Sunday, July 01, 2007

Green Capitalism

Excellent review of a book and the concepts of green capitalism.

The Greening of Capitalism
Nick Schultz

After the Paris Peace Conference in 1919, the great British economist John Maynard Keynes returned to Cambridge for most of the next twenty years to write and teach. It was an extraordinarily fruitful period for him. It was there that he penned his most famous work, The General Theory of Employment, Interest, and Money, published in 1936. But prior to publishing his General Theory, Keynes produced several other smaller and lesser-known volumes that helped him develop his famous opus. Among these was an essay entitled “The End of Laissez-Faire,” based on lectures he had delivered in Oxford and Berlin. Looking back on it today, that short work is striking for its prescience. Keynes notes that “one of the most interesting and unnoticed developments of recent decades has been the tendency of big enterprise to socialize itself.” He continues:

“A point arrives in the growth of a big which the owners of the capital, i.e. the shareholders, are almost entirely dissociated from the management, with the result that the direct personal interest of the latter in the making of great profit becomes quite secondary. When this stage is reached, the general stability and reputation of the institution are more considered by the management than the maximum of profit for the shareholders. The shareholders must be satisfied by conventionally adequate dividends; but once this is secured, the direct interest of the management often consists in avoiding criticism from the public and from the customers of the concern....They are, as time goes on, socializing themselves.”

Keynes was allied with the anti-conservative Bloomsbury set and a critic of the then-emerging highly dynamic industrial capitalism that was based upon an unapologetic pursuit of profit. For Keynes the tendency of large firms towards socialization was in some significant ways a good thing—not unambiguously good, but beneficent in the long run.

From our vantage point today, it is unsurprising that large, multinational companies seek ways of “avoiding criticism from the public and from the customers.” That is good business practice. The interesting wrinkle that Keynes noted, and the one that should concern us today, is that they would do this at a cost in profit and enterprise. And in this Keynes foreshadowed what has come to be known as the Corporate Social Responsibility (CSR) movement.

The premises of CSR are that corporate entities, particularly large and powerful ones, have responsibilities that extend beyond ensuring the most desirable returns for their owners, the shareholders. They have obligations to their communities, to the environment, to society (however it is defined), to abstract notions of justice and fairness, and to future generations. Corporate Social Responsibility means firms are obligated, in a sense, to socialize themselves—just as Keynes saw they were already beginning to do.

The embrace of CSR has been swift and firm in American business schools and boardrooms. It is given high priority in the planning and positioning of major business enterprises. Most major corporations have senior executives charged with developing CSR policies for their firms.

The advance of CSR initiatives has also spawned a cottage industry of management consultants who help firms modify their practices and products in a business climate where reputation matters as much as—and sometimes more than—maximizing profit.

Green to Gold, the new book from Yale University professors Daniel C. Esty and Andrew S. Winston, is a kind of CSR manual. The authors accept uncritically what Keynes perceived: that the managers of firms of a certain size will go to great lengths to avoid criticism. Their book is designed to help these firms in their efforts.

The present political and cultural climate of opinion places a premium on environmental sensitivity—or at least the appearance of it. Ecological causes are in fashion. “Green is the new black,” as Vanity Fair magazine recently proclaimed. Or as Esty and Winston put it, there is a “green wave” growing and building momentum through our culture and politics. The consequences for commerce are enormous. The question for the authors is not whether but how, and how quickly, firms become “wave riders” and embrace environmentalism.

To the extent that business interests and the environment are seen to be in conflict with one another, the environment is winning in the court of public opinion. It is doing so in the court of political opinion as well.