By Mike Turner
July 1, 2010
Stuart L. Hart says a lot has changed in the six years since he wrote the first edition of his book “Capitalism at the Crossroads: Next Generation Business Strategies for a Post-Crisis World,” which details ways in which capitalism can solve the world’s environmental and social problems.
Namely, Hart says, the meltdown of the capital markets and the spike in oil prices have made it clear that the current version of capitalism (Hart calls it 2.0), which has been in place since the 1850s and is centered on extraction and accumulation, is unsustainable.
“I think more and more people sense something fundamental is going on and something fundamental needs to change,” says Hart, the Samuel C. Johnson chair in Sustainable Global Enterprise and a professor of management at Cornell University’s Johnson School of Management. He also previously taught at the University of Michigan and founded the Corporate Environmental Management Program (now the Erb Institute Dual Master’s Program) there.
Although it’s uncertain exactly how the new capitalism model, which he calls 3.0, will evolve, it’s clear that it will have empowerment and inclusion of the world’s poorest people — who Hart says constitute the base of the economic pyramid — at its core, he says.
Hart was the keynote speaker June 18 at the Sustainable Business Practices Forum held at Davenport University’s Leadership in Energy and Environmental Design-certified main campus in Gaines Township, south of Grand Rapids. The event, which attracted more than 150 attendees, was organized by Davenport, Corp! magazine and Cascade Engineering. Other sponsors were WOOD Newsradio 1300, eco-apparel maker Clothing Matters and the law firm of Warner, Norcross & Judd, all of Grand Rapids.
The forum began June 17 with a workshop and plant tour at Cascade Engineering’s headquarters in neighboring Cascade Township.
The first edition of Hart’s book, which he finished writing in 2004, was published in 2005. The third edition, which contains forwards by Al Gore and Fisk Johnson, chairman and CEO of S.E. Johnson and Son Inc., is hot off the presses.
| Stuart L. Hart speaks at the Sustainable Business Practices Forum in Grand Rapids. Photo by Eric J. Maes |
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Among those who praise “Capitalism at the Crossroads” is Stephanie Burns, chairman, CEO and president of Michigan-based Dow Corning Corp., who calls it “a practical guide, a system of road signs that put a new order into the complex business of becoming sustainable.” John Mackey, CEO of Whole Foods Market, says Hart’s book “rightly points to capitalism as the most powerful and creative force we have for solving global problems. It is a welcome antidote to widespread ignorance about capitalism as a force of good.”
Although economic conditions have drastically changed since the book was first published, one thing has remained constant:
The concept of sustainability has continued its inexorable march from the political fringes to the mainstream, Hart says. “It’s no longer sort of this green premium for eco-freaks,” he says. “People who are environmentalists are not crazy tree huggers who want to put people out of business.”
However, there are still people who cling to that adversarial mind-set and continue to take a dim view of environmental initiatives, Hart says. Such points of view are rooted in the government’s first efforts to rein in corporate pollution in the 1960s and ’70s, he says. The intervention was “probably appropriate and necessary,” he says, but many businesses that had shown no inclination toward environmental stewardship bristled at what they viewed as government intrusion.
“It created a mental image … that environmental regulation was a drag on business,” Hart says. “The good news is we’re gradually getting rid of (that type of thinking).”
Environmental principles began to gain a foothold in corporate boardrooms in the 1980s, when Japanese automakers proved it was possible to produce high-quality products at low cost — which conventional thinking until then had deemed impossible, Hart says.
The concept of conserving raw materials — and therefore reducing costs — was now relevant to businesses, he says.
Despite its growing acceptance, the concept of sustainability is not always easily defined. During a PowerPoint presentation that was part of his keynote speech, Hart presented a list of more than three dozen terms associated with the movement, among them “social entrepreneurism,” “closed loops,” “waste reduction,” “corporate citizenship,” “greening” and “industrial ecology.”
“If you’re a businessperson and you’re trying to come to grips with a list like that, you just kind of throw your hands up,” Hart said.
Whatever phrase is used, the problem with many sustainability efforts is that they’re merely incremental, Hart says. While reducing emissions and materials use is worthwhile and necessary, it won’t be enough going forward, considering that the world’s population is expected to double to around 14 billion before stabilizing in the middle of this century, Hart says.
Even if businesses continue to make environmental improvements, the needs of a larger population will more than offset those gains, he says.
“So net-net, we’re worse off than we were before,” he says. For multinational corporations, the future lies in the vast population of poor people, the 4-billion-strong “base of the pyramid” who individually earn less than $3 a day, Hart says.
“If you’re a businessman and a capitalist, this is where the opportunities are,” he says. “There’s two-thirds of humanity who really haven’t participated in the capitalist dream. They’ve been left out and, in many cases, exploited and taken advantage of.”
That population segment is especially key in the wake of the collapse of the financial markets, which has eroded the purchasing power of the top third of the economic pyramid — corporations’ traditional target market, Hart says. Those at the bottom, in contrast, have emerged relatively unaffected by the financial markets’ woes because they operate largely in the informal economy, he says.
“In a strangely ironic way, they haven’t been hit the same way,” Hart says.
But merely encouraging willy-nilly consumption by the world’s vast mass of poor is a recipe for disaster, he says. “If all we succeed in doing is cultivating economic consumption at the lower levels, then we go over the cliff environmentally,” Hart says.
The convergence of capitalism and sustainability takes place by catering to underserved markets in an environmentally sustainable manner, Hart says. “It really is a matter of how you bring these two things together,” he says.
The proper approach will require “creative destruction” of existing ways of doing business. This is partly how Hart describes the concept in his book: “Unlike greening, which works through the existing supply chain to effect continuous improvement in the current business system, ‘beyond greening’ strategies focus on emerging technologies, new markets, and unconventional markets and stakeholders.”
An example of this approach is the strategy Wal-Mart Stores Inc. is pursuing in markets such as Brazil, where it is embedding corner stores in communities. “They’ve found that the big-box model doesn’t work when people don’t have cars,” Hart says.
Other projects involve small-scale solar power systems in rural India and an initiative in which Hart himself is involved in that aims to bring potable water to Mexican villagers. The fledgling endeavor, called The Water Initiative, is introducing point-of-use water filtration systems to Mexican households. Hart says the system has advantages over bottled water, which is “an absolute environmental nightmare”; plastic jugs of water, which carry shipping costs and offer no guarantee that the water inside is pure; and reverse osmosis plants, which are expensive and inefficient.
Among businesses practicing much of what Hart preaches is Cascade Engineering.
The company, which when it was founded in 1973 primarily performed plastic injection molding for original equipment manufacturers, employs about 1,000 workers, including 500 in Michigan.
| Fred P. Keller, founder, chairman and CEO of Cascade Engineering. Photo by Eric J. Maes |
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“We think of ourselves as having done things in sustainable ways since our inception, although we didn’t have the language to describe what we were doing until recently,” says Fred P. Keller, company chairman, CEO and founder. “My interest has been in demonstrating that this is not only the right thing to do, but that it is good for business.”
For example, the company has lowered the cost of carting waste from its facilities from $286,000 in the early 2000s to $8,000 last year. The cost is projected to drop to $4,000 this year, and “we’re on our way to zero,” Keller says, after the company recently secured a source to compost its hand towels and food scraps.
The company’s focus on sustainability has helped diversify its product line, Keller says. For example, it now makes water filters for developing countries and markets a wind turbine for residential, community and commercial use. The company’s reputation for social responsibility also paid off when the Seattle creator of Goodbyn, an environmentally friendly lunchbox, sought out Cascade to manufacture the products.
Keller says a company must have an underlying base of sincerity about its commitment to sustainability to earn a reputation as an environmental steward. People will see through mere lip service, he says.
Pioneering social causes is nothing new for Cascade Engineering.
In the past, Keller has set his sights on helping those on welfare find employment at Cascade (45 former welfare recipients are on the company’s payroll) and racially diversifying the company’s work force.
As a result, “We’ve become more of an employer of choice,” he says. “People like working for a company they know is going to take care of them. You get more out of people when the organization is supportive. “These things that started out as a good thing to do have turned out good for business.”
Keller since 2002 has also helped spread the word about sustainability by teaching a course on the topic at his alma mater, Cornell.
“Business schools in general kind of hammer out the heart,” Keller says. “What sustainability says is you have to think with your head, but it’s OK to lead with your heart.”
Click here to see the 2010 Sustainable Business Practice Forum