In een toespraak voor Rotterdamse studenten op 31 oktober 2007 onderstreept minister Bos dat duurzaamheid een onlosmakelijk deel vormt van economie.
“The point is, ladies and gentleman, that greed – for lack of a better word – is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms – greed for life, for money, for love, knowledge – has marked the upward surge of mankind.”
These are not the words of Gerrit Zalm or George Bush, not even the words of Margaret Thatcher or Rita Verdonk, but of Gordon Gekko, the main character in Oliver Stone’s film Wall Street. But they could almost be the words of the eighteenth-century economist and philosopher Adam Smith. In his book, The Wealth of Nations, he wrote, “The best way to encourage economic growth is to unleash individuals to pursue their own selfish economic interests.” In other words, what’s good for you is, by definition, good for everyone. This is the “invisible hand” that Smith wrote about: “the entrepreneur is [in this selfishness] led by an invisible hand to promote an end which was no part of his intention”. Without intending to do so, the ideal businessman or woman, one who can smell an opportunity and make the most of it, benefits society as a whole.
Or, in the words of this conference, the free market coupled with an efficient price mechanism transforms greed into gold, and gold into good.
In many cases, the social benefits of the invisible hand are clear. If you want to become a millionaire you must first come up with a product that is beneficial, pleasing and desired by thousands of customers. By pursuing your own greed, you benefit society. Or, in Smith’s own words: “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but to their self-love , and never talk to them of our own necessities, but of their advantages.” Selfishness, individual self-interest, is the engine that drives the economy.
Smith was not the first person to recognise the importance of self-interest. In 1714 the Rotterdam-born philosopher Bernard de Mandeville published the Fable of the Bees. It was subtitled: Private Vices, Publick Benefits. De Mandeville actually went a step further than Smith and claimed that “Fraud, Luxury and Pride must live while we the Benefits receive”. Which he followed with: “Pride and Vanity have built more Hospitals than all the Virtues together”. Indeed, that’s still the case here today in Rotterdam: action speaks louder than words.
But does Adam Smith’s free market actually work? It certainly does!
Self-interest is one of the driving forces for producers and consumers, for individuals and companies. Adam Smith understood that consumers want the best products at the lowest price while producers want the lowest costs and the highest profit. This creates an interplay of self-interest that is of benefit to society as a whole.
According to Smith, the interplay is also guided by a visible hand: the laws and rules that allow the invisible hand to work its magic. Property rights, for example, must be strong, and there must be widespread adherence to moral norms, such as prohibitions against theft and misrepresentation. Theft was, to Smith, the worst crime of all, even though a poor man stealing from a rich man may increase overall happiness. He even went so far as to say that the purpose of government is to defend the rich from the poor. Fortunately, even Liberals tend not to share this point of view today..
But does Smith’s free market provide everything we need? Does self-interest create well-being and happiness, justice and reliability, as well as prosperity? Or, to put it differently, is there also room in Adam Smith’s world for equal access to education and health care and for development aid? Is there room for a World Bank, Médecins sans Frontières and the Red Cross? Is there a market for free-range meat, clean engines and the books of Jan Wolkers?
Could you also take Smith’s argument to mean that not acting in your own self-interest will not lead to prosperity? That good does not lead to gold? I don’t think you can.
I think that apart from the invisible hand of the market there is another invisible hand that works to the great benefit of society. An invisible hand that not only turns gold into good, but also turns good into gold. There are good deeds that are successful and also profitable, and good deeds that are successful because they are profitable.
Even deeds that do not seem to be selfish at first sight may lead to economic gain. Being reliable and fair, for example, being honest and nice, cooperating with others and being considerate. These seem to be intangible virtues with no discernible value. But they are a source of profit. A company that is reliable and cooperates with others will win more orders than a company that is guided purely by its own narrow interests. Opportunistic behaviour redistributes value, whereas cooperative behaviour creates value.
What’s more, you can’t put everything down in a contract. Without trust, the economy would grind to a halt. This is just as true of transactions between companies as transactions within a company. To give one example: if you are in charge of supply chain management at a large manufacturing company, you have to establish long-term, hand-in-glove supplier relationships. If you are a manager, you won’t motivate your staff if you constantly remind them of their duties. You should trust them and give them space to take responsibility for their work.
This was also one of Adam Smith’s most revealing insights. In a later book, The Theory of Moral Sentiments, he wrote: “The road to virtue and that to fortune are, happily in most cases, very nearly the same. Real and solid professional abilities, joined to prudent, just, firm, and temperate conduct, can very seldom fail of success.”
A good example of turning good into gold is the Max Havelaar brand for products like coffee and tea, bananas and chocolate. It began as a charity to promote fair trade with farmers in the Third World. Now it’s a successful business that uses its products to draw individuals and companies towards socially responsible lifestyles and practices. It is a strong brand that is paying its own way and other companies are following its lead.
The same is true of Dutch banks like ASN and Triodos that began investing in green and social projects many years ago. Nowadays, even the big banks have copied their example and are selling climate-friendly mortgages and green funds. A new niche has been created.
These are good examples of creative businesses that meet a potential demand. We need more of these pioneers! The potential demand is certainly there: people will buy organic meat if it’s in the supermarket but not if they have to go to an organic farm to get it. This is one of the reasons that companies are taking the sustainable route. Just last week, C&A announced that it was going green. That’s what our customers want, said a spokesman, and it certainly won’t do the company any harm.
Another good example is the green taxi in New York. City council member David Yassky launched a plan to replace the yellow gas-guzzling Crown Victorias with hybrid cars. His plan ran into all kinds of problems until Hillary Clinton came to his aid. She turned the plan into a health issue as well as a green issue. Making yellow cabs green would be a lasting gift to the children of the city. The proposal was adopted and 500 drivers have since made the switch to hybrids. An example not only of clever leadership, but also of enlightened se lf-interest: not only do customers want green taxis, but green taxi drivers save more than 30 dollars a day in petrol! Once again, it is a case of good turning into gold!
A sustainability policy or sustainable business is another example of doing the right thing for the public good. Sustainability is in. More and more companies want to be socially responsible. More and more companies are publishing sustainability reports as well as financial reports.
My position is that sustainability is at the heart of our economy and our welfare. To use Nobel laureate John Hicks’ definition of income: “Income is the maximum value which a person can consume during a week and still expect to be as well off at the end of the week as he was in the beginning.”
So you have to keep very good accounts to work out what your income is, to work out whether you are just as well off at the end of the week as you were at the beginning. I may have earned some money but what effect has it had on my prosperity? Not just on my financial, physical and human capital but also on my social and ecological capital? All these forms of capital make up my earning capacity. I can invest in all of them, and I can lose them all. So it’s a simple question of good accounting, knowing what effect your income has on all these different forms of capital.
Nationally, it means that we have to conduct a sustainable financial policy and make durable and sustainable use of what we have. We must manage and share our stock of economic, social and ecological capital carefully and comprehensively so that future generations can also benefit from it. These are the three Ps of Profit – or better still, Prosperity – People and Planet. In other words: sustainability.
In the Budget for 2008 I describe in detail how we are going to achieve these goals, how we are going to link sustainable development to financial sustainability and what the economic, social and ecological benefits will be. Self-interest obviously plays a role, because if we waste our ecological capital, we erode our future. As we can see in China, there is a price to pay. Investing in sustainability also makes perfect economic sense. Investing now in cleaner energy and lower CO2 emissions will reduce our costs in the future. If we invest in education now, we will have better trained employees in the future. If we invest in good housing, we will strengthen social cohesion. In other words, investing in sustainability turns good into gold. Because in economics, too, prevention is better than cure.
This is a task not only for central government, but also for members of the public and the business community. There is yet another reason for businesses to embrace sustainability. If you know that a production method cannot be continued in the long run, you would do well to invest your time and effort in developing sustainable alternatives. And there are many examples of companies that have won a competitive advantage by turning good into gold.
Thanks to this invisible hand, corporate social responsibility is often a source of profit. Investing in your locality, your neighbourhood, your town, your people, makes your business stronger and more attractive. Investing in projects slightly further away, such as a school in Nicaragua or a hospital in Ethiopia, has the same benefits. Activities like these generate a great deal of goodwill, and therefore profit.
This brings me to the next example of my invisible hand: our social capital. People are capable of far more than selfishness and greed: people are better off if other people also prosper. Adam Smith was well aware of this. He wrote: “How selfish every man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.”
This sentiment is also shared by the inveterate economic liberal Frits Bolkestein. A couple of years ago, he wrote: “Everyone agrees now that even the most self-reliant individual needs someone else. Individual freedom flourishes only in a system of stable social relationships.”
Such a system of stable social relationships is not a given. We might have thought so once, but today everyone recognises that we have to work hard to maintain our social capital. If a society loses its cohesion, social unrest, and with it economic disruption, lies just around the corner.
So we are better off if we look upon our social diversity as a source of economic gain. A variety of people from a variety of cultures and a variety of backgrounds provide not only new ideas and new insights, but also new customer relations and new market openings. Staff diversity increases customer diversity. It can make every company bigger and better. Take Schell butcher’s here in Rotterdam. By opting for a diverse product range and a diverse staff, it has managed to keep its original customers and attract new ones. It has proven that a company that dares to change in a changing society can win not only prizes but also customers. By opting for diversity, it has made a profit: both economically and socially. It has turned good into gold. And there are many other initiatives, especially local ones, that are putting the social capital in their immediate surroundings to good use and making a profit.
Such initiatives also succeed because people, by their nature, are much more than just calculating consumers.
Studies show, for example, that many people see the gap between the rich and the poor as being unfair, even if it is the efficient outcome of Adam Smith’s invisible hand. Research also suggests that people will even turn down a financial reward if they think the people giving it are keeping too much for themselves. A narrow focus on maximum profit in the true rational spirit of homo economicus will not be of benefit to you in the long run, because that’s not what makes people tick. In economics, too, solidarity lasts longest.
The British economist Richard Layard made an interesting discovery in this respect, one that will certainly be of interest to today’s audience. At Cornell University, a professor asked his students whether they would say anything if they were undercharged in a store and whether they would return a lost addressed envelope which contained 100 dollars. They were asked in September and again three months later. Students who studied economics became less honest, while astronomy students became more honest, and the difference was significant. Similarly, when playing the Prisoner’s Dilemma game, economics students were less likely to cooperate than other students, and the gap widened the longer people studied economics. So we have to ask ourselves: is the study of economics the best way into successful business?
That’s what you, business school students, will have to demonstrate in the years ahead. Most of you want to become successful businessmen and women and I hope you will all help the companies you work for turn good into gold. In the publicity for this conference, the organisers asked whether companies are still capable of setting ethical goals in our changing society. I think the answer is clear: without ethical goals, a company cannot be e conomically successful, especially in our changing society. Because of my invisible hand, the importance of corporate social responsibility is not hypothetical, it’s axiomatic. I hope that you, like Gekko’s protégé Buddy Fox, learn quickly that it’s not all about the bucks!
Or to put it another way: sometimes you think it’s not about the bucks, but in the long run it certainly is. It may look like good, but it certainly is gold. I hope you all develop the entrepreneurial, green and social skills that make the invisible hand work!