An Essay on Organization and Management in the Sustainability Society*
From crisis to meta-crisis
At the Convocation of the United Negro** College Fund in 1959, John F. Kennedy referred to the Chinese word for “crisis” being made up of two symbols, one denoting “danger” (wēi), and the other denoting “opportunity” (jī). Today, many decision makers in politics and the economy use this phrase addressing the slowly retreating economic and financial crisis. From a linguistic viewpoint, this translation is without any substance and clearly not more than a handy rhetorical device in challenging times. The times are challenging indeed, and a closer look at the meaning of jī in wēijī might give a much clearer description of these times: crucial point.
In this essay it will be argued that we witness such a crucial point which is unprecedented in human history, probably only comparable to the dramatic changes from a hunter-gatherer society to an agricultural society. This crisis is not a crisis within the system of a free-market economy; it is a crisis of the system of modern society itself. Empirically, the development of the crisis with its growing concern until panic levels, its deflationary tendencies, the credit crunch and large-scale market collapses reminds us of the end of “winter” in an economic long-wave, first postulated by Russian economist Nikolai Kondratiev. If today we are truly witnessing the end of one economic long-wave, we need to be aware of the rise of the next one. For me, it is clear that the coming Kondratiev will be centering on ecological sustainability and humankind’s future well-being, in fact it’s very existence on the planet. The impacts of this new economic long-wave will surely have as a profound an impact on businesses and how we organize the economy as the previous wave that brought us digital information processing technology.
However, if this wave can really build up and enter its “spring”, remains uncertain. This would require the general foundations of the economy to remain fixed as they were the last 200 years or so. These foundations are: free markets and free enterprise, a monetary system with profit-oriented banks, a growing population of workers, and growing income for the middle class to keep consumption levels high – and of course all the necessary government institutions and regulations to keep these foundations intact. Ever expanding markets, money and consumption, however, run smack into the realities of a finite planet. The so-called World3 model in the “Limits to Growth” showed for its standard run of “business as usual” an overshoot-and-collapse behavior between 2030 and 2050. Consecutive updates on the model with more precise data and more realistic model extensions did not exhibit a significant change in the underlying system dynamics. What is more worrying is the fact that empirical data from the last 30 years match the standard run frighteningly well. Also, when using Mathis Wackernagel’s ecological footprinting as a calculation method on how much humanity is using up ecological space provided by the planet, overshoot behavior is no matter of scientific reasoning anymore but empirical truth. Current consumption levels exceed the ecological carrying capacity of the Earth by around 40 percent in 2010 and will exceed it by 100 percent before 2050. That means we would need two planets by the middle of the century to sustain the material throughput of the economy. Taken together, it becomes clear that the limits are real and we are on board a high-speed Titanic – and present strategies concentrate on increasing eco-efficiency with the effect of letting the engines run smoother towards the iceberg.
In need for a degrowth economy
The next economic long-wave will need to have sustainability at its core by all means; however, its basic innovation is not going to be a technological one. This is the greatest difference to its predecessors. The steam engine, the combustion engine, the IT revolution, all focused on technology, storming ahead of consumer behavior and institutional frameworks. These were dragged behind, although their evolution along the lines drawn by technology further strengthened technology and helped to build a stable innovation lock-in – until the collapse and rise of a new technological paradigm. This time, with sustainability, it is going to be different. Why is that so? Sustainability implies an economic regime that stays safely within the limits of a finite planet, subjugating the profit principle to the well-being of natural ecosystems. This is, for the first time, an absolute boundary on economic activities and the most wanted innovation would then be an answer to the question of what vision we have for the economy of a sustainability society.
With eco-efficiency, a “business as usual” strategy is already in place. Eco-efficiency is adhering to the dominating techno-economic rationality of “more (of the same) for less”, with technological innovation, the free market system and a growing monetary base at its core. However, this strategy runs into serious limitations, the most serious being not technically induced, e.g. limits to efficiency increase due to thermodynamics, but economically. William Stanley Jevons, one of the founding fathers of neoclassical economics, discovered as early as 1865 that technological progress allowing for more efficient resource use, tends to increase its absolute consumption. This so-called Jevons paradox, or rebound effect, occurs because an efficiency increase in resource use (e.g. fewer gallons per mile) has the same effect as a decrease in price for that resource, which will ceteris paribus lead to an increase in demand, thus: economic growth and growth in ecological impact. In other words: economic growth will always outpace ecological efficiency increase. A little calculation using Paul Ehrlich’s IPAT equation will illustrate this. IPAT stands for: ecological impact equals the product of population (capita), affluence (GDP per capita) and technology (impact per GDP unit). Turning towards carbon dioxide emissions we can take the values for IPAT in 2008 with P = 6707 Million people, A = 8658 nominal USD per capita, and T = 0.000531 tons CO2 per nominal USD, multiplying to I = 30892 Million tons CO2. Our target year is 2050. Given an average growth rate of World GDP of three percent per year, which is roughly below the average growth rate of the last decade, it would need an average efficiency increase in T of short under three percent per year to neutralize the impact effects of growth. Neutralize, not reduce, because although T would go down to one third of its initial value, I would remain on the same level, given a more than tripled GDP in 2050 and population growth up to 9149 Million according to the medium variant of the UN World Population Prospect 2008. It has to be added that a three percent efficiency increase every year from now until 2050 seems quite ambitious, given the fact that e.g. energy efficiency in Germany as increased over the last decade well under two percent per year, material efficiency well under three percent. In order to stabilize atmospheric concentration of CO2 to around 450 ppm, thus hopefully keeping world climate somewhat below a temperature increase of three degrees Celsius – not to mention the two degrees that would be necessary to stay within safe ecological limits – the IPCC in its Fourth Assessment Report argues for a reduction limit of about 30 to 60 percent of 2000 emissions until 2050 (the so-called category II scenarios). Given the IPAT Equation, this would require for the upper bound of emissions an efficiency increase of almost five percent per year, from today on for each of the next 40 years, if the rate of economic growth remains unchanged. By what technological breakthrough this could happen, remains totally unclear.
The only option I thus see and advocate here is a mixture of efficiency increases and reduction of economic growth in order to reduce ecological impact by economic activities towards a level which is sustainable in the long-term. This strategy would focus on creating sufficiency – an economy of “enoughness” –, and every business terming itself sustainable then needs to create a tendency for less or “small is beautiful”: less products, less material throughput, lower scale of economic activities that are in line with the limits of a finite planet. This entails the call for décroissance or degrowth. Degrowth is understood as a voluntary transition towards a just, participatory, and ecologically sustainable society. Its objectives are to meet basic human needs and ensure a high quality of life, while reducing the ecological impact of the global economy to a sustainable level, equitably distributed between nations. However, the implications of full-scale degrowth for the economic enterprise, both physically as well as economically, remain unclear. It has been argued that there are at least two theories for corporate degrowth. The first sees the current model of shareholder-owned profit-making corporations as adaptable for a degrowth economy and that growth and profit are two different issues. The second, on the contrary, points to the connections between growth and profit, e.g. when it comes to economies of scale i.e. the more you produce the cheaper unit costs are and the easier you can reach the financial break-even point, implying of course that you sell all these units and thus grow.
My point of view here is that there is no economic necessity for growth beyond a certain point. That point is on the one hand determined by capital costs. The necessary minimum condition for a firm’s economic well-being is its ability to pay off all capital costs including wages, R&D investments and all sorts of calculatory costs like employer’s salary, and thus having an economic profit of zero. Everything beyond that is excess profit. Excess profit need not be a problem as long as, on the other hand, the ecological impacts connected to it do not exceed what is ecologically allowable for a company. This is the sufficient condition and such a situation can be termed “rightsize profits”: profits that are just big enough to allow for economic sustainability of a company, as well as being small enough for ensuring ecological sustainability regarding the company’s impact on the natural environment. Most likely these businesses will focus on product use and not on product sales, long lifecycles and long-term partnerships with their clients, building an eco-system for the firm in which profit is just one measure of success, although still an important but not the dominant one. It will be necessary to have a profit of at least zero, but profit alone is not sufficient anymore.
How to organize for sustainable business?
Most of current business models and their organizational forms have their origin in a model of competition that focus on reducing costs on mass markets, cheap labor and automation. The successful interplay of large-scale corporations, Taylorism and Fordism, engraved the pattern of techno-economic rationality in industrial organizations for an entire century. Given the fundamental changes underway sketched in this essay, these forms of organization are battling for their survival. However, there is a German saying that in times of crisis, saving grace is also growing. What I mean with that is that we are also witnessing, along with the economic change towards the next long-wave and the sustainability challenge of a finite planet, another transition is underway. Returning to Kondratiev, the last economic long-wave had information technology at its core. The diffusion of this technology into every aspect of organizational and societal life created a new world of communication opportunities with significant impacts on the way we can collaborate in the workplace and in our leisure time. These changes found their ways into the catchwords of the last two decades, like virtual enterprises, the boundary-less organization, wisdom of the crowd, and “wikinomics”. More and more, hierarchical corporations turn to self-organized business webs, wherein a plurality of customers, members, suppliers, business partners and also competitors collectively create values without direct management control. This is neither a fad nor is it the symptom of an economic long-wave. The theoretical explanation of what we can observe can be found in applying social systems theory as developed by German sociologist Niklas Luhmann.
According to it, society is using its internal structure in order to tackle its own complexity. Complexity is thereby determined by the means of communication in society: what channels are used, who can communicate, what can be communicated, over what time and spatial distance. The change in these means, the so-called distribution media of communication, produces more complexity than society can deal with. Either complexity proliferates and breaks down by its own weight, so that new means of communication do not diffuse within society, or society can emerge new structures to cope with its own complexity. This happened after the introduction of the printing press and the change towards a modern heterarchically structured and functionally differentiated society. The advent of the computer, and moreover the networked computer in the form of the internet, provides for another dramatic increase in communication complexity. If society can cope with it, a change in the structure of society will most likely follow. Dirk Baecker in Germany picked up a phrase coined by Peter F. Drucker himself in order to describe this: the “Next Society”, the societal form succeeding modernity. The heterarchy of modernity will then give way to a new social topography that is yet unclear. It might be that of an ever increasing network society, partly lifting the strict boundaries between society’s parts. This however would have great implications for the way we think of economy and do business, or how we think of politics and organize democracy. These changes are indeed the signs of a “Great Transition”***, posing great challenges for society and the way we do and organize business. But they can also bear the saving grace needed to tackle what lies ahead of us. The coming next society will most likely also develop a “Next Organization”, a new form of business. First sightings of these next organizations can empirically be observed in globally organized de-central social movements which connect over electronic media and emerging electronic social networks. These new movements have significant impact on the economy, as the diffusion of the Linux computer operating system and the successes of Wikipedia have shown. The crucial evolutionary steps towards such a next organization are to deliberately blur organizational boundaries and partially hand over direct control of its management processes to the Next Society around it.
My proposition in order to really take on and master this great transition is to fully embrace what lies ahead. The need for a degrowth economy will yield great opportunities for entrepreneurs with a truly Schumpeterian sense of destroying the old and creating the new. What I am pleading for is to abandon the large-scale organization of the 1950s and 60s, to abandon the fixation on growth and to abandon the ignorance towards the limits of a finite planet. What I am not pleading for is to abandon doing business and earning decent profits. However this will require different business models and different organizational forms for doing business. The business models in the degrowth economy and sustainability society are focused on collaboration between producers and consumers which will become “produsers” and “prosumers”. The dominating image of organization is what Asaf Zohar calls a “bonsai organization”: just as richly developed as the large-scale organization but smaller in size and impact and in need for much more caring by its managers and firmly rooted in responsibility for its local communities. These managers are its employees, its customers and other societal stakeholders, all “owning” the organization, being responsible for its well-being and contribution to its community of owners. For the practice of management this has at least three consequences:
1. Principles
Restlessness, openness and joint production (“peering”) are trademarks of the next organization. The most important task of management in such an assembly with oscillating boundaries is then to ensure identity via self-descriptions and motivational offers. Management turns into managing the possibilities for self-reference, self-assurance and sensemaking, which further implies an abandonment of direct causal control in favor of a diffused control function spread throughout the entire network. Non-economic rationalities need to be adapted as a viable part of the operational processes of the organization, and leveraged with traditional economic goals, that no longer have clear primacy in every decision.
2. Measures
The next organization in the degrowth economy needs a measure for its ecological impact that entails a clear and unambiguous boundary for its economic activities. So far, only relative measures are employable on the firm level, e.g. lifecycle analysis or the carbon footprint. A true sustainable measure would have to take into account the “Ecological Allowance” of the organization’s activities by tying economic and social performance to the limits of a finite Planet. Such a measure could then provide guidance as to what extent the sufficient condition of ecological sustainability is met and rightsize profits have been achieved.
3. Organization
There is much to learn for this next organization from social entrepreneurs and traditional ways of organizing business for the common interest. The rebirth of the cooperative as a legal form for business, the introduction of new forms like low-profit limited liability companies as well as community interest companies, and the organizational mixtures of foundation-based or foundation-owned companies all provide new and more sustainable options.
What might have become clear is that the organizational landscape in the sustainability society is more diverse and more demanding. But make no mistake: there will still be a globalized economy, however much more rooted in local contexts, a network of bonsai organizations amounting to rich ecologies of businesses without the sting of growth and appetite for ecological destruction, but ensuring for enhanced forms of organizational democracy and social-ecological responsibility.
Postludium
The economy of the coming sustainability society is a degrowth economy with new forms of organizing for business: the ecologies of the next organization. I am strongly arguing for this kind of economy in order to master the great transition, the meta-crisis of society, economy and ecology we are facing today – at least if we are favoring an option which values life and planet, people and their dignity over technocratic or dictatorial means of managing and “engineering” our world. Coming back to wēijī , all what I have said here is not an opportunity. If it were one, we could decide not to go into this direction and look for other options. But this is a real crucial point in human history, maybe the first for many centuries to pass and many more to come. To paraphrase Kennedy again, with yet another wrong Chinese proverb: These are interesting times – like it or not.
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