Sustainable Business Week: Judging success needs wider vision

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Measuring a country's health needs more than a focus on GDP and must include the state of the environment.

One of the first mainstream politicians to question GDP as the primary measure of country success was President Nicolas Sarkozy. Photo / AP
One of the first mainstream politicians to question GDP as the primary measure of country success was President Nicolas Sarkozy. Photo / AP

In these articles, we have been looking at how business' awareness of its role and responsibility in society is changing.

But what is the role of governments in all this and are politicians keeping up with the thinking?

As a general observation business leads, and politicians only follow, in the wider debate on the role that business can and should play in society.

In many ways this is not surprising.

Governments have only a limited number of tools to change business and consumer behaviour - they can regulate and they can tax (or subsidise, but they only do that with revenues derived from taxation).

Both of these tools put costs on consumers who are also voters, and voters often change governments who load them with costs.

That's not to say governments don't have a role. They can set regulation to deal with the slow adopters who can undermine a successful shift.

But this is better done after business has innovated and can show what works. Governments can also participate in the debate. And one successful way they can do this is by changing the way they measure their own performance and the performance of their countries.

Internationally there has been some development in thinking about what success as a country might look like. In a similar manner to the way some companies are thinking about their role in the development of societal wellbeing, governments are now starting to consider wellbeing as an underpinning concept in measuring the "health" of a country.

It is now well accepted that the principal measurement of country health - growth in GDP or GDP per capita - is seriously flawed.

The basis of the measurement - the level of expenditure - would not be consistent with most people's understanding of their own wellbeing.

The fact that it excludes many of the factors that most people consider valuable - for example, the state of the environment and the amount of environmental capital - also indicates its limited nature.

And it's also true that when a certain level of GDP per capita is reached people's sense of wellbeing does not continue to grow. Health benefits do not increase linearly with the amount spent on them. And some of the most contented societies are not the best off.

There is also an interesting inverse relationship between wellbeing and inequality in a society as wealth increases and after basic needs are met. Diener and Seligman's article Beyond Money: Toward an Economy of Well-Being provides a detailed examination of what might cause a sense of wellbeing in a society.

That's not to say that people are following the pursuit of "Gross National Happiness", long reported by Bhutan as their key national indicator, as a measure.

But there is recognition that GDP isn't enough.

Perhaps one of the first mainstream politicians to question GDP as the primary measure of country success was President Nicolas Sarkozy.

Declaring GDP inadequate for measuring national health, the former French President launched a report in 2009 by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi on the measurement of economic performance and social progress.

This not only identified weakness in GDP measurement but talked about the use of measures of quality of life, sustainable development and the environment.

The baton has since passed to the OECD in its "New Approaches to Economic Challenges" framework paper.

This is a somewhat difficult topic to progress in this multinational grouping. It includes topics such as the problem of rising inequality, the undesirable effects of pro-growth policies and the under-pricing of risk, so we anticipate progress will be slow.

Academic Michael Porter, in a piece of work for the Social Progress Imperative co-sponsored by Deloitte, has been working on a Social Progress Index.

Released in April, the index looks at progress in terms of basic human needs, the foundations of wellbeing and opportunity for individuals.

In New Zealand, the Treasury is leading the development of a living standards framework that looks at the broad components of the quality of life of citizens.

Interestingly it talks about freedoms, rights and capabilities as well as the sustainability and distribution of living standards.

So governments are involved in the debate. It is disappointing that, as with the business debate, this gets little air time in New Zealand and the public is not involved.

And the public should be engaged. The current model of perpetual GDP growth being a requirement for success is just not sustainable.

There are trade-offs we make in our personal lives every day between economic and other sources of wellbeing, but we don't do it at a national level.

No wonder we end up with such a confused and fractious debate when we are contemplating whether to reduce environmental sustainability in order to increase employment.

People too easily move into camps based on pre-established positions rather than looking for the win-win, or at least an optimised solution.

For a country that has made a national branding claim to be environmentally pure this lack of debate leaves us exposed. If New Zealand was a company and had established 100 per cent pure as a brand value then we would expect everyone to contribute and to be on message.

The development of a national framework for broader performance measurement would be a great basis for this conversation.

Alignment is one of the most powerful weapons in the business toolbox. Alignment of brand, culture, performance measurement and reporting with strategy helps keep a business focused and on track. Think how powerful the alignment of citizens, government and, yes, a national brand would be to a country's culture.

For business this debate would be helpful.

As well as the obvious links of New Zealand strategy to business strategy when working in overseas markets it helps create an environment for explaining business engagement. And it helps with wider stakeholder engagement.

That is, of course, if you are on the journey.

Nick Main is a former chief executive and chair of Deloitte New Zealand, a past chair of the NZ Business Council for Sustainable Development and has recently completed three years as the head of Deloitte's Global Sustainability practice.

Jackie Robertson is an assurance partner at Deloitte New Zealand who specialises in sustainability and corporate responsibility reporting, governance and strategy.

Part 3
A series of articles on the role of business and how it may be changing as companies consider social and environmental concerns in the post-global financial crisis world.

Tomorrow
Putting plans into action.

- NZ Herald

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