23 November 2022. Transition | Economics
Accelerating the post-carbon business transition. // Two ‘economics books of the year’
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1: Accelerating the post-carbon business transition
I worked with Chatham House’s Sustainability Accelerator back in September to design and facilitate a workshop of business leaders that discussed ways to accelerate the post-carbon transition, and the report from the event was published just as COP27 started.
The event was sponsored by Britain’s COP Presidency and Alok Sharma opened it.
We didn’t have much time, so we asked them three questions:
How will business be operating differently by 2050?
What do you need to do mitigate weaknesses in your current operating models? and
What innovations now can accelerate the response and bring the desired future closer?
The whole thing was hung lightly on a Three Horizons framework, to give the facilitation team some structure.
It’s probably worth sharing the ten characteristics of the 2050 business that they identified in full here:
Redesigned business models
Sustainability embedded in all elements of how businesses operate, not a separate objective;
The costs of environmental and social externalities fully priced into budgets;
Resilient business models that deliver social and environmental benefits in the long term; and
Business operations supporting a just transition by helping to reskill workforces and increase equal access to key services.
Sustainability integrated into organizational culture
Workplace culture engaged and highly informed on climate issues, using this knowledge to make all business decisions;
Sustainable outcomes embedded in all organizational accountability, key performance indicators and incentive structures; and
All jobs recognized as being responsible for sustainability, rather than just a single dedicated role or department.
New forms of decision-making
Non-financial criteria having the same degree of importance in decision-making;
Climate risk incorporated into financial decision-making, with supporting legal requirements aligning with decarbonization; and
Transparent data and information exchange providing a clear picture of a company’s impact and options for improvements.
One of the themes of the workshop was about cross-sectoral collaboration, because a lot of the gains that need to be made to stay within 2 degrees require systemic intervention. So we deliberately looked for innovations that stretched outside of individual business sectors.
As we analysed the material that the participants had generated in the workshop, we identified a number of patterns of collaboration.
1. Product-based collaboration
Product-based collaboration along supply chains will be essential to the transition from a linear to a circular economy, and to embedding whole life cycle and circular approaches in product design and use.
One example from the workshop:
Collaborating to manage the use of products across sectors can also be explored. For example, with reference to electric vehicle assets, vertical take-off batteries that are no longer effective in powering aircraft can be deployed in bus fleets to extend product life.
2. Standards-based collaboration
The environmental impact of goods or services is rarely captured in supply agreements, making it difficult for businesses to accurately analyse or reduce their Scope 2 and 3 emissions. Collaboration along the supply chain to standardize and formalize environmental objectives and accounting methodologies can drive down emissions.
3. Competitor-based collaboration
Finding unique ways for market competitors and peers to collaborate on meeting shared goals can help prioritize action on climate goals, without creating unfair competitive advantages or damaging business competitiveness.
One sector we heard from had effectively created a shared framework to create standards for sustainability across the industry, including suppliers, thereby raising the floor of the whole sector. It requires some legal care not to breach competition law, but can be done.
4. Skills-based collaboration
Pooling expertise between organizations can shorten the learning and implementation cycle for new approaches. While specific ‘climate’ and ‘sustainability’ roles demonstrate the elevated importance of climate in businesses, it can also create a siloed approach to corporate climate action.
5. Place-based collaboration
Focusing collaborative efforts between business, communities and local authorities ‘in situ’ can foster change throughout these multiple systems and physical infrastructure. New ideas that emerge from these different perspectives can deliver a long-term and low-carbon transformation for communities.
One of the most interesting things we heard in the room was from a project in one UK city, where one of the largest businesses had effectively convened
suppliers and partners are committed to becoming the first net zero region in the UK by forming partnerships with more than 35 local businesses, city officials and further education institutions and colleges.
These five types of collaboration need some enabling infrastructure. These included Connected Data and Platforms; Channelling Finance (to align with the objectives of post-carbon transition); and Aligning Policy and Standards. There’s more on each of these on the report. One of the issues identified in the discussion, in fact, was that legal and financial frameworks are often locked into existing ways of doing things, and are effectively impeding transition.
It’s possible to be cynical about this kind of exercise, but what I saw was a group of people who were all very aware of the urgency of the transition, who were working in their businesses and sectors to make change happen. Often the obstacles were things like regulations or infrastructure that were out of their control.
2: Diane Coyle’s economics ‘books of the year’
One of the more idiosyncratic books of the year awards is given out by the economist Diane Coyle, based on the books she has reviewed during the year at her blog The Enlightened Economist.
Idiosyncratic?
with the usual caveat that this is an entirely personal decision based on what I happen to have read, my own interests, (and no doubt my mood at the time), I’m offering a free lunch to both Brad DeLong for Slouching Towards Utopia and James Bessen for The New Goliaths.
I wrote about Slouching Towards Utopia earlier this year, based on a feature article in The Atlantic by Annie Lowrey.
Here I’m just going to pull out a couple of her comments from each of her reviews of the two books.
The subtitle of The New Goliaths is “How Corporations Use Software to Dominate Industries”, which is one of those SEO-friendly titles that publishers specialise in these days. When she reviewed it in September she did say it was one of her books of the year so far:
the core of the argument is that a small number of (generally) large companies have built IT systems that can manage immense complexity in their operations. Sophisticated software and massive flows of data enable them to co-ordinate in previously unimaginable ways, delegating decisions to where the information can go. The complexity – say of a new model of software-laden car or a major retailer’s logistics system – increases the cost of entry for potential competitors.
It would be easy to imagine that this meant that the tech giants were the focus of the book, but no. Bessen uses Walmart as an example throughout the book. The investment such companies make isn’t just in software, but in people, systems and organisational structures. This has consequences for both competition policy and inequality:
the workers in those firms are paid more because they gain invaluable experience simple by working in the superstar companies, so wages are dispersing within sectors. The skills are scarce because you have to work for a big, sophisticated complex firm to get the skills, which are thus in short supply. It has led to less dynamism – fewer entries and exits in many markets. Small firms simply can’t match the spending on R&D of the big ones.
As Coyle notes, the inequalities are politically and economically unsustainable, and Bessen does suggest some policy prescriptions:
The book advocates for mandating open standards, morecompulsory licensing, and for reforming IP law to tilt the incentives for big companies to do more voluntary unbundling of their services, clamping down on worker non-compete agreements to spread skills.
But: large firms with good margins are also well-connected, and often provide excellent service, so these are politically difficult solutions that also need sophisticated regulators.
The Brad DeLong review is longer than Coyle usually writes (she is the queen of the 300-word capsule review), but I’ll pick out a couple of elements from it:
The book starts by framing the central point: the economy, and people’s lives, have been utterly transformed by the long 20th century of 1870ish to around 2010 in a continuous tide of change both ‘marvelous and terrible’. ... Income levels doubled every 33 years during that period: “A revolutionized economy every generation cannot but revolutionize society and politics, and a government trying to cope with such repeated revolutions cannot but be stressed in its attempts to manage and provide for its people in the storms.”
Her review follows the chronological structure of the book, and of course, by 1970s, this long revolution came to a screeching halt:
Why so? “In my view the greatest cause was the extraordinary pace of rising prosperity during the Thiry Glorious Years, which raised the bar that a political-economic order had to surpass in order to generate broad acceptance.” People had come to expect rapidly rising incomes and broad equality of outcome, and high employment and low inflation. If this stability stumbled, the order had to change.
It’s worth my noting here that there are other interpretations of this change, of course. One is that the owners of capital were no longer willing to share the proceeds of the economy with labour, whose shares of the economy (in the leading economies) peaked in the 1970s:
So the book ends with the political success of the neoliberal order – winning the Cold War – and its economic failure. And here we are. We haven’t reached utopia but living standards are massively higher than in 1870. It hasn’t been a smooth course – far from it – a slouch rather than a march.
Coyle is a fairly heterodox economist, and one of the reasons she likes the book is because is as much about political economy as it is about economics. DeLong sees the 20th century as a long tussle between the ideas of Hayek, Polanyi, and Keynes. There’s more on this particular aspect of the argument in the Atlantic article.
Her longlist for the award can be found here.
Other stuff
I was interviewed by email by Tara Yarlagadda of Inverse magazine on the science that sits behind the film Don’t Worry Darling, because I’d talked to the magazine about the metaverse before. Since quite a lot of the film is about messing with people’s memories, my son, who knows about this stuff, chipped in as well. The film is better known for the action behind the scenes than on-screen, but the science turns out to be quite interesting.
I’ve not seen the film, but it reads like a remake of The Stepford Wives but with current technological fears replacing those of the early ‘70s—along with the same misogynistic storyline:
Jack, along with the other Victory Project husbands, has drugged his wife and placed her into a hyper-realistic virtual reality simulation. He claims it's for her benefit, as he thinks she was miserable working so much — an assumption Alice vehemently denies upon learning the truth.
Does the science hold up, even hypothetically? You can read the rest here.
j2t#397
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