When even great economists miss on sustainable business

Questioning Assumptions

When even great economists miss on sustainable business

Having been asked to teach an economics of sustainability course, I’d been catching up on any progress of the economics field. In particular, I was curious about whether it had caught wind yet of the emergence and deep significance of sustainable business.

Several years ago, I realized that environmental economics, which is conventional economics applied to analyzing environmental problems, had a useful, underappreciated but ultimately narrow lens. It missed a lot. Its younger, more radical cousin, ecological economics, was better at seeing aspects of sustainability, such as that externalities — the costs unaddressed by markets and imposed on third parties — are actually prevalent in the economy and worth more consideration than a section on pages 6 to 8 of a textbook (that too many forget about when they reach careerhood). But it, too, was narrow; particularly too much attacking of “environmentally illiterate neoclassical economists” and a similar lack of any space for even the idea of sustainable business.

Why should a sustainable business audience care about any of this?

I assume you are not much interested in my catch-up on the field’s progress (readers, please tell me if I am wrong). However, there are reasons you may want to know about the field’s general views on sustainability. Those with some economics courses or MBAs might remember claims about economics as helpful in “understanding how the world (or markets or economy) works"; as being “at the root of,” or “helping make better” “business decisions.”

In addition, while looking for any introductory or intermediate-level mentions of sustainable business, I was startled to read an article on an issue flitting at the cutting edge of sustainable business, and by one of the giants of the economics field. However, the views were completely opposite to my emerging ones!

The giant was Paul Krugman, a Nobel laureate and New York Times columnist, who has in other articles strongly called for addressing global warming. An environmental illiterate he is not.

The article was Krugman’s critique of Howard Schultz, the Starbucks CEO, in “Brewing up confusion.” The direct issue Krugman criticizes Schultz for is the latter’s actions concerning the paralysis of the political system on the debt issue. But the implicit bigger picture issue here is a business taking a pro-sustainability stand on a public policy topic — which is pretty radical. (Going further, it is even more so when that stand is not clearly in the company’s economic interest. But that, including the possible motivations for it, is a topic for another day.) As Schultz is therefore out on at least two limbs, I’m offering support to the entire branch.

Next page: “Not nearly as nonpartisan as it pretends to be”

Krugman excoriates Schultz for asking Starbucks employees to urge national leaders to show “fiscal bipartisanship” and “come together and compromise” on the national debt. Further, Schultz suggested his employees use materials from Fix the Debt to read up on this issue. Krugman finds this organization “not nearly as nonpartisan as it pretends to be.”

This is important because I would like to see more CEOs take this and other such public actions. The article shows some of what they will be up against, both on the debt issue and the bigger picture issue of taking a public policy stand on any sustainability issue. So it is worth some inoculation to those considering it, as well as exposure to the messiness of public policy and layers of specific issues.

I suspect not many would agree that taking a pro-sustainability public policy stand is a wise move for a CEO. You could very well lose customers. You may be seen as not focusing on your shareholders, as dabbling in something beyond your expertise, or improperly taking personal views too far.

Now, of course, in the public arena the specifics of a CEO’s position are fair game for criticism. But there is a distinction between debating the merits of the particular position from the very taking of an action which he or she thinks is right.

I still hear at every second conference I attend (and twice in the past four days) that business is only interested in one thing — its profitability — and cares nothing about society or what it is leaving behind. An occasional offshoot holds that it isn’t that they’re such bad guys. But they’re forced into this attitude by the financial community, their stockholders and incentive packages, so they really have no choice but to act this way.

Schultz is showing it is possible to take a pro-society action. And what’s wrong with that? We certainly need more of this, particularly from companies that don’t have a direct economic stake supporting policy actions on global warming.

Focusing on Krugman’s criticism of Schultz on the deficit issue, and with whom he aligned, Schultz’s position is supported by both the reality of agendas, and the often overlooked pro-big-tent property of sustainability. (Note that Krugman often writes about the deficit, and I am not addressing anything on it beyond what is in this article.)

Krugman is most probably right that there is a quiet, very conservative agenda behind Fix the Debt’s push to balance the budget; that is, an even stronger conservative one to do so predominantly by cutting public services and reducing taxes.

But so what? Having once participated in a unique civic education exercise developed by the same funder as Fix the Debt, Pete Peterson, I didn’t find this agenda difficult to identify. Despite some disagreement with the tone, I found the overall exercise was highly educational to my then complete ignorance of some social programs like Medicare. It was refreshing to see so many citizens extend beyond their usual very low level of civic participation to simulate negotiating national budget priorities. And, really, once we go beyond the facade, who among us doesn’t have an agenda?

Sustainability proponents, including myself, also occasionally forget its big-tent property. We often:

  • Frame big challenges as “we’re all in this together.”
  • Talk about the importance of listening, inclusivity and especially community.

Well, who is this “all” and “community” to whom we need to build bridges and find commonalities with, unless it is those who see things very differently?There are historic political precedents to this sustainability property, important ideals, often forgotten in the heat of battle, which express the democracy we really want. There was JFK’s “What Unites Us is Greater than What Divides Us"; the Constitution signers’ faith that the people are capable of self-government and will overcome their differences; and President Barack Obama’s “We rise and fall as one nation ... all the petty differences that consume us in normal times all seem to melt away. There are no Democrats or Republicans during a storm, just fellow Americans.”

It is quite understandable to see this as idealistic given what we read every day. Krugman is certainly in good company in seeing things as unending war between political left and right. But there is a price to pay for conventional wisdom. One side may out-club the other — for a time. But the other side will probably be back, and may win the next round, making “victories” often temporary. Besides the waste of time, money, and the dehumanization of opponents, the status quo is a poor way to address difficult long-term sustainability challenges. And I hope it is not the best we, both when wearing and shedding our business hats, are capable.

So, is CEO Schultz wrong, as Krugman states, to urge us to “come together” on the deficit issue? Is Schultz “implying (and inaccurately) a symmetry between (the relative blame attributable to) Republicans and Democrats?” Is Schultz, in a strong charge, “part of the problem?”

No! Schultz showed leadership both on the big picture of taking a stand, and on the merits of the deficit issue.

Schultz should invite Krugman for coffee — call over some patrons, the barista majoring in political science and the delivery guy — to discuss a range of corporate responsibility issues. A good result would be more attention to sustainable business possibilities in Krugman’s columns as well as college economics texts.