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Disruptive Markets: What Sustainability Really Means for Business

August 28, 2018

Many look around at today’s crises – climate change spinning out of control, inequality driving political instability and our oceans filling with plastic – and despair at the prospects for serious change. Most then try to apportion blame or at least seek to understand why. Business blames consumers. NGOs blame business. Everyone blames politicians.

Almost everyone who is engaged and thoughtful on this, even inside companies, at some level blame capitalism, markets and big business. This is well justified given, after all, it has been the delivery vehicle for all these crises.

But where does that leave us? As a campaigner who has spent 40+ years on these issues, I’m not satisfied with just a problem diagnosis, I need a way forward, a credible path to success. When talking about risks to the future of civilisation, accepting failure is not really a strategic option.

I don’t disagree that capitalism has been the problem. I emphasise capitalism rather than Western free markets – just take a look at China where capitalism took hold and delivered an epidemic of pollution that nearly overwhelmed the country – and still may.

But problem accepted, we have to find a way forward and I would argue that some form of the market system, if guided or constrained by policy, is our best and probably only hope of moving fast enough.

I do not argue this from a love of markets or an inherent belief in the philosophies espoused by many of that system’s advocates. I approach this as a person who lives and breathes the fear of global collapse and I can’t see another viable way forward.

What I do see, is that by engaging the current system’s strengths and capacities, a rapid and revolutionary transformation could be delivered quickly and globally. I see a way to replace most of today’s failing business models and companies with new ones that will deliver what we urgently need – a circular economy, reducing inequality and preventing climate change tipping us over the edge. It won’t solve all our problems or their causes, but it will buy us time to address them.

Markets have many failings, but they also have attributes that make them ideally suited to this task. Most profound of these is what the Austrian economist Joseph Schumpeter called “creative destruction” which he described as the process of incessantly destroying the old while incessantly creating the new.

This is what markets are good at and that should strike fear into the heart of many of today’s corporate leaders. Ironically, it means the market is coming for them and while they can delay, there’s not much they can do to stop their own destruction. And in the case of the Koch brothers, Exxon and many others, it couldn’t happen to a more deserving bunch.

The reason I wanted to write this article, is to present the possibility of this – but also to argue that those of us who have dedicated our lives to addressing sustainability and to preventing collapse can accelerate this process, if we choose to do so.

I am certainly not arguing that “markets will fix this” in some techno-optimist delusion that self-correcting market forces and technology will, by themselves, recognise the problem and turn the system around. What I am advocating is the potential for transformational change -if we engage and help accelerate the process. Doing so would require us to understand how creative destruction works and therefore how to leverage it.

The essential and first point of this understanding comes from Schumpeter and also the evidence of economic history. While Schumpeter developed his theories in the 1920s, and the evidence was there before that, it’s really in the 100 years since and especially the past 30, that we’ve observed this market tendency on steroids.

I will expand on this evidence in my next column but let me make the core argument here simply. With a few notable exceptions, incumbent businesses consistently fail to respond to system threats to their companies and their business models. They can see the threats, analyse them, resist them, talk about them and when resistance has failed, develop strategies to respond. But they generally fail to deliver these strategies and so they die and are replaced.

Seeing the threat and knowing how they should respond is not enough. Remember that Kodak invented the digital camera, then watched as it destroyed their company.

I have spent 25 years inside the corporate sector – mostly incumbents – advising their top leadership on how to respond to sustainability, trying to convince them of the transformation coming and how to react. So I make the above comments not as a theoretical construct or wishful thinking, but as a practitioner deep inside the system who has seen this happen, again and again, inside the Board room and executive suite. There are important exceptions – and we can learn from these – but they are rare.

What does that mean we – those driving change inside companies, NGOs and government – therefore have to do? For a start, we do not sit back and “let the market work its magic”. If we do that, we will almost certainly face economic collapse, due to the time bound nature of the threats we face.

What we have to do is accelerate the process, by recognising the profound opportunity to differentiate inside the market and the corporate world. To favour winners over losers. To encourage disruptors – both those inside incumbents and as new players. To not waste time and energy (or capital) trying to shift companies that most likely won’t make it. To design policy that supports disruption and then to help the disruptors to advocate for it.

The key is to recognise that “the corporate sector” or “capitalism” doesn’t exist as an aligned force anymore. It is a disparate collection of people and forces that can be influenced and steered.

In summary, to paraphrase Churchill’s writing on democracy, the market and capitalism is the worst form of economic system, except for all the others we have tried. If we plan to avert systemic collapse, we have to find a way to leverage it for change. We have no time for anything else. Fortunately, it has at its core a systemic tendency, creative destruction, that suits our purpose perfectly. We now have to learn to use it.