Evolution in production and consumption systems – The Car Game

The game presented below was developed together with the people who attended the November 20^th class. We started the game with a couple of very basic rules and improved it while we played it.

The game is supposed to show how consumer choices shape the cars’ characteristics and the frequencies of different variations of car’s characteristics. In this way, it intends to imitate the evolutionary dynamics of the car industry production and consumption system.

Rules of the game:

1 – There are three car companies, which produce 3 different cars: A, B, C.

2 – Each car company starts the each round with 10 allocatable points, to be distributed at will between four different car characteristics: sustainability, reliability, price and attractiveness.

3 – Every round, each member of the public decides which car they would like to buy. Each car company gets 1 extra allocatable point for every 2 cars it sells.

4 – (optional) Every 4 rounds, a dice is thrown which determines external conditions, such as incentives to buy cars with different characteristics.

An excel file can be found below with the game and rules as it was played in class. We arranged the excel sheet in such a way that as the game is played and you type in the results, a graph with the market share of each car company is made.

The game can still be much improved and I think the best way of doing this is by playing and seeing how changes in the rules lead to different dynamics. For the time being the only winners and losers are the car companies, and not the consumers. This makes the game much simpler and still remains relatively fun (even for the consumers), but some rules could be added so that consumers are also in some sort of competition.

The game was aimed at showing how evolutionary mechanisms shape the characteristics of cars. It was not entirely successful in doing this, and here are some positive and negative aspects of the game:

Positive points

In order for there to be evolution, there has to variation and selection. Individuals of a population present different characteristics (variation), some of which result in the selection of the individuals who possess them. Selection, in biological terms means either higher reproduction rate or lower death rate (before and during the reproduction period). For production and consumption systems, such as the car industry, “selection operates whenever a firm with a certain characteristic has a larger chance to outperform firms that do not possess that characteristic” (F.A. Boons, 2009).

One of the positive aspects of our game is that it incorporated both variation and selection, which operated whenever a certain company decided on a certain distribution of its available points that resulted in it selling more cars than the other companies.

Another positive aspect of the game was that it showed how good outcomes are auto-correlated. That is, good results increase the chance of further good results. The companies that had a good start and sold more cars had more allocatable points available, which made it more likely that their cars would be selected in future rounds, and that meant that they would have even more allocatable points in the future. While the richer got richer, the poorer got poorer. In the few rounds we played, the company that had a bad start could never recuperate. Whether this characteristic is really present in production and consumption system was debated among us and we didn’t reach a conclusion. In my opinion, to some extent it is, as when companies do well they have more resources to invest to make their product better. Nevertheless, new companies sometimes do appear, with much fewer resources than older ones, and our game wasn’t capable of reproducing this. At the same time, I don’t think you can really expect a game such as this one to reproduce even a fraction of the complexities of production and consumption systems but only some of the main characteristics.

Negative points

Our game had no real mechanisms of inheritance. Mechanisms of inheritance consist of transmission and retention mechanisms, as presented by F. Boons, 2009 (1). Even though there was some interaction between the companies, I don’t think this game provides any insight into how one company’s strategy in regard to the environment, for example, can affect how one of the other companies acts. Nevertheless, during the game we observed some companies trying to imitate the point allocation of another company in order to obtain a similar measure of success.

Another aspect this game failed in addressing was that companies cannot completely change the products they make from year to year. It takes time to develop the technology, and investing in a certain strategy, such reliability, will probably not produce immediate results. Nevertheless, in our game companies could change the characteristics of their cars radically from round to round.

Even though we aimed at showing the evolution of traits of cars, the game really shows evolution of car companies. This is an aspect of the game which should be worked upon, as we are not interested in the companies themselves, but in the characteristics of cars.

(1) Boons, F.A. 2009. An evolutionary approach towards the strategic perspectives of firms, chapter 8 in: Creating ecological value. Cheltenham: Edward Elgar.

Fishing game and the tragedy of the commons

I believe the reason why the fish population collapsed in our game is because there was no real compensation for catching fish, and therefore, there was no motivation for rational actors to make rational decisions, which in this case was to fish 4 fish (the sustainable number).

I was a member of the “winning team”, the team that caught the most fish. The number of fish we caught was 24. If all the teams had stuck with the sustainable number of fish, by the end of the game each team would have caught 36 fish. Therefore, a rational actor would have consistently fished the sustainable number of fish.

In a 9 round game, the only way to catch more than 36 fish is to sometimes catch an additional fish. If one group in each round caught 5 fish instead of 4, the maximum sustainable yield was obtained. If only 1 group catches 2 additional fish each round, the fishery rapidly collapses and no group reaches 36 fish.

The longer this game goes on, the bigger the opportunity cost is of fishing too much. If the game went on forever, the consequence of collapsing the fishery is a loss of an infinite number of fish.

Considering the above arguments, if communication is allowed, the first rule I would introduce is a short test each group has to complete to ensure they understand what is best for them and for the community. For this I would create a testing and evaluation committee, with members from each of the teams. Committee members cannot participate in the evaluation of their group’s exam.

Real fisheries

I think this would work for our fisheries game, although it would probably not be fun enough to be considered a game anymore. But the interesting question to me is if understanding how fisheries work, and how unsustainable practices eventually limit profits, would lead to fishermen acting in sustainable ways.

In the “Tragedy of the Commons”(1), Hardin argues for “mutually agreed upon coercion” as the mechanism for avoiding the exploitation of common goods, such as fisheries. He proposes this instead of trying to make people act responsibly, which he says is “trying to browbeat a man in a commons into acting against his own interest”. My proposal for the game is different from these two options presented by Hardin, it is to make sure the exploiters of the commons really understand how it works.

But understanding how fisheries work is hard, and in many cases the consequences of overfishing are not as clear cut and predictable as they are in our game. This makes it harder for people to understand the system, and if understanding is key in preventing the overexploitation of commons, this could be why fisheries tend to collapse.

(1) Garret Hardin (1968) The Tragedy of the Commons, Science.

Student feedbacks

Week 1: Industrial ecology inspired puzzle and Friedman’s proposition

Jeroen Huisma

Dear Jeroen,
I find your article very interesting, I didn’t know that this correlation had been formalized and was called green paradox. Its useful information!
I agree with almost everything that you say but I have a couple of questions:
– About the paradox or correlation itself, I’m not really sure if I understand it completely. Is it that “green measures” are positively correlated with CO2 emissions?
– About the effects of carbon tax, I understand how this could increase emissions in the short term, but shouldn’t it lead to less carbon emitted in the long term? Would that mean that the correlation only holds in the short term?
– Biofuels: I don’t understand how biofuels are related to replacing people with machines.

I hope this is useful, let me know if you have any comments or questions about my feedback.

Regards,
Marco

The green paradox

Imme Groet

Nuclear energy and business
I found your article very interesting, informative and I agree completely with what you said. The only thing that was not so clear to me was what the correlation actually was.

The business of business is to increase profits
I also found your second article interesting and I agree with you when you say that the way businesses are currently run is leading to environmental degradation. I also agree with you in that legislation should be put in place so that businesses act responsibly. What I don’t really agree with is that the current environmental degradation is a consequence of the current economic system. In my opinion people used to be (and many still are) not concerned about damage to the environment, and thought it was inexhaustible. So, I think that people (no matter what economic system they participated in) didn’t have the environment as priority, and that’s also why businesses didn’t act in a responsible way towards the environment.
I hope my feedback is useful for you, and if you have any questions, or if I misunderstood something please let me know!
Regards,
Marco

http://www.immegroet.blogspot.nl/2014/09/assignment-1-nuclear-energy-and-business.html#comment-form

Week 2: Bounded Rationality Assignment

Thodoris Spathas

I liked your article and I think this is a very good example of bounded rationality. At the same time, it seems to me hard to understand how the Chinese government could rationally make this decision.

It would be great if you could cite where you got the information from, I would like to read more about it!

“To bring the capital green water and blue skies”: Rational VS bounded rational decisionmaking.

Milton Friedman: Revisited

I agree with your point of view. At the same time, while these companies are making profit, I’m not sure if they’re maximizing them. In case they’re not maximizing their profits, would they still be following Friedman’s ideas?

Milton Friedman: Revisited

Chloe Lejeune

I had some trouble understanding what the situation actually was. That said, I understood and agree with your rational actor description. On the other hand, in the bounded rationality part of your entry I couldn’t identify which of Jone’s bounded rationality processes were present in this decision.

I hope this is useful, let me know if you have any questions and I apologize for the delay!

#2 – The (bounded) rational decision

Week 3:

Zinzi Witts

The Green Heart

I liked the article; it was different from typical social ecological systems such as fisheries or forests. I really can’t think of anything to say or to add. The only question that comes to mind is if you consider this is an example of a successfully managed SES.

Reconsidering my position on the Friedman-proposition

I also share some of skepticism with social responsible entrepreneurship, and I also agree with your statement about the target group of this movement being only a fraction of society.

At the same time, it seems to me your article focuses only on private companies, while in many parts of the world public companies (or semipublic companies) are as damaging as or even more so than private ones.

About the Ecocide law, I found the idea very interesting (and I watched the video from the link). I don’t know much about current environmental law, but I understand that there are environmental laws in place already, and I have the feeling that very often the problem is with compliance rather than with the laws themselves. So my question is, do you think this law would really make a difference or what is needed is a change in culture?

Well, I hope my feedback is useful, let me know if you have any comments!

Regards,

Marco

Laura Trujillo

Social Ecological Systems- Bouba Ndjida National Park, North Cameroon

Dear Laura,

Your article about the Bouba Ndjida National park was very interesting, particularly because you clearly had first-hand information about it.

I found it hard to think about what the resource units would be for this case. From what I understood from the class, it mainly has to do with how the system is exploited. Since the main economic activity in this National Park is tourism, it’s not straight forward to define the units. You defined the resource units basically in terms of species richness, which seems a good idea to me, but you could probably add an abundance component to each of the species.

About the Users, it looks to me as if the local people who are involved in tourism are not benefitted by the park, and actually can’t perform their traditional subsistence activity, such as the M’bororos. Would it be possible to somehow include them in the system without it being to damaging for the park’s ecosystem?

I hope my feedback is useful to you and let me know if you have any questions or comments about what I wrote!

Regards,

Marco

Week 4: Markets, Isomorphism and Nokia

Dear Ella,

I agree with you in that Nokia is applying pressure on its supplier so as to be considered legitimate.
On the other hand I’m not sure if Nokia was acting because of coercive pressure from other organizations or society, or because of fear of coercive pressures…
One point I disagree on, is that this is leading to isomorphism. I say this because, from what I understood from the documentary, Nokia was the first company in its organizational field trying to achieve sustainability throughout its supply chain.
About whether Nokia’s approach is effective, I think you make a good point about the culture clash. And about another coordination mechanism to improve this, from what I understand of Chinese politics, it seems it would very unlikely be successful!
I hope this feedback is useful,
Regards,
Marco

http://socialsystems-ebaz.blogspot.nl/2014/10/4th-assignment.html?showComment=1415184216242#c2949080150548477018

Week 5:

Regional networks of production – FloraHolland

The regional network of production I identified is FloraHolland. All of the information about the cooperative was obtained at its website: http://www.floraholland.com

FloraHolland is a cooperative of growers of horticultural products, mainly flowers and plants. It has approximately 4500 member growers and its annual turnover is 4.5 billion Euros. As only 600 of the members are based abroad (outside of the Netherlands), I consider this a regional network of production.

The growers originally came together as they were stronger in the face of traders and could obtain better prices for their products. Now a days, growers benefit by becoming members of the cooperative as in this way they can participate in the cooperative’s auctions and have access to the cooperative’s infrastructure. In other words, members share costs. On the other hand, by forming the cooperative, the growers can manage their dependency to suppliers and buyers, and also to transport organizations, which have a very important and sensitive role in the transport of flowers.

Currently the FloraHolland cooperative is managed through a self-governance mechanism, where “actors can self-organize and develop monitoring and sanctioning rules (self-organization leading to self-governance)”(1). The actors, i.e. the growers, self-organize and develop rules and regulations that determine the members’ behavior. These rules also affect non-members, as for example, in order to attract more members FloraHolland offers reduced services to non-members. On the one hand this makes non-members less competitive, and at the same time, increases membership. FloraHolland is also interested in involving non-local actors and in doing so, consolidating their auctions as top world flower sales events. Growers from Africa, Asia and Europe, among others, sell their products in FloraHolland auctions in the Netherlands, making their trading platform bigger, which benefits members.

Even though I consider this cooperative a regional network of production, the member growers are not positioned close enough to one another to for the organization to coordinate things such as closing material loops with other industries for all its members. Nevertheless, FloraHolland is currently running feasibility studies with Amsterdam Schipol Airport into the fermentation of waste and also in plans to capture CO2 from the Amsterdam business area in order to nourish plants. It’s very usual from greenhouses to be connected with other industries, as they can act as carbon sinks, nevertheless this is not practical when distances are too big or when the plants are not grown in a greenhouse.

(1) Boons, F.A. 2008. Self-Organization and Sustainability: The Emergence of a Regional Industrial Ecology, Emergence: Complexity and Organization 10(2).

Striving for legitimacy

Legitimacy is the extent to which the activities of a firm ‘are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions’ (Suchman 1995).

Companies and organizations strive for legitimacy and this often leads to isomorphism. The mechanisms that lead companies to isomorphism are coercive pressures, mimicry and normative pressure. These mechanisms tend to make organizations, within the same organizational field, isomorphic.

But given that legitimacy is the extent to which the activities of a firm “are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995), and these depend on the culture, very often organizations converge to different forms in different places.

At the same time, the Nokia documentary we watched in class, showed two companies belonging to different organizational fields, which were defined by DiMaggio and Powell as a “set of organizations that, in the aggregate, constitutes a recognized area of institutional life; key suppliers, resource and product consumers, regulatory agencies, and other organizations that produce similar services or products” (DiMaggio and Powell 1983).

Each of these companies (i.e. Nokia and it’s supplier), are subjected to different converging forces not only because they belong to different organizational fields, but also because they are immersed in different societies, with different “norms, values, beliefs, and definitions”.

In the documentary Nokia faces a legitimacy challenge. For it to be appropriate in Scandinavian standards it needs to ensure the product the sell are not made by workers operating in unethical conditions. The problem is that these workers are employed by a different company, the supplier, operating in China and with a correspondingly different set of values. Nokia needs its suppliers to operate in conditions that would be deemed ethical in Finland, so that Nokia itself can be considered legitimate.

Nokia’s approach was to ask it’s supplier to act according to Chinese law. They also seemed to want further improvement in the workers quality of life but they didn’t request it to the suppliers managers (at least in my understanding of the documentary). This is a form of coercive pressure, as they are a costumer putting pressure on their supplier to change.

In doing so, Nokia was itself probably also acting because of an isomorphic pressure applied on them. Companies are trying to be or look sustainable, and legislation often accompanies this tendency. Because there did not seem to be any rule they were effectively breaking, in my opinion their trying to change their supplier’s work conditions is a form of mimicry, as they would be copying other firms in conditions of uncertainty (otherwise, as member of the board said in the documentary, they may face legal/ethical risks. In my opinion they are also acting according to their own personal values, and I’m not sure if this can be considered a form of convergent force.

To me, Nokia’s approach to transmitting their social sustainability views to their supplier was reasonably effective, as their supplier apparently started signing contracts with it’s workers. Nevertheless, this legalization of the workers situation could also have been caused by a coercive force from within China to act according to the law. Therefor its not clear to what extent this change was caused by Nokia’s actions. Additionally, if Nokia wanted the supplier to implement further social sustainability changes it might face stronger resistance, as the bottom line is that there is a clash of values.

If Nokia really wants improvements in social sustainability of it’s supplier it might eventually need to be ready to pay a higher price for the product and/or change supplier altogether. This would also be a self organization coordination mechanism, as it would be a free market solution.

A non self organization solution mechanism for improving the working conditions at Nokia’s supplier’s factory could be the Chinese government introducing new legislation on working conditions in China.

SES – Fisheries in Europe

In this article I will analyze the European fisheries SES using Ostrom’s network(1).

Fish are common pool goods as they cannot be owned until caught (non excludable) and once a fish has been caught by someone it is no longer available to anybody else (rivalrous). Without effective governance institutions, this type of goods is often in danger of over exploitation. It has been suggested that the world oceans have lost 90% of large predatory fish and that industrialized fisheries typically reduce community biomass by 80% during the first 15 years of exploitation(2). So, how are Europeans organizing themselves to exploit this natural resource sustainably?

Fish know no borders and the activities of one fishing fleet have a direct impact on fishing opportunities of other fleets, on the future of fish stocks and on the marine ecosystem (3), which leads to tough governance issues. To tackle this problem the European Union established the Common Fisheries Policy (CFP), which, among other rules, sets the maximum quantities of fish that can be caught every year and the national quotas.

So far the CFP has received mixed reviews, with some even saying that it was designed for failure (4) as 88% of European stocks are overfished and 30% of them are outside safe biological limits (5). So, why is the fisheries governance system failing? In “The Struggle to Govern Commons”(1), Dietz, Ostrom and Stern provide the basic requirements for adaptive (and successful) governance of complex systems (figure 1). These requirements are: Provide necessary information; deal with conflicts; induce compliance with rules; provide physical, technical and institutional infrastructure; and encourage adaptation and change.

I will now go through the requirements to try to understand where the Common Fisheries Policy is failing.

Provide necessary information: It’s important to count with the necessary information to ‘devise rules which are congruent with ecological conditions’ and involve interested parties in informed discussion of rules. Eurostat, part of the European Commission, provides abundant statistics about the state of the different fisheries so the problem does not seem to lie in lack of information. On the other hand, according to Khalilian et al., the problem lies in devising rules which are not congruent with ecological conditions (48% higher Total Allowable Catches than advised by scientists for biological safety). This is a key problem, because if the rules are not ecologically sound, even if the governing body manages to induce compliance, the system will not be sustainable.

Deal with conflicts: I could not find information about conflicts or how the CFP deals with them.

Induce compliance with rules: The CFP has largely not managed to induce compliance with the rules. According to a 2007 EC report, ‘fisheries control has generally been weak, penalties are not dissuasive and inspections not frequent enough to encourage compliance” (6).

Provide physical, technical and institutional infrastructure: Infrastructure permits fishing. To start with, vessels, fishing gear, ports and fishermen are needed. Due to subsidies from the European Union member states, there is currently an overcapacity problem. This means that there’s too much fishing infrastructure for the amount of fish that can actually be fished. This leads in part to overfishing, but also makes fishing less profitable, creating the need for subsidies. Infrastructure in fishing is important to control which fleets access different fishing areas. Nevertheless, institutional infrastructure includes things such as research and social capital, of which there seems to be plenty.

Encourage adaptation and change: The good news is that rules have changed. In January 2014 the latest reforms adopted by the CFP became effective. I do not know what those reforms are or how the scientific community reacted to them. At the same time, it is worth noting that even if these reforms do help recover fish stocks, it would mean that it took the CFP more than 30 years to successfully govern fisheries (the CFP was born in 1983), which does not suggest a good track record of adaptation and change.

 

2nd part:

Can Friedman’s principles help?

Currently, there is overfishing and at the same time it’s not very profitable.

This seemingly paradoxical situation occurs because of two main reasons: 1 – the fish stocks are not allowed to recover to a size in which the amount of fish produced is larger (which means that now there is less fish available), and 2 – there is fishing overcapacity, which means that there are too many fishing vessels and too much fishing infrastructure for the amount of fish that can be caught. In other words, too many people economically depend on not enough fish.

Because fish stocks are not allowed to recover, the production of the fisheries is lower. There is an economically optimum size for fish population, at which the profitability of the business is maximized. This reference point is called Maximum Economic Yield (MEY) and is 2/3 of the original size of the unexploited stock. At this size of stock, the fish can also comfortably fulfill their ecological roles. But stocks are usually fished way beyond this maximum, often beyond 1/3 of the original stock size that is the biological limit for a “healthy stock” (if a population is further over-fished there is a high risk of collapse).

If one business owned a fishery, and had complete control over it, they would keep the stocks at MEY, which is what aquaculture fisheries do. They do not fish beyond a certain limit because a fish in the water holds more value for them than a caught fish. In open oceans, after the MEY is reached, a fish in the ocean still holds more value than a caught fish, but there is no way a fisherman can know if they will catch the fish, or if somebody else will.

A profit based solution for this could be to give all the fishing rights to one company. If the rights are given to one company for long period of time, it would be in the interest of this company to take the fish stocks back to the MEY reference point. It would also be convenient for the company to use only sustainable fishing practices and avoid methods that have important by-catch problems and damage the sea ecosystem in other ways, as that would in turn lead to damage to their fish property. Such a big and powerful company could also help tackle other big environmental issues such as ocean acidification (directly related to climate warming), and heavy metal and plastic pollution, as all this affect the company’s capital. So what’s most profitable for the business in the long run, is best for the environment.

Of course this would be a monopoly, and it would generate enormous economic problems, such as price fixing to say the least. There would also be social problems, as fishing is an intrinsic part of many communities. In fact its very probably not feasible. But because the fish stocks are currently managed in such a terrible way, it’s likely that potential solutions such as this one, with all the problems it entails, would make the overall fisheries situation better.

 

 

 

Bibliography:

(1) Dietz, Ostrom and Stern. The Struggle to Govern the Commons Science 302, 1907 (2003). DOI: 10.1126/science.1091015

(2) R. A. Myers, B. Worm, Nature 423, 280 (2003)

(3) http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Fishery_statistics_backgrounds

(4) Setareh Khalilian, Rainer Froese, Alexander Proelss and Till Requate. Designed for failure: A critique of the Common Fisheries Policy of the European Union

(5) Stenseth NC, Dunlop ES. Evolution: unnatural selection. Nature 2009; 457:803–4.

(6) Commission of the European Communities (EC). Green paper: reform of the common fisheries policy [COM(2009) 163 final]. Brussels: The European Commission; 2009.

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0163:FIN:EN:PDF

2°C Climate Goal… rational decision process?

On October 1, 2014, Nature, an international journal of science published an article(1) that proposes to ditch the 2°C climate warming goal. The reason for this is that scientifically there are better ways to measure the stress imposed on climate by human activity than to measure the average land temperature. During the last 16 years it hasn’t increased, but other measures indicate that the radiative forcing has continued to increase together with the ocean’s heat content(1). Politically it doesn’t give governments clear guidelines and allows them to pretend they are taking action to mitigate global warming. Without having scientifically firm goals it’s hard to explain to stakeholders why they should make efforts to reduce emissions.

So why did the UNFCCC decide on the 2°C goal? At first sight it looks like a good goal, as politicians need to convince the public to make sacrifices or change their ways so that the temperature on land (where people live, the temperature they will feel) doesn’t increase beyond tolerable levels. It is easier to explain to people they should take the bus to work instead of the car because we want to keep temperature from increasing than to saying that it’s because we want to reduce radiative forcing (the extent by which greenhouse gases affect the global heat balance). One can also argue that the decision taken was optimal considering the available evidence and beliefs at the time when it was taken.

On the other hand, this decision seems to be a good example of bounded rationality. The 2°C goal decision probably wasn’t the best possible with the information at hand, but it was “satisficing” (for the people who made the decision). The information the policy makers disposed of was not complete and UNFCCC members also had their own agendas with a certain set of priorities (2).

Looking forwards, in order to set an achievable climate goal (apparently the 2°C pre industrial levels goal is not achievable (1)), it’s important for the scientific community to provide enough and clear information to the policy makers and for the policy makers to really have a making achievable climate goal deal as a top priority.

Bibliography:

(1) Ditch the 2C warming goal

David G. Victor & Charles F. Kennel

Nature 514, 30–31 (02 October 2014)

http://www.nature.com/polopoly_fs/1.16018!/menu/main/topColumns/topLeftColumn/pdf/514030a.pdf

(2) Bounded Rationality and Political Science: Lessons from Public Administration and Public Policy

Bryan D. Jones

Journal of Public Administration Research and Theory, Vol. 13, no. 4, pp. 395–412

The business of business is make profit – ex post

The documentary “Not business as usual” shows examples of socially responsible companies, which can make profit while being socially responsible. This means that these companies can sell products that are deemed to benefit society (directly or indirectly) or the environment (in relative terms) and still make profit out of it.

People are starting to buy these kind of products. Some people are willing to buy goods from companies which make their village, city, country or world a better place, even if it means they might have to pay a higher price. But does this mean that this is not business as usual?

Up to a certain extent it is not. These companies are going out of their way so as to benefit society or the planet, they are often doing more work without earning extra money for their effort. These companies are having smaller profits in order to have a positive impact.

But on the other hand, clients buy products from these companies because they have a positive impact. In other words, having a positive impact is one of the reasons why these companies make profit. And additionally, very often costumers pay higher prices for these products, which explains how socially conscious companies can keep up their profit margins.

As presented in the documentary, the people behind socially responsible companies aspire to more than just making money, they strive to conduct business in ways which improve the world. But at the same time, one could argue that although these new businesses are great, the main reason why this is not business as usual is because these socially conscious companies have a different marketing strategy.

The “broken windows” theory and the environment

In short, the broken windows theory states that the more broken windows a building has, the more likely it is that more windows will be broken. The correlation probably looks like this:

As the number of broken windows increases, the probability that a new window will be broken increases. Therefore, the quicker broken windows are fixed, the less likely it is more windows will be broken.

One could think of many reasons why this correlation occurs, for example that people who break windows tend to be aggregated whereas window respecting citizens live in other places, but the explanation the authors (George Kelling and James Wilson) of the theory propose is that an “unrepaired broken window is a signal that no one cares, and so breaking more windows costs nothing”[i]. As more windows get broken, people get a progressively stronger feeling that nobody cares about a new window being broken and also, the fear of a response from the owners, neighbors or the police decreases. Also, it is likely that seeing broken windows, introduces the idea of breaking a new window into the head of the potential vandal.

Kelling and Wilson applied this theory to social behavior, police and neighborhood safety, suggesting that in order to prevent vandalism it’s important to fix problems when they are still small. But this correlation doesn’t only work for broken windows, in dirtier and more disorderly streets people tend to throw more trash to the street, park illegally or steal.

The theory or correlation seems to hold for all urban environments. An interesting question is whether this correlation can also be applied to natural environments, or environmental pollution: for example, is a polluted river more likely to become more polluted than a clean one, or is a pristine ecosystem more likely to be preserved than a damaged one?

If we analyze closely the case of river pollution, there are quite a few similarities with the broken windows correlation. The more heavily polluted rivers are the rivers where more industries and people discharge their waste into it. Applying the “Broken Windows Theory”, the more polluted a river is, the more likely a new industry will pollute the river, as “vandalism can occur anywhere once communal barriers—the sense of mutual regard and the obligations of civility—are lowered by actions that seem to signal that “no one cares.”[i]

Following the theory, it’s important to tackle problems when they are still small: the bigger they become, the harder it is to tackle them or more effort is needed to repair the problem (e.g. you have to fix more windows and the rate of windows breaking is higher). Nevertheless, if we look at recent important environmental issues, such as lake acidification, ozone layer depletion or global warming we can see that actually the opposite happens. People start trying to deal with the problem only once the problems are big and very hard to tackle.

There are some key differences between environmental problems such as river pollution and neighborhood issues such as broken windows, which include economic incentives to pollute and also completely different scales. Nevertheless it would be worthwhile investigating whether neighborhood solutions can be applied to the entire world.

[i] Broken windows. George L. Kelling and James Q. Wilson. Atlantic Monthly, May 1982. http://www.theatlantic.com/magazine/archive/1982/03/broken-windows/304465/2/

The business of business is to make profit

If a company doesn’t make profit it will cease to exist. The fact that a company makes profit means that it functions efficiently and doesn’t necessarily mean that it is making profit at the expense of society or the environment. Businesses should focus on making profit while respecting the law. On the other hand, governments should make sure they set the conditions, i.e. laws and regulations, so that companies that make profit are doing it in a way which benefits society and are not making profit at the expense of society.

In evolution, species that adjust better to the local conditions are selected. Therefore, different conditions lead to species with different characteristics being selected. I believe that, differences aside, the same mechanisms apply to businesses. If a government penalizes companies which pollute, in due time, companies won’t pollute. If businesses which do not respect labor laws are punished, after some time, companies will respect labor laws.

Looking at companies in many underdeveloped countries, we find that it is not strange for them to carry out illegal or at least unethical practices. The reason why this happens is not because these businesses are more focused on making profit than businesses in developed countries, but instead because the companies which complied with the law couldn’t compete with the ones that didn’t. The conditions set by the government selected less ethical businesses.

Summing up, in order to exist, companies must make profit, and while they should respect the law and the ethical codes of the places where they operate, it’s the governments’ responsibility to ensure that those that do so prosper.