneur enough to go further with improvements, by technological, financial and organizational efforts, than the law requires.
The industry continued to oppose the imposition of environmental laws, mostly, because they were considered as not solid enough, to be excessive or restrictive. Moreover, bureaucracy that is required to enforce and monitor, has transformed the environmental legislation to a very costly state activity.
In the modern concept of sustainable development, the state may no longer be confined to a restrictive and prohibiting legislation. The first priority is that the state has to create appropriate conditions consistently and with a mighty hand. You have to reward those who shall make the necessary changes quickly and efficiently.
On the one hand, you have to make the environmentally friendly industry profitable, but on the other hand you have to ensure that the consumption of resources and the deterioration of the natural environment costs something to them. Incentives and cost burdens, however, should be introduced in relatively small batches and increase steadily later, so that industry has the opportunity to prepare for their transition and to calculate on a reasonable basis.
Therefore, the legislator is expected to carry out the challenging task of establishing appropriate mechanisms through which the costs of the consumption and the pollution of the environment can be introduced into the book-keeping of the national economy and individual companies, without increasing the government's share in total.
It is in the best interest of industry to participate actively and early in this process in order to find viable and cost-efficient solutions, at last. The entrepreneurs are encouraged in their own interest to work towards the introduction of environmental legislation that aims at more positive future developments, rather than at impositions and limitations that inhibit progress.
The employees and the labor market for their part provide important signals for controlling the development of the company. The best people are often also those who are concerned about the long-term future and really identify with the company in such a way. They will be increasingly interested in the environmental behavior of their employer. They will see the best prospects in a company that is committed to environmentally friendly growth. The company in turn has an interest to publicize a pioneering environmental concept to the staffing and general labor market in order to positively stand out from the competition and thus attract the best people for themselves.
Strong control impulses in modern communication society are also generated by public opinion. Local citizens' groups, political movements with regional, national or international scale, news coverage and campaigns in the mass media, but also trends in management research: All of those various manifestations of collective expression of opinion can influence the decision-making within the company.
Until a few years ago there were only a limited number of "green" individuals and organizations that actively engaged in public for the awareness of environmental concerns. This all changed entirely. The issue of environment is now almost in all European countries at the forefront of the political agenda. But still the concern of natural conversation seems to dominate the public debate.
Again, it is in the interest of industry to participate actively in the public discussion to leverage the concept of environmentally friendly and sustainable growth. This requires of course that the industry is able to propose practicable and for the public understandable solutions and that it is also credibly committed to the implementation of these solutions, if the appropriate legal framework is in place.
However, the dispute with environmentalists will not be easy, because of the experiences from the past that have led to deep-seated mutual distrust. Often, the industry will have to take the first step. But if it brings in concrete proposals to the discussion, they will be able to get the majority of their traditional opponents to speak on a professional level and together with them about advanced solutions.
The capital market also gives important control impulses for listed companies. Until recently, financial analysts and investors had little understanding of environmentally protective activities that added costs, but reduced profits. But even here a change is beginning to appear, when in sustainable growth new profit potentials are seen.
"Today in stock market circles, analysts and investors flirt with the environmentally protective label after these same circles harshly criticized for years the so-called anti-economic nature lovers," commented a leading Swiss newspaper recently. Accordingly, the companies will make increasing efforts to convince the capital market that they are able to set up their businesses and thus their profits on environmentally friendly growth. This short-term safed yield, arising from polluting activities, will be valued in the future with an increasing "malus".
Finally, the consumer conveys the major signals that affect the development of companies in the market system. Their purchasing decisions and the preferences expressed therein include the ultimate judgment as to whether a particular offer having a certain price has a chance on the market. The consumers in turn are influenced by various factors when making their purchasing decisions.
First and foremost, of course, the relationship between price and performance is critical. However, the informative and suggestive effects of advertising, personal habits and experiences as well as the lack of knowledge of the competitive offer also plays a role. Although a significantly increasing environmental awareness can be seen in broad circles, this seems to have only a very limited impact on consumer decisions.
The only latent environmental conscience of the consumer must be specifically addressed, so that it can be mobilized for an appropriate buying decision. This means that a company has to communicate openly and actively the concept of sustainable development to its customers. Customers must be made aware that with their purchase decisions, they can always make a choice in favor of an environmentally friendly product or production process.
It would be an exaggeration to hope that consumers are willing to pay a substantial higher price for their choice in favor of the environment. But in addition to pure cost-benefit comparison, environmental issues will be part of the strongest selling points in future, and accordingly, companies will be interested in them.
The behavior in terms of environmentally friendly development, however, can be contrary to the short-term interests of the company in some cases - for example, if a firm recommends to its customers to buy energy efficient appliances for the supply of electricity. But the concept of sustainable development should never be displayed selectively and according to the selfish interests of a single company. It has to be addressed in a comprehensive and universal way. Only then it will gain the necessary credibility and acceptance.
Finally, business decisions are always influenced by the behavior of the competition. These influencing factors can lead to serious conflicts for an entrepreneur who wants to renew his industry on the principle of environmental justice. Often, the competitor who saves the cost and risks of the transition process reaps a substantial benefit after some time. I already and repeatedly heard the excuse: "I'd like to change, and I even would have an environmentally acceptable solution, but the competition is forcing me to stay with the old method because of their cost advantage."
As long as resource consumption and pollution are not regulated by law and not cost-comparatively burdensome - and as long as such practices are not outlawed by consumers and the public, they remain in many cases provisionally probably the best deal. It is very difficult or even impossible, to claim from the individual industrialist to switch to an environmentally friendly solution, if his competition partner still has the freedom to operate according to old methods. Therefore, laws and conditions have to be adjusted, so that difficult competitive conditions do not make the introduction of eco-oriented solutions more difficult, but rather the contrary, so that a rapid and effective transition is rewarded. This includes a generally valid regulation of prices and taxes especially for public goods, taking into account the ecological values. For there is no doubt that there exist multiple undervaluations today. The strategic energy and transport sectors (Mobility!) are dramatic examples in this respect. In this sense, the debate over ecology-oriented environment is of utmost importance.
For many business owners, the postulates of sustainable, environmentally friendly development still sound somewhat utopian today. But there is no convincing alternative to this program. If the findings on the significance of environmental issues will be reflected in political decision-making and in the behavior of population in the coming years, then the companies will use their skills for the establishment of an early realization of such utopias in their own competitive interest.
For this, the market economy, as we understand it, principally offers the appropriate framework. It won – as we know today - the battle of the systems for development, progress, efficiency and productivity by a wide margin. The spectacular defeat of the government-controlled, centrally planned economy is a final confirmation for any reasonable judging person.
There are two fundamental challenges left for mankind which will have to be solved within the market economy framework in the XXI Century. One is to find the road that will lead us toward an eco-compatible development and, the other is to find a just solution in order to guarantee an adequate development for the Third World.
Sustainable development in the Third World
Global ecological problems can not be addressed without considering the development prospects of the Third World. For a large proportion of the population in industrialized nations, improvement of environmental conditions comes along with a better quality of life. The result is a corresponding political will, that also mobilizes the necessary financial resources. In most developing countries, however, quality of life is still synonymous with enough food and an acceptable accommodation. Under such circumstances, the concern for a healthy environment for the next generation turns to an abstract luxury that is only accessible by a few.
Of course, the rich have to pay a proportionately greater contribution to solve global environmental problems. Within each industrial nation, it is already been taken for granted that the person who earns more, pays more taxes, making a reasonable contribution to social tasks.
It seems to me that it is time that we learn to redefine our position towards the developing countries in relation to environmental problems in an analogy to national solidarity. I am far from postulating a new "global environmental tax" in favor of developing countries. Their consequences would be merely a new bureaucracy, new injustices and new dependencies for developing countries. But, in our own interests, we can not allow that these countries are forced to plunder their resources and sell them at depressed world market prices in order to pay the interest on their debt - interest on debt, which faces no substance anymore.
In their legitimate quest for improving their living standards, many nations are caught in a vicious circle. The developing countries can not overcome it alone – no matter how big are their own efforts. The rich countries have to make it to their duty to support and actively reward these efforts. For this we need to develop a new vision of global solidarity, which has to extend primarily to the solution of global environmental problems. This lays also our own long-term interests.
Under such a perspective, the theme of "environment" will not longer darken our future horizon as a threatening worldwide catastrophe. The consequent transformation of human civilization in the direction of sustainable development and a new distribution of opportunities and risks between the rich industrialized nations and the poor developing countries could become the actual purpose of life of the generations of the 21st Century - those generations, which are hopefully spared of the burden of wars and conflicts between incompatible social and economic systems.
The natural environment is a highly complex system that is threatened by the intense action of a different complex system, human civilization. This has created a dynamism that is no longer compatible with the fundamental laws of nature.
The process would, if it would continue, lead to a progressive weakening of the regenerative forces of nature and life, thus bringing the foundations of life of humanity in danger. But the laws of nature can not be changed. It is therefore up to human civilization, to adapt to nature, so that both can develop without destroying each other. The adapted path is called sustainable development.
The industrial entrepreneur has the ability to make, and thus also the responsibility of making an important contribution to this process of adaptation:
- He must create a concrete and convincing concept of sustainable, environmentally sound growth and development of his industry and, taking into consideration the appropriate conditions, commit himself for its implementation on a global level within a reasonable time,
- He must initiate an active process of communication with authorities and political parties, with interested persons and organizations, with employees, customers, investors and the general public to explain the strategy and business policy of the company and to find the broadest possible consensus.
- He must advocate actively for the legislative process at the national level and in international conventions, in order to achieve practical, market-oriented regulations, which also leaves no better choice to the competition than to participate in this process for the fastest and most efficient transition to a sustainable development.
The Entrepreneur will carefully weigh all the interests and influences in sober realism when making his decisions - and then ultimately listen to his own conscience. Would it be presumptuous to modify Immanuel Kant's "categorical imperative" to this formula:
“Act only according to that maxim of your company whereby you can, at the same time, will that it should become a universal principle of sustainable, environmentally friendly development.”