For an “Integral Economy”

“You may say I am a dreamer, but I am not the only one”

Originally the word “Economy” comes from Greek oiko-nomia meaning “household management”. Now, when you consider Earth as humanity’s (not only Humanity’s by the way) household, you might - such as more and more voices during the past 20 years - agree with the need for achieving a new economy that will not jeopardize the overall ecosystem of the planet. Those voices also argue that a moral economy is essential if we are to avoid systemic collapse as our growth economy outstrips the Earth's limited ability to recycle our waste and if we are to provide a satisfactory balance between financial factors and social justice.

After all, why would Economy as an Ethical activity be so surprising? Let’s remember that modern economy is precisely coming from “Moral Sciences” (Adam Smith himself was a Moral Sciences professor at the university of Glasgow) and was - not so long ago - a branch of Moral sciences at Cambridge. Behind this notion of Moral Economy, there are critical questions raised around the purpose, function, appropriate size, fairness, and governance of a world economic system. Addressing all these valid questions is necessary to IMAGINE a new economy model capable to transcend the basic opposition between on one side the sole Financial performance and on the opposite side the Ecological and Social protections. Please follow me in this new economy - still to be created - we propose to call “The Integral Economy”.

The main disruptive principle of the “Integral Economy”

A real change of paradigm implies also a concrete change in the way we measure our performance. Within the future “Integral Economy” the measurement unit will be the “Integral Economic Value”. This new unit will be a combination of several value dimensions = Financial + Ecological + Social + Governance (Financial + ESG). This idea may not be easy to figure out at the beginning but IMAGINE: It is about building a new system relying on measurements that will allow each citizen to become fully aware of what they are really trading in the market.

Some people may object that within existing price (financial dimension) mechanism you already have everything. So why changing “the price” such a fantastic concept that express - in real time and in a simple way - the agglomerate will of an important number of individuals (or stakeholders) that are too many to know each other? The point is not to contest the interest of pricing mechanism but on the contrary to improve it. In that sense, it is quite easy to reverse the objection by asking the question the other way around: Why objecting to revisit the notion of “economic value”? Indeed, on the one hand, if the price is already including everything, then the problem will become to “simply” present the price in a new decomposed way that will allow each citizen to transparently better acknowledge what they are really trading. On the other hand, if the price or “financial value” is not including everything, then the “Integral Economic Value” will allow to better consider important dimensions that were so far either ignored or at least imperfectly captured by the current “financial value” mechanism as we know it today.

The relevance of the concept of “Integral Economic Value” is somehow already partially accepted, proof is that there is a gaining consensus around the idea that we need to include what economists call euphemistically “externalities” (an easy concept to summarize all the things that are precisely ignored in the financial pricing mechanism) in the way we measure economic value. Some progress has recently been made to give more consideration to the ESG dimensions. Indeed, in May 2018, the EU Commission adopted a package of measures implementing several key actions on sustainable finance. The package includes a proposal for a regulation that will introduce obligations on institutional investors and asset managers to disclose how they integrate ESG factors in their risk processes. If this first step is encouraging, this is nevertheless far for being enough as firstly ESG obligations should not be limited to institutional investors and asset managers. Secondly, ESG should not be limited to risks management but should be considered as part of the economic value itself.

Figuring out an “Integrated Economy” using a multidimensional unit of trade might not be easy (or apparently even impossible). Combining two different types of dimensions: the activity Outputs (financial value) and the activity Outcomes (ESG) is a great challenge. Having said that, this difficulty if real is not something new at all. The Public sector is dealing with it and trying to crack it since decades. Somehow in the “Integral Economy” the Commercial and the Public sectors will have to join forces in building a common and consistent “Integral Framework”.

As a first illustration, let’s consider the example of a tobacco company. What kind of “Integral Economic Value” does it generate? We could probably assume an IEV composed by: High financial value + Small negative Ecological value + High negative social value + small Governance positive value. The IEV might result as a Global negative value despite a high level of financial earnings. In the “Integral Economy”, such a company should have to compensate all the negative ESG elements. The principle that will be applied is similarly to the famous “polluters have to pay for the reparations of the pollution they have generated”. By design the “Integrated Economy” will be a system where Corporate Responsibility and Accountability will become a reality. CSR will not only be limited to wishful thinking or new positive branding concept. Corporates will be free to act if they do not have a negative IEV value. If after reimbursement the company is still profitable, it will continue to operate. If not, the company will go bankrupt and will stop its activities. Such mechanisms may surely accelerate the trend that we can already observe with O&G companies shifting to renewable energies portfolio, Tobacco Industry giants diversifying their activities with less socially contestable sectors, or simply with Coca buying companies such as Soda Stream.

The journey has already begun!

Another way to get a taste of what “Integral Economy” will look like, is to try anticipating how the already not so clear frontier between Public and Commercial sectors will in the future become even thinner, disappear or be completely redefined. Looking at the evolution of this frontier implies zooming on the social dimension of the “Integral Economic Value” (IEV).

Everyone may consider as already obvious that Commercial sector cannot afford anymore to consider as sole arbiters of their economic value the Shareholders and the Customers. Simple reason why social considerations are not optional anymore for corporations is that the way they act toward their employees, their suppliers, communities, environment is now more openly exposed to citizens that can easily share the information and raise awareness toward social medias. But over the past 20 years, a noticeable innovation partially contributed to bridge or blur further the gap between Public sector and Commercial sector, this is the emergence of “Social Entrepreneurship”. From Amartya Sen (Economy Nobel prize 1998) works on Economy and Ethic. Then, Muhammad Yunus (Economy Nobel prize 2006) creation of what he called “social enterprises” aiming to replace the logic of maximizing financial benefits by maximizing social benefits. We have seen in every parts of the globe some traction in the creation of companies with the aim of having a positive social impact. As few examples, in 2008 Vermont became the 1st state in the US legalizing the L3C companies targeting low financial incomes with the aim of providing social positive outcomes. There today also B corporations, looking for long term profits and social impact rather that exclusively short-term financial benefits. Having said that, if “social Entrepreneurship” has been growing tremendously, it is via scattered and local companies with very limited examples of Social Enterprises that really scaled-Up successfully.

Therefore, today the question is not anymore to ask ourselves if corporations should have a positive social impact, but the question now is: How to make these contributions truly effective? Indeed, listening to all the corporates emphasizing how much they contribute to solve environmental and social problems in addition to an already crowded space of Non-profits, NGOs, Philanthropists and Public sector agencies, you might wonder why with so many stakeholders working together on solving social problems we still have so many social challenges to face. Actually, it is becoming extremely difficult to make the difference between real effective practices and noise (marketing, green washing etc), and even more difficult to figure out if all these actions or adding value in a synergetic way or simply overlapping between each other’s.

Building the “integral Economy” is a systemic way to ensure effective collaboration between those numerous stakeholders and allocate resources in a more effective way for the public good. IMAGINE what value could be generate by this collaborative framework. Public sector agencies will focus on acting where there are the most efficient and effective. Corporations will bring significant additional means to solve environmental and social issues. Best Social Entrepreneurship, NGO, Non-Profits practices will have the capability to scale (when relevant) benefitting from greater interest from Corporations and VCs similarly to what exists in the Start-Ups world (with many incubators, accelerators, etc etc).

The “Success Secret Sauce” of the Integral Economy

Putting an “Integral Economy” into practice will raise many questions about how we will measure the “Integral Economic Value” and who will be the arbiters of the Environmental and Social value. How will we consider the rights of the future generations? How will we protect Commercial freedom and at the same time guaranty that commercial activities will “satisfy someone’s want” without being at the expense of “somebody else right” (and eventually “needs”)? Behind these questions, there will surely be numerous debates about our overall governance.

But please do not misunderstand me, the most important value offered by the “Integral Economy” is not consisting in moralizing commercial activities, nor limited to proposing a circular economy or a green economy or a frugal economy. “Integral Economy” is about building a well-informed “Global Consumer Citizenship”. ” Integral Economy” is about building a framework that will help and incite all of us to face our own individual inconsistencies as citizens, as human beings.

Our current system amplifies misperceptions and illusive silos. As citizens we are unable to effectively keep track and alignment of our positions depending on the perspective we consider : We want the highest quality at the lowest price when we are customers, we want to maintain employment within our communities (which may be contradictory with the lowest prices), we want to protect the environment which means eventually not always having all what we want satisfied every time instantly, we want the lowest level of taxes when we are taxes payers (which may be contradictory with protecting best possible social services and solidarities). Acting as if each dimension were independent from the others. Integral Economy is about facing our responsibilities without making the undefined “others” responsible of the problems that we generate ourselves. It’s about putting the Citizens, Human Beings at the center of what we do. “Integrality” is firstly about “Integrity”

Please do not hesitate to let me know your thoughts.

Disclaimer: This article reflects my personal opinion. Content is based on public articles and data at the best of my knowledge. If anything, here is inaccurate, please feel free to contact me directly. I will update accordingly.