I’ll be covering Ian Bremmer’s discussion at the Japan Society where he’ll discuss the role of Japan in the “G-Zero” framework he developed. Information about the event can be found here and I can be found on Twitter @iPoliticalRisk.
Here are some highlights you might have missed in this week’s The Economist! Let me know if you find this new feature helpful; I like gleaning more cogency from my daily reading. Here we go!
Written by: Shantesh Hede, Doctoral Candidate in Bioengineering, MIT Portugal Program.
The Mali hostage crises as pointed by Emira Woods from The Institute for Policy Studies about the undesired geo-political outcomes of previous military interventions, that has further resulted in a certain percentage of weapons to be distributed unintentionally into politically sensitive areas; especially regions where the local stakeholders have been suffering from both economic as well as political isolation. When we take a crucial step further from this point, Chirstain Parenti also points out in his latest 2011 book titled “The Tropic of Chaos” about the resulting geo-political disturbances attributed to climate change (such as excessive rainfall, drought and weather fluctuations) that affects every aspect of a regions’ social fabric, whether agriculture or sustenance of local economies.
However, the solution ventures way beyond any form of ‘blame game’ and ‘finger pointing’ towards globalized Industrial activity. Explaining the source of the problem in simple words, the renowned Economics Nobel laureate Joseph Stiglitz highlighted the flawed logic of Adam Smith’s ‘Invisible Hand’ paradigm in terms of social and environmental externalities emanating from unfettered global trade which consumes non-renewable resources at a rapid rate and exacerbating climate change. In fact, he even stated in his trip to Asian Industrialists that the innovations in the Western world have focused more on saving labor in contrast delivering a more sustainable lifestyle and combating climate change. This in his opinion (based on extensive study) has brought about the economic downturn, especially in the United States.
Almost a decade ago, when Porter and Kramer recommended globally present Corporations to adopt the model of ‘creating shared value’ with the environment and the stakeholders for long term competitive advantage. The approach even though supported by detailed studies to contribute towards better income distribution in the society which is known to further propagate economic growth; nevertheless still managed to suffer from the syndrome of the investments being located in the ‘long term assets’ section of the balance sheets and also within the brackets (as in negative value) inside the cash flow statements. Both undesired by contemporary CEOs in our present crises centric economics. Notwithstanding the risk of delayed return on investments, one cannot completely ignore the success stories of Nestle’s corporate social initiatives in certain rural parts of India; wherein a stable supply of milk and growth in local economy was brought about by educating farmers, dairy producers and maintaining the health of the cattle population. Similarly, low cost housing projects by real estate developers in coordination with non-profit organizations and local banks alleviated the problems of decent housing for lower income families in certain urban Indian cities.
The ongoing awareness for more than a decade has resulted in active stakeholder involvement to bring about the approach of ‘socially responsible investing’, compulsory reporting of socially responsible activities by Governments in the Nordic region and the Kinder Lydenberg Domini (KLD) rating system for companies listed in the Standard and Poors 500. Despite the fact that these mechanisms have been successful and in the future even a credits trading mechanism could be adopted; these socially responsible endeavors are voluntary in nature and at the moment there is indeed a lack of robust mechanisms for rewarding as well as incentivizing socially positive behavior by Governments across theglobe.
A strategic blend actualized through appropriate involvement of public institutions and further propagated by private enterprise by virtue of a market economy approach holds the prospects of a complete paradigm shift. This paradigm shift would entail the internalization of environmental considerations and stakeholder participation as a core facet of the economic growth objectives of the Corporation(s). This is what can be considered as upgrading Social Commitment to Corporate Social Responsibility 2.0 (a.k.a Corporate Social Strategy), where a Corporation perceives itself as strategically connected to the environment and its stakeholders for its continuity and aims to align the well-being of the aforementioned facets with its own self interests. Thus, mitigating the inadequacies of Adam Smith’s ‘invisible hand’ dilemma and avoiding any criticisms of corporate social commitment as ‘window dressing’, ‘eye washing’ or in a social activists standpoint a ‘check book philanthropy’ approach for compensating a company’s corporate sins.
In a complete 1800 contrast to the Mali crises, the success of the West Africa Gas Pipeline Project is attributed to the communication and mitigation of risks (both socio-economic and political, especially concerning borders) to the local stakeholders by local authorities in coordination with the pertinent members of the World Bank Group. Understanding the need of a mutually beneficial centered development, China since the past few years has substantially increased its credit lending to Africa for infrastructure development, growth of Africa’s manufacturing sector, small-medium enterprises and agricultural growth. As from a Chinese perspective, Africa is considered not only as a supplier of precious raw materials (petroleum for our plastics and metals/minerals for our laptops) but even a promising export market for China’s economic future.
However, as every facet of globalized trade is susceptible to cumulative risks arising from climate change to geopolitical and socio-economic instabilities; Corporations must implement a robust Enterprise Risk Management System with a robust Information Technology Infrastructure for not evaluating potential risks but even timely responding to mitigate any undesired outcomes (Source: PricewaterhouseCoopers and Eurasia Group). Although 100 % success can never be guaranteed, but the benefits always outweigh the negative consequences.
Beginning with the stepping stones of advanced innovation as a result of Kurzweil’s law of accelerating returns which not only enables exponential technological advancements but also better access to useful knowledge. Products and Services can be designed with the opportunity of recycling the materials and re-use of certain parts designed for a longer life span. For instance, extraction of metals/semiconductor minerals from electronic waste and recycling of plastics (MBA Polymers). An advanced step further would be Carbon Capture and Utilization, in which carbon emission are re-transformed into renewable fuels and plastics of economic value.
These approaches not only make Corporations less dependent on un-sustainable mining activity for sourcing precious materials from ores or crude oil. But the whole endeavor of conducting innovation and implementing the solutions results in technology advancements, growth in employment, improvising the skills of the skilled/unskilled labor and even technology transfer to host nations where a Corporation is addressing its desired market. As a matter of fact more active stakeholder participation can occur in activities such as Ecological Restoration where the knowledge of the local farmers can be employed effectively to not only increase the ‘sink capacity’ of the ecosystem in order to sustain industrial activities and health of the stakeholders (including the company’s employees) but even boosting local agriculture. The same can be observed in the informal electronics waste recycling sector in developing nations which can recover 80–90% of the value from locally generated electronic waste (Source: United Nations University).
Moreover, mutually beneficial public-private partnerships can bear desired outcomes in circumstances where the technologies to be developed or the overall endeavor is quite resource intensive and requires robust legislations with a multitude of participants ranging from technologists, academicians to project management experts. This is observed in the scenario of the GeSI & StEP (Secretary of the Solving the E-Waste Problem) E-Waste Academy established by the United Nations. This E-Waste Academy comprises of SMEs, policy makers and government officials across different nations for building collaborative partnerships in order to deliver sustainable solutions in terms of policy, socio-economic sustainability and technology for recycling electronic waste. In fact, Alexis Vandendaelen of Belgium–based Umicore Precious Metals Refining recommended replacing “waste management” with the term “resource management”.
All these endeavors are centered towards ‘closing the loop’ of the materials and energy which are incorporated for the continuation of our globalized commerce. This approach of mimicking nature’s ecological cycles (e.g. water, oxygen, nitrogen) which are dynamically stable and interconnected has in fact resulted towards much more advanced ambitions of correcting the ecological imbalances resulting from unfettered industrial activities.
However, as per the laws of thermodynamics learnt in our middle school science classes that no process or machine is 100% efficient and some undesired waste is always produced. Consequently, we need to bear in mind that every technology and its processes to combat climate change would in itself consume substantial resources (chemicals, machinery and fuels) which would have its own share of ecological footprint and further exacerbate the ongoing climate crises even before the technology starts to demonstrate its desired results. A similar insight is applicable for initiatives to alleviate socio-economic problems (such as housing and employment programs). The reason is that the whole planet and the economy cannot be comprehended by sub-dividing it into its constituting parts and hence must be understood as a whole.
Rachel Wellhausen, Ph.D., is doing research on the field this website primarily covers, political risk, and is looking for individuals involved in our field. Let’s give her a hand!