Is there a way out of the financial crisis: a renewal of value creation, security and sustainability? A solution needs to involve both China and the United States – and a new model of business success, writes Tony Manwaring.
If I had a dime for every time some one has told me in recent weeks that the Chinese characters for crisis mean both danger and opportunity, I could probably bail out Wall Street myself.
Weiji is the word in question, and while wei does mean danger, ji means “crucial point”. Such are the times we live in, a crucial and potentially dangerous point for the future of people and planet.
The question that faces us is whether the aim of achieving a sustainable future is about to be swept aside by the toxic combination of Wall Street greed, hubris and avarice, played out at a time of hardball calculation during a US presidential election campaign. Years of cheap credit, combined with a lack not only of regulation but also of any real interest in the instruments and institutions of wealth creation, which have come together in an uncontainable conflagration of loans disguised as derivatives, built on trailer parks confused with mansions. The global house of cards now risks falling apart.
In these circumstances, it is not so much truth that is the first casualty of war, but trust. “Trust no-one” is the credo of today, and in our 2.0, interconnected global village, a financial butterfly that flaps it wings over the Comoros Islands in the Indian Ocean can cause a credit whirlwind in Somalia and Burundi. (I mention these as the three countries most vulnerable to climate change in a recent study).
I believe the way ahead is going to hinge on the clash of two forces: in one corner, two unlikely allies, the realpolitik of American power and economic might, shadow-boxing with a rising China; in the other, the opportunity and imperative of creating a secure, commercially successful and sustainable world, in which 9 billion people can live on some basis of shared equity.
What matters is not so much money as value: how we monetise the things we produce, consume and trade, across time and space. We talk a lot about non-financial indicators in the sustainability space, but we live in a material world, and if you cannot touch the cash and trust in the promise to pay, then the foundations of economic life crumble.
So where is the money now? According to a recent IMF analysis of the current crisis, the answer to this complex question is disarmingly simple: it is in the sovereign wealth funds and other financial institutions that through oil, trade and savings have been accumulating cash in such countries as China and the United Arab Emirates. But it is frozen, beyond the reach of the ordinary mortals of the world. We are living in a new global financial ice age, and we need a big thaw, so that wealth can be released to create sustainable value.
What is the new deal going to look like, which might thaw this frozen wealth?
Wealth comes with, and is vested in, power. And people, institutions and countries are of course going to want something back, financially and politically, for sharing it. While they will not act out of spontaneous generosity, there are grounds for hoping that the result will be for the good of the planet: those with money can profit, reliably and for the long-term, and – like some thawing body of water – money will flow where it needs to go, to secure the highest return and find its own level.
What is the magic point of convergence: of value creation, long-term commercial return, security and sustainability? Our argument is that to achieve business success you increasingly need to contribute to sustainability outcomes. To achieve sustainability requires, in turn, a new model of business success.
Business success and sustainability must go hand in hand, because issues such as climate change, access to water, food and other basic resources, human rights, community cohesion, security and the environment; issues that once we would have written off as “externalities”, which we could leave to others to pay for, are now central to global businesses of the future.
First, proactively managing these issues is critical to even being able to do business at all. Second, they increasingly impact on the nature of the products and services and the ability to manage and motivate people, which will shape what business does and how it does it. Third, they represent huge and compelling opportunities in terms of how we eat, live, travel, enjoy leisure and meet energy needs. Fourth, they can only be tackled if we harness the distinctive and dynamic capacity of business to bring together people and finance in a way that fully harnesses our skills and the potential for innovation.
It is the combinationof all these factors that means this agenda will become even more important in the face of any economic downturn, which means that business-as-usual will be a recipe for decline, that cost-cutting will only stave off the inevitable, that the basis for what we call corporate social responsibility is being fundamentally recast.
China could be in the forefront of sustainable business. Take renewable energy, for example. The renewable energy sector is set to expand to US$450 billion by 2012, and $600 billion by 2020. Global investment in renewable energy surged 60% to $148 billion last year and is still accelerating despite the slowdown in the wider economy, according to a recent UNEP report. (Wind energy attracted the biggest amount, at around $50.2 billion and solar, the fastest growing area, attracted investment of $28.6 billion. Since 2004, the global market for solar energy has grown by annual rate of 254%).
China's renewable energy use is number one in the world. China's reliance on hydroelectric power and wind power rank first and fifth in the world, respectively. China is likely to increase the proportion of electricity generated from renewable resources to 23% by 2020. (Only 1.3% of UK energy needs are currently met by renewable energy currently, compared to 16% in China and 39% in Sweden).
China is not only demonstrating an acute awareness of the potential of renewables, but also an impressive capacity to make it happen. According to Sweden’s Industry Daily, “China has made a smooth transition to low-carbon economy, thanks to the government's strong policy enforcement that stimulated innovative low-carbon technologies and attracted dozens of hundred-million-dollar investments in the field …the Chinese government started "the Low-carbon Big Dragon" initiative, which tackles issues like future economic growth, development, and energy security”.
The Democratic presidential candidate Barack Obama’s recent remarks may perhaps speak to a future agenda for people and planet:
“We live in a time when our destinies are shared. The world is more intertwined than at any time in human history. Walls that divided old enemies have come down.
Markets have opened. The spread of information and technology has reduced barriers to opportunity and prosperity, and opened doors to new competition and risk.
Climate change. Poverty. Extremism. Disease. These problems offend our common humanity. They also threaten our common security. You know this. The question is what we do about it. We’re not going to face these threats of the future by grasping at the ideas of the past.”
Fast forward to April 12, 2009: 50 years to the day when President John F Kennedy speaking in Indianapolis remarked, but did not quite get right, that “When written in Chinese the word crisis is composed of two characters. One represents danger, and the other represents opportunity.”
Will we see a new American president, perhaps speaking in China, recognising with respect the true meaning of weiji and forging a deal that secures the funds and reaches ground-breaking new agreements on who owns and controls what in the US and beyond? This deal will set the framework to create value through sustainability, to unleash the next great wave of value generation: a partnership between China and the US that ushers in the age of sustainability.
Tony Manwaring is the chief executive of Tomorrow’s Company
Homepage photo by Petrick2008