Shareholders are also stakeholders
Influence the results
Ironically, one of the best ways to influence climate change is through markets and capitalism. Markets are determined by price and therefore it is important that costs and benefits are assessed as clearly as possible if these markets are to deliver sustainable results.
As Chief Economist of ANZ Remarks by Richard Yetsenga, for meaningful action on climate change “the price of high-carbon consumption must increase or availability must decrease relative to low-carbon consumption. This could be done through a price signal such as interest rates, product prices or an exclusionary policy which openly limits certain types of consumption ”.
This has not been the case with climate as the costs of global warming have not been factored into prices while policies too often fail to recognize the long-term benefits of sustainable solutions. A climate that reduces natural disasters and limits the forced displacement of populations is a better economic outcome.
Globally, one of the simplest and most effective market mechanisms has been carbon pricing.
Financial regulators have no doubts. According to Christine Lagarde, President of the European Central Bank (ECB), “an orderly transition to carbon neutrality entails higher costs in the short run, but these are more than offset in the long run by lower physical risks and higher production “.
“It’s an obvious option. We need to act. Even a messy transition, where policies are passed haphazardly or before green technologies are fully mature, is always less expensive than sitting down and watching and there is no transition at all. The long-term benefits of acting on the climate early are clear. “
Fight against distortions
But beyond the climate, distorted prices are at the origin of the current crisis of capitalism. Economic rents that are pernicious – and generally favor the rich and powerful – have not been properly taxed. Politics is too often motivated by vested interests – and not by better social outcomes.
Addressing these distortions to better recognize the costs is at the origin of the latest reform process known as “stakeholder capitalism”. This thinking is not new because distortions in market economies are not a new phenomenon.
The father of modern economics, Adam Smith, argued that the “invisible hand” behind markets enriches society as a whole, not exclusive individuals or individual groups – such as shareholders. While each agent has acted in its own interest, transparent markets and rational pricing of costs and benefits have oriented capital and human action towards long-term sustainability.
It was not until the 1970s with Milton Friedman’s argument around the moral obligation of corporations to maximize profits for one category of stakeholders – shareholders – that the larger perspective was lost. Friedman was not wrong but his cronies have failed to recognize whether shareholders should benefit in the long run, customers should be treated fairly, employees should be properly valued – if only for some other reason that the good ones will leave if they leave. are not – and societies need to get richer on the whole not inequality.
Whether it’s called stakeholder capitalism, triple bottom line, or corporate social responsibility, the essence is the same: everyone, including shareholders, has more opportunities to thrive in sustainable and equitable societies. And healthy capitalism will promote this with the right price signals.
Increase in inequalities
Unfortunately, after the global financial crisis, decades of global warming and now the pandemic, markets are increasingly distorted and wealth inequalities are increasing. This is not only morally wrong, but economically unsustainable.
Research of McKinsey & Co found that 87 percent of those asked about the role of business said they should create value for multiple interests, not just profit. To ignore this is a manifesto for social unrest. Every business needs a social license to operate.
Meanwhile, reversed, the complex nature of a company’s deep entanglement in society is clear. According to McKinsey’s Michael Birshan, “value flows from businesses to households through eight different routes.”
“If you take a dollar of income generated by an average business, 25 cents of that amount is transferred as labor income: wages, salaries, and other employee benefits. Seven cents of that dollar goes to capital income – that is, dividends, share buybacks and interest payments to creditors. Six hundred goes to investment – profits that are kept to be invested in new productive assets – and four hundred goes to production and corporate taxes.
“The remaining 58 cents goes to supplier payments, which then translate into labor income, capital income, investment and tax channels for those supplier companies. “
Other research McKinsey found in 10 countries that account for about 60 percent of the world’s gross domestic product (GDP) – including Australia – the historic link between growth in net worth and growth in GDP no longer holds.
“While economic growth has been lukewarm over the past two decades in advanced economies, balance sheets and the net worth that have long followed it have tripled in size,” McKinsey found. “This discrepancy arose as asset prices rose – but not as a result of 21st century trends like the increasing digitization of the economy.”
Wealth disparities are increasing at a macro level and those for whom the pandemic and climate change have been most damaging are suffering the most. The benefits flow to those with existing capital while the labor is underestimated.
“Asset values are now almost 50% above the long-term average relative to income,” says McKinsey. “And for every $ 1 of new net investment over the past 20 years, overall liabilities have increased by almost $ 4, of which about $ 2 is debt.”
The rich profit from what economists call “negative externalities” – damaging side effects – which lower GDP but are paid by the less wealthy.