Is mankind doomed to someday walk the earth alone, save for domesticated animals and mutant insects? Will we turn our once “Garden of Eden” into a living purgatory, or even blow ourselves off the face of the planet? Most Canadians are a lot more optimistic about the future than that. We enjoy the benefit of living in a period of relative peace and prosperity. Our Western economic system has provided us with a wealth of goods and services and a standard of living our ancestors would have envied. Around the world, with a few notable exceptions, economic growth is also strong. But although we are growing wealthier, on other fronts progress has been frustratingly slow. Some even say we are in danger of losing everything we have gained if these other problems are not addressed soon.
Man is changing his environment relentlessly, and the long-term effects of these changes are, as yet, unknown. It once seemed that there were as many trees on earth as grains of sand. Yet vast forests are dying in North America and Europe because of acid rain fallout and urban expansion. Overpopulation in certain African and Asian countries, for example, is resulting in annual rates of deforestation in the order of 5%. Consequently, in several years the oxygen content of the atmosphere and the world’s climate could be irrevocably changed.
We’ve discovered holes developing in our protective ozone layer, caused primarily by chlorofluorocarbons, a constituent of many common foams. Pollution of waterways, erosion of soil and extinction of species are occurring at a faster rate than at any time in the earth’s history.
Our society is under pressure in other ways. In North America, ethical standards are being attacked. There is a continuing stream of scandals involving business, political and religious leaders. Homelessness and street crime are serious problems in our larger cities. Breakdowns, divorce, drugs and health problems are in creasing. Business is under attack for not addressing these problems. In fact, former U.S. presidential candidate Jesse Jackson has waged a crusade against what he calls “economic terrorism,” a central plank in his election platform.
It was recently calculated that since the year 300 B.C., there have been only 20 years of no recorded warfare. We are still fighting one another, with more sophisticated weapons. Through chemical and other weapons supplied by a growing world armaments in dustry, more people have now been killed in the Iran/Iraq war than in the Second World War. Nuclear weapons are increasing in number and many experts feel it is only a matter of time before they are used.
It seems that our systems of social management (governmental and legal systems, etc.) have been unable to progress at the same rate as our ability to change our environment and society. Some people say the underlying fault lies with our economic systems — that economic pressures are eroding our ecosystem, our values and our society. They say the desire for monetary wealth, combined with relentless growth and expansion, are so fund amental to Man’s nature that pressures on our world will grow until some boiling point is reached.
Our economic systems have been very efficient at pro viding us with goods and services. How ever, perhaps now, when Man is capable by his actions of pro foundly changing his environment and re- tailoring society, our economic thinking needs to be broadened. Perhaps it needs to be broadened be yond the immediate concerns of monetary costs and benefits, to tackle the problems that are non-monetary in nature but just as real and important.
This broadened viewpoint is already happening in our century. Sometimes it is voluntary. Sometimes it is through government regulation, social demands or other pressures. In the future, it must and will increase in emphasis and spread much more completely around the world.
We’re all in business to make money, and most of us realize that profitability is an important objective. But, is that the only aim of business? Milton Friedman, a Nobel prize- winning economist in the U.S. thinks so. He has said that businessmen should concern themselves solely with making money — that moral, ethical and other considerations are outside the mandate given to them by shareholders. If that is true, why should we worry about anything else?
Economic thinking in corporations and other institutions revolves around ideas and theories that are designed to maximize the production of goods and services and to minimize the cost. We measure success in business by the ability to earn a profit sufficient to provide an adequate return on capital.
However, there are many important considerations that go beyond current economic theory. There are many limitations to economics that businessmen and other leaders should be aware of before making decisions or expressing their views.
* Economic activity is monitored and directed by measuring monetary “value.” But not everything of real value in the world can be measured in terms of money, and these things are, therefore, outside the bounds of objective economic analysis. How do you measure the value of clean air and water or a human life. What is the value of the last Blue Whale or a stand of Giant Redwood? There is no model for treating non-monetary items in economic decision making.
* The goals of profit-generation and return on investment are time- sensitive. Money earned more than 10 years in the future has little impact on today’s economic decisions. Eco nomic decision-making is driven by a time scale that seems long in the life of a single person. But in the grand scheme of the world, it is insignificant. Economic solutions are almost always temporary in nature.
* Consumption of goods and ser vices results in a better standard of living, which encourages an increase in population and subsequent demand for more goods and services. If such growth is unchecked, it eventually leads to extreme environmental and societal pressures. When resources become scarce, under economic theory, there is increased pressure to use them. In Africa now, white rhinos are being poached mercilessly because of their rarity and value.
* Economic decisions are made by millions of individuals. They make choices, such as what products to buy, where to live and what careers to follow. Mobilizing millions of individuals to take action that is morally sensible, but not in their short-term economic interest, is difficult if not impossible. People often aren’t aware of the linkages between their actions and the ultimate effects. People are oversaturated with worries, and many just don’t care. Even if people do care, there is a tendency to say, “I can’t do anything on my own. So why bother?”
* Economic analysis ignores external costs. There are the costs that can be disbursed among society in general and that do not have to be covered by the firm or organization which earns the profit. Objectively evaluating the cost versus benefit of an economic decision is very difficult, or impossible, if all the external factors are included. A recent example of the real impact of external costs is the controversy over the new municipal incinerator in Detroit, Mich. Much of the dust and gas from this installation will be blown away from Detroit into Canada and the Eastern states. Despite complaints from the Canadian govern ment, the Detroit city council has refused to install what Canada feels are adequate pollution control devices.
For these and other reasons, eco nomics alone is a limited way of viewing business decisions. People have looked to other institutions for help where economics has not provided the answers: governmental, legal, scientific and religious. Yet these institutions do not exist outside the world of economics. Government relies on taxes, lawyers on fees, scientists on government and corporate grants, and the church on donations. Even environmental organiza tions are run as profitable businesses.
Although economic principles are tremendously important in helping us decide how to manage, they are not the whole story. Managers should be aware of the limitations of economics. Even though we all want to, and need to, make money, there are a great many other considerations.
As managers, we must realize that economics alone provides a very limited, and potentially destructive, tool if not tempered with a large dose of wisdom and caring. We must temper our economic decision-making with a view toward other, non-economic, objectives. Our society and our world need managers who have one eye on the money and another on the non- monetary effects.
As managers, we are in the best position to make a difference. No one will tell us how to make the right choices. It is up to each manager and each individual to do so for himself. We must factor into our decision- making a sense of ecological place and the value of living in balance. We must learn to manage people better. This is our greatest challenge today. William Stanley is director of national mine services at Coopers & Lybrand Consulting Services.
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