Introduction
Having spoken about the specific importance of regenerative business in my lectures over the last few years, it dawned on me during one lecture, and I don’t mean in any loud revelatory way, but rather with quiet obviousness, that all entities thrive and flourish in their context when the conditions are right for them to do so. Similarly, when the conditions are not right, and by not right I mean ‘not supportive’, they are unlikely to thrive and flourish. Logically therefore, the same is true for regenerative businesses. For them to be able to thrive and flourish as regenerative businesses, the environments in which they operate similarly need to support regenerative endeavours. Given that businesses operate in the economy, arguably, for regenerative businesses to thrive and flourish, they need a supportive economy in which to operate. Sadly, the global economy is degenerative!!
Regenerative economy
The current economic environment, the one within which almost universally all businesses operate, is one that supports degeneration. Degeneration via the competitive conversion of finite resources into goods and services (products), and their exchange in a marketplace, for often, the highest level of financial profit. Competition exists both on the side of production – a form of consumption – as well as it does at what we think of as the actual point of consumption by individual consumers. Simplistically, the goal on both sides is value and utility maximisation with both businesses and consumers seeking to maximise the value of their return on investment (ROI).
Consequently, businesses and consumers maximise their ROI in a way that by implication devalues the finite resources that serve as inputs. Let’s have a closer look at what I mean here by ‘devalues’.
Cost internalisation
If the actual costs of production and consumption were considered in full, that is, at their true cost level, and they were ‘internalised’, the likely result would be less degeneration because cost itself would take on a different meaning for businesses.
To clarify, by ‘cost internalisation’, I mean, if all of the external costs of production and consumption, such as those associated with environmental degeneration, pollution and the negative health impacts in society were likewise considered, that is to say, if they were internalised into the cost of products, we would have a truer representation of their real cost. My thinking runs that the economy would likely be less degenerative because the perception of the true value of resources would be more accurate, and this in turn would drive more conscious positive ‘consumption’ behaviours.
On a note of caution, when we think about degeneration, it is worth pointing out that the goal, a regenerative economy, is about much more than achieving ‘less degeneration’. Indeed, it is even about more than the absence of degeneration. It is about the presence of regeneration.
Before I close this post, I recognise that I’ve potentially opened a pandoras box here by introducing the economic concept of ‘cost internalisation’. Simplistically, a degenerative economy thrives when the true costs of production are externalised. So, the big question is, who or what pays the price when costs are externalised?
What do you think?
Summary
One key takeaway from this post is that for businesses to be able to operate regeneratively, they can only realistically do so when the broader environment in which they operate, the economy, is likewise regenerative. It is unrealistic to imagine businesses operating regeneratively, and flourishing, in a degenerative economy. In spite of this, clearly, businesses still have an important responsibility to operate regeneratively. However, the aforementioned realisation extends the onus of responsibility for the impacts of business on the environment and society beyond the realms of individual businesses to the broader economic systems level. What a regenerative economy is, how it is structured, and how we can get there is a complex topic which I shall return to in a later post.
Future post
In Part 2 of this post, I’ll expand further on the topic of how we can bridge the gap between the absence of degeneration and the presence of regeneration. In Part 3 I will revisit the concept of cost internalisation and its relationship with regeneration.
