Why an Anxious World Still Desperately Needs Great and Courageous Ideas
And why businesses, especially start-ups, must play a crucial role in sustainability
The world cries for innovation to tackle sustainability challenges and expects entrepreneurs and researchers to do the job.
“To put it bluntly, since there will not be much development money over the next decade, there had better be a lot of good ideas” (Summers, 1991). In 1973, Peter Drucker wrote: “Every single social and global issue in our day is a business opportunity in disguise” (as cited in Drucker Institute, 2011).
The first quote from Lawrence Summers, then Chief Economist of the World Bank, is a cry from one faced with social and global issues for ideas to tackle those issues. The second quote from Peter Drucker, eighteen years earlier, urges businesses to see social and global issues as opportunities.
Logic has it that there is ample business opportunity when there is no shortage of social and worldwide issues. What seems to be lacking are ideas. In 2018, Paul Romer won the Nobel Prize in Economic Sciences in recognition for his development of “the theory of endogenous technological change, in which the search for new ideas by profit-maximizing entrepreneurs and researchers is at the heart of economic growth. Underlying this theory, he pinpointed that the nonrivalry of ideas is ultimately responsible for the rise in living standards over time” (Jones, 2019, p.859).
Lack of Entrepreneurship?
In 1911, however, Joseph Schumpeter already recognized the importance of innovation –the commercialization of ideas or inventions — in economic growth. He sketched the unique role of entrepreneurship as opposed to management in commercialization. Schumpeter saw the holistic nature of economics and accepted the influence on non-economic factors, thereby laying the foundation of systems innovation.
Schumpeter claimed that when ideas and opportunities are available, as the two quotes at the beginning suggest, the bottleneck for their commercialization is the lack of entrepreneurship.
It’s the small firm that excels in innovation
For Schumpeter, the most significant innovations do not come from established firms but from outsiders, who set up new firms (Fritsch, 2017). Baumol (2004) provided evidence for such a claim by confirming that most breakthrough innovations continue to come from small entrepreneurial firms. However, the bulk of R&D spending comes from a few giant corporations.
The contention of Romer (1990) that ideas or designs are nonrival and the source of exponential growth is appealing. The role of a business, and in particular an entrepreneurial company in economic development, is clear. The question is whether the production of ideas, such as the idea of sustainability and their commercialization contributes to sustainability itself?
The Disconnect between Sustainable Business and Sustainable Development
Dyllick and Muff (2015) claim that not to be the case; while an increasing number of businesses report that their investments in sustainability benefit the environment and society, they acknowledge it also benefits themselves through cost and risk reduction, improved brand equity, attractiveness as an employer, and competitiveness.
The real business case for sustainability, the micro-level progress, does not reflect in studies on our planet’s state, the macro-level deterioration, laying bare a disconnect between business activities and the global state of the environment and society. In other words, a disconnect exists between Sustainable Business (SB) and Sustainable Development (SD), meaning that business-level efforts do not result in improvements in sustainability on a global level and have, therefore, no visible impact on the SDGs.
However, the World Business Council for Sustainable Development of WBCSD does spell out exactly how businesses can help achieve sustainable development: invest in sustainable ecosystems. Doing so can:
- “Create new revenue streams by introducing innovative products and services such as, for example, substitutes for ecosystem products;
- Reduce dependence on increasingly scarce raw materials or fragile services through the introduction of substitutes or the use of alternative abundant or renewable resources;
- Mitigate rising costs caused by the scarcity of raw materials;
- Create new markets for certified, fair trade, organically grown, or environmentally friendly products;
- Develop new businesses such as water-quality trading, wetland banking, mitigation credit trading, threatened species banking or pollution prevention, capture, treatment, and reuse;
- Strengthen its license to operate.” (Maroga and Moura, 2007)
Where Are the Ideas that Drive Sustainability?
The transition to a Circular Economy or CE, a new business model, heavily promoted by the European Commission with a strategic intent to decouple economic development from finite sources, offers another opportunity for businesses to play a role in sustainability. Garrido Azevedo and Matias (2017) posit that CE and sustainability complement each other and pave the way for sustainable production and consumption through innovations and new working ways.
Again, innovation is paramount in all the proposed routes for businesses to contribute to sustainability, and there is no minimum threshold in business size to participate in creation. There is no reason why any company should not take up its responsibility and play a sustainability role. SD policymakers seem to beg for sustainable designs from businesses. Then why does the disconnect between SB and SD exist?
According to Dyllick and Muff (2015), sustainable businesses operate with a business-as-usual inside-out mindset and focuses on shareholder value. Dyllick and Muff define being truly sustainable as “to solve the sustainability challenges we are collectively facing and thus to create value for the common good” (2015, p.169), which requires a radically different outside-in mindset that focuses on the creation of value for the common welfare. The authors position a business that shifts worth from shareholders to the tridimensional construct of the Triple Bottom Line between the two mindsets and, therefore, they sketch an evolutionary journey for a business to evolve from an inside-out economic profit-driven organization to an outside-in shared cross-sectoral value-driven one that embeds sustainability in its culture.
Entrepreneurs, get creative! Creatives, be entrepreneurial!
The common theme emerging from this review is the call for innovation as a solution for sustainability challenges and the expectancy that entrepreneurial businesses and researchers produce and commercialize the ideas or designs.
References
Baumol, W., 2004. Entrepreneurial Enterprises, Large Established Firms and Other Components of the Free-Market Growth Machine. Small Business Economics, 23(1), pp.9–21.
Drucker Institute, 2011. Opportunity in Disguise * Drucker Institute. [online] Drucker Institute. Available at: <https://www.drucker.institute/news-post/opportunity-in-disguise/> [Accessed 19 April 2020].
Dyllick, T. and Muff, K., 2015. Clarifying the Meaning of Sustainable Business: Introducing a Typology From Business-as-Usual to True Business Sustainability. Organization & Environment, 29(2), pp.156–174.
Fritsch, M., 2017. The theory of economic development — An inquiry into profits, capital, credit, interest, and the business cycle. Regional Studies, 51(4), pp.654–655.
Garrido Azevedo, S. and Matias, J., 2017. Corporate sustainability. Hauppauge, NY: Nova Science Publishers, Inc.
Jones, C., 2019. Paul Romer: Ideas, Nonrivalry, and Endogenous Growth. The Scandinavian Journal of Economics, 121(3), pp.859–883.
Maroga, J. and Moura, J., 2007. Doing business with the world: The new role of corporate leadership in global development. Conches-Geneva: WBCSD, p.11.
Romer, P., 1990. Endogenous Technological Change. Journal of Political Economy, 98(5, Part 2), pp.S71-S102.
Summers, L., 1991. Research Challenges for Development Economists. Finance and Development, 28(3), p.2.
