Friday, 7 December 2012

The road to system change

The road to system change Written by Philip Sadler Saturday, 03 November 2012  From the Renegade Economist

Today, beyond any doubt, the desirability of system change is widely accepted. Here is a look into the 3 urgent global problems to address first.

There is a growing consensus about the need to tackle three urgent problems at a global level.
  • First, there are environmental sustainability issues including the threat of climate change, impending water shortages and severe resource constraints.
  • Secondly, there is the evident fragility of the global financial system and in particular that over speculative part of it that we call the ‘casino economy’.
  • Thirdly there is the huge challenge of inequality and poverty.

As a starting point, when considering the prospect of system change, we must accept that there are strong vested interests in the perpetuation of the existing system. This is true of the general populace as well as the powerful elites of the prosperous countries of North America, Western Europe, Australasia and Japan. In these countries investors are fearful of any change which might threaten their savings, companies are protective of their existing markets and business models, employees are protective of their jobs, and consumers cling to accustomed lifestyles. In the emerging economies such as China and India people aspire to the benefits of the system and eagerly await the day when they, too, will enjoy them. In the poorer countries the political and business elites who hold the reins of power are huge beneficiaries of the system.

A tipping point?

Nevertheless, as has happened countless times over the centuries, the system will change significantly as the evolution of human society continues to unfold. Institutions that become dysfunctional wither and die and new institutions take their place. System change is inevitable and remorseless and in the end is strong enough to sweep vested interests aside. Indeed, system change is a continuous process as new technologies interact with the economy and with changing social attitudes and lifestyles. It only becomes apparent when the cumulative impact of incremental changes makes it clear that a tipping point has been reached and that fundamental change has taken place, as was the case with the Industrial Revolution.

Achieving sustainable growth

There are now many powerful forces pushing for system change in the interests of environmental sustainability and to combat the threat of climate change in particular. A powerful social movement has been set in motion, one which is powerful enough to strongly influence political decisions at both national and international level and is having a considerable influence on the allocation of resources. However, many of those who are working to achieve these goals are vehement in their opposition to continuing economic growth. The opposition seems to be based on several different grounds.

One is revulsion at the materialistic values of modern society and a wish to see a return to a less material, perhaps more spiritual or at least more balanced set of lifestyles.

A second basis for opposition to growth is the belief that further economic growth will lead to the acceleration of the deterioration of the environment and the using up of valuable non-renewable resources. Yet it is only as a result of continued economic growth that the world will be able to produce the resources needed to tackle issues such as climate change and poverty. More economic growth means more abundance - - more food being produced, more efficiently and at lower cost. It means more and cheaper goods and services for people in poor countries – from bicycles to schools and hospitals. It means more victories over disease and better preventative health care resulting in lower infant mortality. It means the ability to fund the research that will result in substitute materials, new sources of energy, and new ways of capturing carbon.

A third school of thought assigns the ills of the modern world to the ideology of the market and the operation of the invisible hand. The alternative of state control of the economy has been tried and failed many times. In Russia and in China in the 1950s and 60’s it resulted in huge suffering, famine and loss of personal freedoms
‘No growth’ is not the answer, nor is the abandonment of market forces. But what is needed is ‘qualitative growth’ as distinct from the sterile concept of quantitative growth used by economists. We need to redefine success at national level and at the level of the enterprise.

Philip Sadler

Philip Sadler

Senior Fellow, Tomorrow's Company, vice President, Ashridge business School

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