Sustainability in business: ethics, responsibility and the profit motive

I recently watched the documentary ‘Schmatta: Rags to Riches to Rags’ (see reference, resources and links page), which chronicles the history of the ‘rag’, trade in American (Schmatta is Yiddish for rags).   In 1965, 95% of American clothing was made in the USA and by 2009 only 5% was manufactured there.  So what happened to this industry that had, as the documentary explores, been the source of wealth, employment, added economic value for so many for so long? 

Several questionable industry based decisions but principally to blame was the failure of Reaganomics or the laughingly called ‘Trickle Down’ theory.  Which in my very simplistic understanding offers tax cuts and incentives to industry and the wealthy with the rather naïve expectation that the benefits would ‘trickle down’ through the tiers of the economy from the wealthiest down to the poorest.   It didn’t.

The profit motive overrode any ethical caution or fiscal responsibility for the livelihoods of the workers and led to a pursuit of larger ‘greed is good’ profit margins.  Taking the lowest level jobs overseas to countries with lower daily wage requirements and non-existent union protection very quickly offered shareholders of fashion houses lower unit costs, higher profit margins and instead of benefits trickling down unemployment trickled up through the tiers of the industry.

The suppliers soon became affected by the same price pressures and their businesses followed the same pattern of being driven offshore; this then led to complementary businesses suffering.  With the resulting depressed economy, the demand for lower cost products furthered the downward spiral of the American clothing manufacturing trade into a cycle of even lower cost production, leading to unsafe and unethical practice.

The plight of the ‘rag trade’ industry workers (both the unemployed American and the unprotected overseas sweatshop workers) highlights the danger of applying an economic model which underestimates the powerful drive of, and the subsequent impact of, the profit motive and ignores the need to motivate an imperative to provide a competitive, sustainable, financial future rather than the lure of the short term gain.


Industry, Government and the community need to holistically view economic decisions and directions in recognition of their responsibility to still be there; responsible to the shareholders, employees and the  community economy.

sustainability concepts: efficiency

I am no economist.  Absolutely.  However, in my approach to “domestic” economics, i.e. my family budget, our goal is to maximise our lifestyle (for the immediate and the long term) whilst incurring a minimum of debt.   We have some ideologies which underpin this very simple theory which is also to minimize the harm we do… so within the bounds of our ability to control we purchase fair trade items, use free range food products and cruelty free personal products. 

So you could say (although economists would likely not) that the Grey family economic efficiency is the ratio:

Created value (assets and acceptable services) gained

 Grey ecological system (debt/opportunity cost & freedom) sacrificed

This quest for efficiency can be equated to the sustainability economic theory of Comprehensive Efficiency Identity, which considers the challenge for the macro economy for now and for the future i.e. to the efficiency with which capital (MMK and NK) is used to provide life supporting and life-enhancing services.

Overall ecological-economic efficiency is the ratio:

MMK services gained

Ecosystem services sacrificed

where MMK is man made capital and Ecosystem or NK is natural capital.

The  Comprehensive Efficiency Identity uses one primary ratio subdivided into four components,

(1) service efficiency,

(2) throughput efficiency,

(3)  growth efficiency, and

(4)  Sacrifice of ecosystem service ratio.

As I attempt to understand it, this ratio and its components are used when reviewing a service or supply chain and solicit questioning which reflects how efficiently the process, industry, and/or overarching philosophy utlises ecosystem resources to reach the projected/desired level of value creation in product or service.

This ratio recognises that the services we get from man-made capital (the numerator) can come at a cost to the ecosystem services obtained from natural capital (the denominator) and just as in the Grey family ecosystem we want to maximise the services gained whilst minimising the (pay for it later, negative) impact.

Seven big ideas - reforming our economic view

Seven big ideas
(Seven big ideas and descriptions in Blue from State of the World 2008 – see reference, resources and links page;  examples and ideas in green from the collective consciousness and me).

1.     Adjust economic scale

- an economy that tries to grow beyond a size the biosphere can support will simply destroy it.  So there must be a limit on the size of the economy.

·      Example: online news production vs. newspaper/print production

·      Idea: centralised supply management to reduce duplication and waste.

·      Idea: online newsletter distribution vs. hard copy distribution throughout a company

2.     Shift from growth to development
- move from a growth mandate to a focus on development of value within living condition

·      Business production idea: improving production processes which offer a leaner approach to components (and subsequent landfill) whilst still offering quality product to consumers.

·      Service industry idea: focus on offering higher quality and more targeted services delivery rather than more services to the community.

·      Government idea: substitution incentives – tax relief / bonuses for reduction of negatively environment

3.     Make prices tell the ecological truth

- environmental costs are often unaccounted for by the market leading to misrepresentation of the true impact of business activities and there ability to be sustainable over time.

·      Example: government taxes and vouchers incentives to represent and promote accountability of waste production and disposal in the cost of doing business.

·      Business idea: incorporation of environmental impact targets within corporate budgets and business plans. 

·      Government buy-back incentives for domestic/household waste reduction.

4.     Account for nature’s contributions
- nature’s contributions are increasingly being factored into economic decision making through administrative and market mechanisms.

·      global economy idea: debt reduction incentives for countries which resist pressure to commercialise environmentally beneficial ecosystems –creation of environment economic value systems which compensate resource nations for loss of commercial income.

·      Farming idea: voucher incentives for complementary farming techniques which are developed in connection with nature’s ‘cycle’ and contribution to value creation, i.e. crop production.

5.     Apply the precautionary principle

Mas vale prevenir que lamentar (better to prevent than lament)
- where an activity raises threats of serious or irreversible harm to the environment or human health, precautionary measures should be taken even if some cause-and-effect relationships are not fully established scientifically

·      Government policy idea: introduction of risk assessment standards for impact studies for new industry/projects which are formulated and monitored by independent assessors

·      Independent body with auditing powers which enable punishment and reward systems which are relevant to the financial scope of the industry; e.g. fining a mining company for inappropriate environmental practices for less than 1% of their annual revenue is an incentive for infringement rather than correction.

6.     Revitalize commons management
- private property ownership vs. communal interest management of resources – shared responsibility especially in the areas of resources whose use has an impact on the whole community not just the industry

·      International covenant - authority: establishment of an international representative body with the authority and power to oversee global ‘assets’ whose use affects existing and future populations within and without existing political/geographical boundaries.

7.     Value women
‘most poor people are women and most women are poor” according to a 1994 UN Report

·      Idea – incentive program encouraging organizations to include more women on management Boards:  in both developing and wealthy economies women are underrepresented on management Boards of companies, especially outside of the not-for-profit domain. 

·      Idea – sponsorship of education of women projects in countries where women are subjected to discriminatory inaccessibility to education.

·      Idea – development of a more equitable reflection of the economic contribution of full-time parenting women and/or women in primary caring roles (ageing, disabled, children); eg government sponsored superannuation fund contributions scheme which compensates for out of the paid workforce