A World That Exploits Its Resources

Some enterprises explore—for example, to come up with innovative products. Others exploit, sometimes constructively—say, to bring us lower prices—other times destructively, by squeezing their workers, suppliers, and customers instead of building sustainable relationships with them. A healthy economy favors the explorers that serve themselves by serving us. Too many economies are now favoring the exploiters that serve themselves at the expense of us.

Witness the bailouts of some of the sickest companies alongside subsidies and tax breaks for some of the richest. Consider the revelations about fraud and other forms of corporate malfeasance that go unpunished. (If you wish to break the law and stay out of jail, I suggest you wear a white collar, not a blue one.) The problem is that by reinforcing their established positions, the exploiters are hogging too much of the world’s wealth.

Don’t look to the economists to fix this problem. They work in the upper reaches of abstract theories and aggregated statistics, while the economy functions on the ground, where products are made and customers are served. Here is where this problem is festering, in the mismanagement of so many large companies for the sake of quick bonuses. And so here is where the economy will have to be fixed, with patience and determination, enterprise by enterprise. (See “Rebuilding American Enterprise” on www.mintzberg.org/enterprise.)

Exploiting the Externalities

In a world of exploitation, I can do as I please with my property, any harmful social and environmental consequences be damned. The economists have a convenient word for these damned consequences: externalities. It means that while a few people gain from the tangible benefits of what they own, everyone else pays for the intangible costs—such as the air polluted by someone’s factory and the mental breakdowns of the workers that company “downsizes.” (This process of firing people in great numbers has become the bloodletting of our age—the cure for every corporate ill.)

But don’t think it’s just them. It’s me, too. And you.

Take the simple example of garbage. Where I live, I can throw out as much as I like—that costs me nothing. Besides, recycling takes effort. Why should I bother?

The fatal flaw in this thinking is that there are no human activities without externalities, and these are accumulating at unsustainable rates. Garbage may be free for me, but it is not free for us. What many of us can afford, our planet cannot: our micro behaviors are rendering macro destruction.

Economists tell us that if we can afford it, we can do it: drive gas-guzzling cars, amass possessions beyond what we can possibly use, eat gluttonously while our neighbors go hungry. Supply and demand will take care of the problem. (Go tell that to a hungry neighbor.) So instead of stopping destructive practices, we try to price them to reduce demand. This idea is fundamentally perverse: only the rich are allowed to indulge. But what happens to life on Earth when so many of us can afford such indulgences while so many more are waiting to join the party? Will supply and demand kick in after it’s too late? Dig beneath these two foundations of economic theory—our right to consume whatever we can afford and to slough off the externalities—and have a look at the behaviors that are crawling underneath.

Competitive markets are wonderful—so long as, in the spirit of Adam Smith, they serve the broader society. What we are seeing instead are markets of entitlement, which benefit some people at the expense of many others: markets for subprime mortgages, for executive compensation, for recycled aluminum. In a full-page investigative report in the New York Times, David Kocieniewski (2013a) described the “dance … choreographed by Goldman Sachs to exploit pricing regulations set up by an overseas commodity exchange” for recycled aluminum. In three years the company was reported to have extracted $5 billion out of that market simply by storing it and shifting it between warehouses. Imagine if such behaviors were treated as manipulative robbery instead of just legal corruption.

John Maynard Keynes famously declared, “In the long run, we are all dead.” By “we” he meant each of us, not all of us: there is no collective we in mainstream economics. But it is the collective we that is now threatened—ecologically, politically, socially, even economically—and the long run is getting shorter.

In the name of liberty, we are suffering from individualism: every person and every institution striving to get the most for him-, her-, or itself, over the needs of society and a threatened planet. Enough of the clever words of Keynes. We had better heed the wise words of Chief Seattle, the aboriginal elder who declared, “We do not inherit the earth from our ancestors; we borrow it from our children.”