—Dr. Alan G. Whitney, president of Pacific Synergies Ltd., Vancouver

Companies are cleaning up.

During the past 20 years, many businesses challenged the environmental movement, minimally met pollution controls, fought stricter standards, and resisted costly cleanups. Today. however, changing consumers and a changing economy are demanding that industries take action.

“Over the last 20 years, as environmental limits have become more apparent, communities, businesses and governments have started to take action.”

“Twenty years ago, corporate leaders had to be dragged into pollution control,” state Emily T. Smith and Vicki Cahan of Business Week.

“Today, a minority are taking up the cause of pollution prevention, for good reasons…. Accidents such as the one that killed 2300 people at Union Carbide Corporation’s plant in Bhopal, India in 1984 drove corporate credibility on the environment to an all-time low.” (“The Greening of Corporate America.” Business Week, April 23, 1990, p. 96).

Questioning Growth

One of the engines of change has been the publication of The Limits to Growth in 1972. This book was based on a two-year study at the Massachusetts Institute of Technology in which a system dynamics model was built to explore the long-term consequences of growth in population, industrial capital, food capacity, resource consumption, and pollution. It warned that if current growth trends continued unchecked, the limits to growth on the planet would be reached sometime within the next 100 years — and it created a furor.

Debated, criticized, and praised, the book went on to sell 9 million copies in 29 languages. Many readers questioned the validity of the model, while others claimed the book was making unjust predictions about growth. Perhaps the most controversial aspect of the book was that it challenged the belief that continual material growth is desirable. The book’s message was an uncomfortable one — it called for fundamental changes in beliefs and actions in order to create a sustainable future.

Over the last 20 years, as environmental limits have become more apparent, communities, businesses, and governments have started to take action. Research to control pollution emission has led to stricter emission standards and the exploration of alternative energy and power sources. Pollution control and cleanup has become an over $100 billion market, and it is still increasing as the demand for cleaner technologies and products grows. Criminal fines for polluters violating federal laws increased over 80% percent in 1989 alone. Companies have found that eliminating toxic wastes and pollution can actually save money in resources and energy as well as waste disposal.

So where do we stand now, 20 years later, in relation to the earth’s limits? How can we work toward creating a sustainable economy that will not overshoot its limits? And what are the future implications for business? These are the questions addressed by a follow-up to The Limits to Growth that was published just last month — a book that is likely to prompt more debate and awareness as well as more action.

Growth: A Tragedy of the Commons

Beyond the Limits: Confronting Global Collapse and Envisioning a Sustainable Future, is an attempt by three of the original authors (Donella Meadows, Dennis Meadows, and Jorgen Randers) to re-evaluate the earth’s sustainability and society’s impact upon it, given the present conditions. What they found is sobering: despite the world’s improved technologies, greater awareness, and stronger environmental policies, many resource and pollution flows have grown beyond their sustainable limits. How did this happen?

According to Beyond the Limits, the limits to growth on our planet are equal to the limits of the planet’s ability to provide materials and energy, as well as the ability of the planet to absorb pollution and waste (see “Environmental Sources and Sinks”). Since 1973, the earth’s population has risen from 3.6 billion to 5.4 billion. As this ever-increasing population demands more resources to support it, the subsequent strain upon the earth’s resources has also grown exponentially. The result is a “Tragedy of the Commons” situation, where actions taken for individual gain are collectively overtaxing the earth’s resources.

As Garrett Hardin described this phenomena in a 1968 essay, imagine a pasture (like the Commons in an English village) that is open to all townspeople. Each villager is allowed to graze as many cattle as he or she desires — the more cattle they graze, the better their profits. But if too many cattle are added, the whole commons could become overgrazed, depriving the entire villages’ cattle of food. Despite the threat overgrazing presents to each villager, the “Tragedy of the Commons” structure encourages the villagers to each add to their own herd to increase profits (“Tragedy of the Commons: All for One and None for All,” Vol. 2, No. 6). Eventually, the pastures can become so depleted that even the grass roots disappear, permanently destroying the pasture itself. As a result, each individual pursuing actions in his or her own best interest creates an outcome that is worse for everyone.

Environmental Sources and Sinks

“The human population and economy depend upon constant flows of air, water, food, raw materials, and fossil fuels from the earth. They constantly emit wastes and pollution back to the earth. The limits to growth are limits to the ability of the planetary sources to provide those streams of materials and energy, and limits to the ability of the planetary sinks to absorb the pollution and waste.” (Beyond the Limits)

To compare this scenario with the exponentially growing world population and industrial base, imagine that not only the number of cattle (resource drains and pollutants) are growing, but that the neighboring townspeople have all heard of the beautiful, spacious pastureland and want to use the commons for grazing. So the number of cattle herders (people, companies, industrialized countries) increases as well. Not only will the group reach the pastureland’s limits, but they will reach them more quickly. That, according to Beyond the Limits, is the situation we face as a world population.

Reaching the Limits

What will happen as we reach the earth’s limits? There are four possible outcomes (see “Approaching the Limits: Four Possibilities”):

1. If the limit is very distant or growing faster than the demand, growth can continue without interruption.

2. Growth can approach the limits smoothly and then level off when it reaches those limits.

3. It can gradually come into balance by overshooting the limits, coming back down, and shooting back up again (much like how a thermostat adjusts the temperature in a room).

4. It can overshoot the limits, destroy the resource base, and subsequently collapse.

One of the most common arguments for continued industrial growth is that better technology will find solutions to the problems we are creating. This argument supports the first possible outcome — it says that by continually pushing back the limits, we will allow continued growth.

Structurally, however, the rate at which growth is occurring is too fast for correction. Due to the layering nature of limits, the number of limits we will run into is increasing as well — once we remove one limit, we often encounter another one. Technological advancements that remove one limit can create additional limits: nuclear power plants, for example, have helped replace fossil fuel usage, but their by-products are choking landfills with toxic waste.

The example of emission control for cars illustrates the structural difficulties inherent in trying to use technology to manage the dynamics of exponential growth. Even if we can cut pollution emission by 50, 60, or even 90%, if the number of cars is always increasing exponentially, the amount of pollution will also continue to grow exponentially. After a certain point, reducing the emission levels will prove too costly for any technology.

The Danger of Overshoot

Systemically, the only way for an exponentially growing human economy to prevent reaching a planet’s physical limitations is to balance its inflows and outflows. This requires two actions: (1) reducing usage of nonrenewable resources to the rate at which renewable resources can be substituted for them, and (2) reducing the rate of renewable resource use to equal regeneration rates. Likewise, the emission rates for pollutants need to be brought down to equal the rate at which they can be absorbed, recycled, or rendered harmless.

The difficulty in smoothly balancing the inflows and outflows lies in the time delays involved. Anything that is growing will stop at its limits only if it recognizes that it is reaching those limits and responds quickly. Due to the inherent delays in the global system, it is almost impossible to get accurate and timely feedback on the impact of industrial growth on the environment. For example, in the case of the impact of chlorofluorocarbons on the ozone layer, there is a long delay between the release of a CFC molecule into the air and the subsequent destruction of ozone. Because of the long delays, even if all the CFC releases into the air were stopped today, ozone depletion would continue for at least a century.

The result is that in most “Tragedy of the Commons” structures, the system shoots beyond its limits before it gets the signal that it has gone too far. That, in effect, is what has happened already, according to the World3 model used in Beyond the Limits — we have already overshot many of the earth’s limits. Whether or not we will ease back down below the limits (by bringing the inflows and outflows in line), or destroy the resource base and experience a collapse, depends on the quality and timeliness of our response to the challenges we face as a planet.

Implications for Business

The basic message in Beyond the Limits is that the pressures created by growth are not going to disappear — there are fundamental structural reasons why they must be addressed sooner or later. The situation is analogous to the case of our trade debt and federal debt — we have been borrowing from the future in order to live better today. In the same sense, we have also been accruing an environmental debt without knowing what the true cost of borrowing is nor what the payback schedule is going to be. A systematic plan to begin paying back our environmental debt needs to be put in place before we reach the limits of nature’s reserves.

In presenting World3’s findings, Beyond the Limits challenges companies to examine long-term investment and future limitations rather than gauging success based on short-term profits. Art Kleiner, in a recent article in the Harvard Business Review, stressed that such changes are crucial: “Industry (and nations, for that matter) cannot thrive if they sacrifice future quality of life for present economic gain” (“What does it Mean to be Green?” July-August, 1991, p. 38). Keeping within the earth’s limits and working toward a sustainable society will require fundamental changes in the way our organizations’ goals and incentives are structured. For example, the following will need to be addressed:

• Product Lifecycle Waste Management. Every ton of garbage at the consumer end has already produced 5 tons of waste at the manufacturing stage and 20 tons of waste at the initial site of mining, pumping, logging, or farming. As recycling and conservation efforts increase at the consumer level, pressure for pollution cleanup and prevention upstream in the manufacturing process is likely to increase.
• Total Package and Product Redesign. Current packaging methods produce a large amount of no recyclable waste. Companies that invest in changing the way they manufacture, package, sell, and dispose of their products can be more competitive in the emerging environmentally conscious marketplace. Some car manufacturers, for example, are experimenting with new designs that will allow for easy dismantling so that each part can be recycled.
• Environmental Accounting. Being able to track the costs associated with harmful by-products of manufacturing will become increasingly more important. While any good accounting system can report on the usual financial measures, new systems will be required to estimate environmental liabilities that may be growing beyond industry’s means to deal with the future costs that are being accrued.
• Shades of “Green.” There is now an opportunity to redefine the marketplace into shades of green consumers: from the “pale green” end where consumers will choose products that are environmentally friendly but require little effort or sacrifice on their part, to those who are “deep green” and will go out of their way to patronize companies whose products and services are deemed to be environmentally friendly. Companies who can appeal to the full spectrum of the green consumers are likely to be well positioned to compete in the new marketplace.

If there is anything to be learned from the last 20 years, it is that the environmental movement is not a passing fad but a permanent reality. There are genuine structural reasons why the issues will continue to grow in importance. The choice that companies must make is whether to be a leader in becoming more environmentally responsible, to be in the middle of the pack, or to be a laggard that kicks and fights inevitable changes at every step.

Building a Sustainable Future

“A sustainable society,” according to the authors, “is one that can persist over generations, one that is far-seeing enough, flexible enough, and wise enough not to undermine either its physical or its social systems of support…. From a systems point of view a sustainable society is one that has in place informational, social, and institutional mechanisms to keep in check the positive feedback loops that cause exponential population and capital growth.”

Sustainability does not mean stagnation. A sustainable society is interested in qualitative development, not sheer physical growth. It requires that we begin to ask questions such as what the growth is for, who would benefit, what would it cost, how long would it last, and whether or not the planet’s sources and sinks could accommodate it.

To achieve a sustainable economy, according to the authors, the most important change of all needs to take place individually, as we re-evaluate our mental models about consumption and waste. We must let go of the “sacred cow” that growth at all costs is desirable. People might have to change from a “have it all now” philosophy, valuing a high standard of living, to an attitude that values an improved quality of life for the present and the future. Asking ourselves about the actions we take and what their future effects will be — not just in terms of market share and profits, but in terms of future resource availability and environmental impact — will challenge us to make the right decisions for a shared world.

Businesses have the opportunity to make the greatest impact toward building a sustainable future. Activists can educate, consumers can work on an individual level, and government can legislate — but businesses can act. Industry has the opportunity to innovate and create the changes that will push the environmental movement past the “hype” and into a world of genuine action.

As the economy tightens, some businesses and consumers may think they can’t afford environmental improvements. But failing to protect the environment might end up costing far more than preserving it. Eastern Europe’s current “ecotastrophe” is a case in point: Hungary’s Deputy State Secretary estimated that health problems and loss of production due to pollution reduced their nation’s gross domestic product more than 6%. (“Is the Planet on the Back Burner?”, Time, Dcc. 24, 1990, p. 48-50).

Making educated choices around such issues is the challenge of operating a business in today’s world—the largest industrial group on the smallest overpopulated pastureland that has ever existed. But if businesses do not stop to challenge the choices they are making, they might discover they have travelled down the wrong path in the long run—the path of real economic loss and the destruction of vital resources.

Meadows, Donella, Dennis Meadows. and .10rgen Randers. Beyond the Limits. (Chelsea Green Publishing Company. 1992); Further Reading: Milbraih, Lester. Envisioning a Sustainable Society: Learning Our Way Out. (SONY Press, Albany, 1989)

The post Rebuilding the Commons: Envisioning a Sustainable Economy appeared first on The Systems Thinker.

Any informed student of systems thinking recognizes that such strategies eventually fail because they merely treat symptoms. They do not cure root causes. On the contrary, in time, these actions may actually worsen our underlying social and environmental problems. For instance, the availability of recycling may boost consumerism. Indeed, our problems will not go away until we discover that unlimited growth cannot be the primary goal of economic activity and act on this discovery. Society must learn to run an economy that enhances human well-being while ensuring that all life on Earth, both human and non-human, flourishes indefinitely.

Our problems will not go away until society discovers that unlimited growth cannot be the primary goal of economic activity.

To develop an economy that benefits Earth and its inhabitants, we need

• a good understanding of the state of our current economic system,
• a clear vision of the sustainability that must become the goal of our future economic system, and
• a willingness to take small steps to identify and remove the obstacles we encounter on the path to get us from our current economic system to the future system.

To achieve these goals presupposes that we identify the assumptions about reality that underlie our thinking. It also requires that we understand how we got to where we are today. Understanding how we arrived at this point allows us to make informed decisions about our economic activity and proceed wisely to develop a sustainable future.

Like performers in a jazz group, we have no full-blown score that shows us precisely what comes next. We do, however, have the ability to examine the past, consider the present, and create a viable path to a sustainable future.

The Origin of Belief in Economic Growth

How can we get to the core of the challenges that face us? How do we begin to make a significant difference? One place to start is by understanding and thinking carefully about the underlying assumptions that gave us economic growth as a viable business strategy in the first place. Adam Smith and the first generation of classical economists originally proposed the capitalist economic system as an answer to the question, “What is the best way to conduct economic activity so as to increase ‘the wealth of nations’?” Their concern was how to secure national wealth. Their focus was on providing an alternative to the 17th- and early 18th-century mercantilist nations’ efforts to amass precious metal reserves through conquest and one-sided trade surpluses. Early classical economists advocated gaining national wealth instead by encouraging industrial employment through the manufacture of and trade in products and commodities. In other words, they saw a nation’s economic strength in its productive employment and trade, not in vaults filled with dubiously acquired stores of gold and silver.

These economists put less emphasis on growth per se than on the social and legal conditions they saw as prerequisites to innovation, risk-taking, and investment. Thus, Smith and his peers argued that market exchange was superior to feudal custom as a basis for conducting economic activity. They also believed that manufacturers and traders should privately own the property and equipment they used in their enterprises. In this way, capital that had previously been locked up in the “commons” on the feudal manor would reach entrepreneurs eager to invest it in novel ways.

Only long after Adam Smith did economists shift their attention to, among other things, growth in the human economy. To some extent, this shift was a response to the unprecedented expansion of the human population that began after the onset of the fossil fuel–enabled industrial era in the early 18th century. Along with that growth came cycles of boom, depression, inflation, deflation, unemployment, and financial instability. These events prompted European and American economists by the first half of the 20th century to develop so called macroeconomic models to explain patterns of economic activity in the aggregate, as opposed to the microeconomic models of market and price behavior of individual consumers and firms that had been the chief concern of economists in the previous two centuries.

After the 1930s, government policy makers were using macroeconomic models and tools developed by John Maynard Keynes and other economists to deal with economic cycles, price-level fluctuations, and employment instability. Although the success of these models seemed to be confirmed by the long period of sustained economic growth in the Western democracies from the 1940s to the end of the 20th century — a welcome change after the long depression of the 1930s—it no doubt contributed to the environmental problems we now face, giving rise to the dilemma of today’s policy makers to come up with ways to achieve “prosperity without growth” (Tim Jackson, Prosperity Without Growth? Sustainable Development Commission, U. K., 2009).

By the late 20th century, then, the relatively small-scale and competitive industrial economy had been transformed into the vastly larger-scale, more centralized, and more monopolistic global economy. At the same time, the question of how to increase a nation’s wealth was replaced by an answer: transform resources into an ever-growing stream of goods and services for human consumption, without limit.

The Impact of Newtonian Thinking

The way modern humans have thought about the economy derived mainly from Western religious and scientific cosmology passed on through educational, religious, and social institutions from the 18th century to the present day. Particularly important in shaping economic thought has been the mechanistic view of reality articulated by that most admired of Western 18th-century intellectuals, Isaac Newton.

By the late 20th century, the relatively small-scale and competitive industrial economy had been transformed into the vastly larger-scale, more centralized, and more monopolistic global economy.

Central to Newton’s cosmology is the idea that reality in this universe is material “stuff” consisting of independent objects that connect only through external force. This force is of course known as “gravity.” Economists after Adam Smith’s time adopted the idea that the independent behavior ascribed by Newton to material non-human systems in the universe applied equally to all human, social, and living systems on Earth. Thus, homo economicus is an autonomous being motivated solely by his or her desire to maximize self-interest through winner-take-all competition and accumulation of material wealth. A social setting in which humans work, such as a business, achieves results that presumably can be measured as a linear sum of its parts. Holding the human economy together in a coherent way is an external force resembling gravity. Borrowing on Newton’s ideas, Adam Smith described that force as “an invisible hand” that produces the “greatest good for the greatest number” when all individuals independently pursue their self-interest through economic exchanges based entirely on prices set in free markets.

Growth was not a feature of Newton’s universe, but it became an inevitable part of modern economic thought as people increasingly viewed the goal of market exchange to be the accumulation of material “stuff” measured with abstract financial quantities. Having shifted the goal of economic activity from real, tangible things to abstract financial quantities, the race to grow without limit was on. After the early 19th century, more and more people began to take for granted what they presumed were limitless sources of power delivered by coal furnaces, internal combustion engines, and coal-generated electricity. They rushed to use such power to strip forests, mine minerals, produce steel rails and high-rise girders, travel great distances, and till millions of acres. They believed that inexhaustible resources would give them the necessary means to achieve unending growth. The adverse environmental impact of this growth was, for the most part, out of sight — either not yet readily visible or located far from major population centers.

Eco-philosopher Thomas Berry powerfully described this devastating transition in human history:

In our times . . . human cunning has mastered the deep mysteries of the earth at a level far beyond the capacities of earlier peoples. We can break the mountains apart; we can drain the rivers and flood the valleys. We can turn the most luxuriant forests into throwaway paper products. We can tear apart the great grass cover of the western plains and pour toxic chemicals into the soil and pesticides onto the fields until the soil is dead and blows away in the wind. We can pollute the air with acids, the rivers with sewage, the seas with oil — all this in a kind of intoxication with our power for devastation at an order of magnitude beyond all reckoning. We can invent computers capable of processing ten million calculations per second. And why? To increase the volume and the speed with which we move natural resources through the consumer economy to the junk pile or the waste heap. Our managerial skills are measured by the competence manifested in accelerating this process. If in these activities the topography of the planet is damaged, if the environment is made inhospitable for a multitude of living species, then so be it. We are, supposedly, creating a technological wonderworld (Thomas Berry, The Dream of the Earth, Sierra Club Books, 1988).

A New Cosmology

Ironically, the Newtonian cosmology that legitimated this “wonderworld” in modern economic thought underwent a radical transformation in the late 19th and early 20th centuries, just as the social and environmental costs of sustained economic growth were beginning to appear on the horizon. This new cosmology embodies a view of reality that itself has the potential to help answer the question of how to run a sustainable economy. According to this worldview, sometimes referred to as “the universe story,” our universe originated 13.75 billion years ago in an infinitely dense, small, and hot singularity — the “big bang” — containing the source of all the matter and energy that ever will exist. Since the “big bang,” the universe expanded continuously and thereby became host to an evolving array of increasingly complex forms such as sub-atomic particles, galactic clouds of hydrogen and helium atoms, stars, elements of the periodic table, molecules of water and amino acids, planets circling stars, Earth, and Earth’s life forms — ranging from prokaryotic microbes to human beings.

Consider the view of reality inherent in this cosmology. First, reality is not “stuff” put here all at one time in its present form. Instead, it is a continuously evolving process, or system, that itself produces all the forms we perceive around us. Moreover, that process embodies a small number of patterns that connect all matter and energy in relationships from which everything emerges.

Three features seem to permeate the universe:

1. Everything is connected to everything else. Nothing is independent. “The universe,” Thomas Berry remarked, “is a communion of interconnected subjects, not a collection of independent objects.”
2. Every form that has ever emerged from the evolutionary process is imbued with a unique self-identity, or “inwardness,” that embodies the form and enables it to multiply and expand its influence.
3. The universal system of interconnected, self-defining forms sustains itself and flourishes indefinitely by continuously generating increasing diversity, or differentiation, and thereby preventing any one form’s growth from extinguishing other forms (see Brian Swimme and Thomas Berry, The Universe Story, Harper Collins Publishers, 1992; Joel Primack and Nancy Abrams, The Journey to the Center of the Universe, Riverhead Books, 2006).

For nearly 14 billion years, relying on these three features, the universe has evolved, using an unchanging budget of matter and energy. All the increased complexity and differentiation intrinsic to the evolution of the universe has been accomplished with the same quantity of stuff — or, as an economist might say, “at zero marginal cost.” The universe is sustained by the continuous generation of newness, using a fixed amount of matter and energy to do so.

We humans have posed the first threat to this sustainability by using our unique powers of technology to consume from Earth’s fixed supply of resources and create waste faster than Earth can regenerate the waste, thus depriving resources to other life forms. This consequence of modern economic growth would not occur, however, were the human economy able to achieve prosperity and sustainability simultaneously, by consuming Earth’s resources at a steady rate that does not threaten the ability of other life forms to thrive. How to achieve that goal is the most important question of our time, perhaps the most important question humans have ever faced.

As revealed by modern science, the behavior of the universe suggests the best way to run an economy intended to support human well-being while ensuring that all life on Earth, both human and nonhuman, flourishes. When we acknowledge the interconnectedness of all life on Earth and when we grasp the current state of our life-denying global economic system, we are poised to identify constructive actions that will lead to a viable future state.

Economic Growth and Nature’s Systems

Anthropologist and systems thinker Gregory Bateson once commented, “The major problems in the world are the result of the difference between the way nature works and the way man thinks” (as quoted by Bill Devall and George Sessions in Deep Ecology: Living as if Nature Mattered, Peregrine Smith Books, 1985). A viable future state requires that we see that nature works through a series of interconnected feedback loops that prevent any species from growing without limit, ensuring that life can flourish indefinitely, despite Earth’s fixed supply of resources. Were it not for such checks on growth, population booms would lead to crowding and mass extinctions, thus reducing the number, diversity, and resilience of the planet’s flora and fauna.

By contrast, “the way man thinks” is to assume that Earth can supply all the resources to sustain endless expansion of the human economy. In past centuries, when humans grew steadily in number, we did not seriously threaten the health of the planet. Since the Industrial Revolution, however, and especially today, the human economy has consumed Earth’s resources at a pace that is causing environmental distress and the extinction of other species to a degree unprecedented since the extinction of the dinosaurs some 65 million years ago. When humans use our unique powers of language and technology to circumvent nature’s ways of constraining growth, and when we engage in unlimited consumption of Earth’s fixed, finite resources, our behavior compromises Earth’s capacity to sustain life. If this unchecked growth continues, we may be jeopardizing the sustainability of our own species.

Conditions for Growth

The dedication to growth is rooted in two conditions that profoundly shaped the course of the industrial economy for the past two centuries. One condition is the discovery and ever-increasing use of fossil fuels — coal since the late-eighteenth century; oil since the mid-nineteenth century; and natural gas since the late-nineteenth century. Without these fuels, the massive extraction and transformation of Earth’s resources into products for human consumption that has characterized the modern industrial economy would have been inconceivable. But helping drive that enormous consumption of resources was a second condition: the development and nearly universal use in the past century of abstract financial concepts to describe, explain, and direct economic activity.

When we view economic activity through the lens of financial numbers such as profit, cost, income, and GDP, it becomes a quantitative abstraction, completely separated from the concrete activities that produce such numbers. Indeed, corporations are seldom held accountable for the true social and environmental costs of their actions, including polluted air and rivers, toxic food, scarred landscapes, scarce or tainted water, discarded human lives and communities. Seen in this light, it is hardly an exaggeration to say that the modern industrial economy has been growing itself to death.

The rate of economic growth, especially in Western capitalist economies after the late 19th century, was also greatly accelerated by the use in limited-liability corporations of long-term debt and equity instruments. With access to large amounts of financial capital, companies produced — and consumers consumed — at higher rates than would otherwise have been possible. Since the early 20th century, financial capital has grown faster than physical capital (John B. Cobb, Jr., “Landing the Plane in the World of Finance,” Process Studies, Vol. 38.1, Spring-Summer 2009). This discrepancy gave global financial corporations the monetary wealth with which to acquire and control large industrial corporations.

As a result, a small number of individuals in the financial sector came to own and control an increasingly large share of the economy’s monetary wealth. To a much greater degree than ever before, inequality in the distribution of wealth increased rapidly. The predictable rise of political influence exercised by those at the upper end of the wealth distribution is now enabling political power in Western society to shift from popular democratic majorities to plutocratic minorities.

A Piecemeal Approach

Reinforcing this shift in power is our tendency to accept the growth of enormous corporations and to delegate virtually all of our economic decisions and fulfillment of our physical needs to them. As the writer, agrarian, and land steward Wendell Berry has said, “Most people in the ‘developed’ world have given proxies to the corporations to produce and provide all of their food, clothing, and shelter [and] . . . to corporations or governments to provide entertainment, education, child care, care of the sick and the elderly, and many other kinds of ‘service’ that once were carried on informally and inexpensively by individuals or households or communities” (Wendell Berry, “The Total Economy,” in What Matters?: Economics for a Renewed Commonwealth, Counterpoint, 2010). Large corporations and governments thus capture vast financial wealth and political power while providing, on their terms, almost all the goods, services, and jobs that shape our lives.

Given the hardships and inequities that this growth has created, it is surprising that popular public opinion about national and global economic policies supports the relentless economic growth that financially benefits a select few. Presumably, this paradox derives in part from the influence that large business and government institutions wield over education and the public media. Also, the public’s dependence on products, services and jobs created by those institutions—and our seemingly unending appetite for consumer items — helps make us complicit in the global growth strategy.

Thus, in response to our deepening environmental crisis, rather than reining in large growth-oriented institutions, most of our strategies have focused on piecemeal approaches such as recycling waste, buying plug-in electric and hybrid automobiles, installing solar panels on rooftops, creating vegetable gardens in abandoned urban spaces, and grinding worn-out running shoes into material for making playgrounds. While environmentally friendly practices are commendable in their own right, they address symptoms, not the fundamental problem of inexorable economic growth.

If we should continue to pursue unlimited economic growth, the unanticipated consequences may exceed our most fearful imaginings.

A Positive Future Economy

The following steps suggest ways we might solve our economic problems and repair the current destructive global economy that is based on “the way man thinks.” These steps propose a positive future economy based on “the way nature works.”

1. Take back what Wendell Berry calls the “proxies” we have given over the years to corporations and governments to fulfill all our physical and economic needs. This implies consuming less of everything and having each community become more self-sufficient and less dependent on outside institutions for necessities such as food, clothing, shelter, recreation, education, and healthcare. In short, take back global by going local.
2. Produce and trade more of what we consume locally and import less from the outside world by carefully planned programs to promote import substitution. This creates more local jobs and more local opportunities to invest local savings.
3. Delegate to outside corporations and to regional and national governments only those economic activities that cannot be provided effectively in the local community. Then initiate programs to steadily improve the local community’s ability to provide those activities.
4. Markets do well at defining prices for reproducible, homogeneous, fungible commodities but not for defining values of heterogeneous, nonrenewable, unique species. Most economists after Adam Smith and David Ricardo ignored this fact. Thus, modern economists take for granted that markets will set prices for land and labor as though they were fungible commodities. They increasingly regard Earth’s natural resources, human labor, and life itself as commodities to trade. This idea must end.
5. Modern science tells us that reality is relationships and process, not “stuff” to mechanically collect, assemble, and accumulate. But humans have yet to learn that their well-being requires them to emulate in their social, business, and economic organizations the patterns of relationships found in nature, not the mechanistic patterns so pervasive in present-day financial management. To that end, people managing economic processes in the workplace must recognize that “cost” is a function of how they design human relationships in those processes, not a financial quantity that they control by changing the scale of those processes and the speed at which the processes transform inputs into output.
6. Endless growth in the human economy makes it impossible for Earth’s remarkable life system to flourish over the long run. However, almost all present-day programs to promote “sustainability” or “sustainable development” fail to question the assumption that growth is a necessary condition of human economic activity. Thus, they do no more than treat symptoms of the underlying disease; they do nothing to prevent the disease itself. And by simply alleviating, temporarily, some of the adverse consequences of growth, they avoid tackling the fundamental problem, which is to produce a condition of long-term sustainability in a context of no growth.
7. Do not look to universities or academic researchers for answers to the social and environmental problems that we now face. Academic institutions are firmly entrenched in the status quo.

Undoubtedly no one seriously believes that the defining feature of the human economy should be the destruction of life. And yet today our economic activity is destroying Earth’s capacity to support life. To alter this condition, we must thoughtfully scrutinize our reasons for advocating continuous growth in production and consumption. If we should continue to pursue unlimited economic growth, the unanticipated consequences may exceed our most fearful imaginings.

H. Thomas Johnson is professor of business at Portland State University and Distinguished Consulting Professor of Sustainable Business at Bainbridge Graduate Institute. In 1997, Harvard Business Review named his book Relevance Lost one of the most influential management books of the 20th century, and in 2003, Harvard Business School Press listed Tom among today’s 200 leading management thinkers. In 2001, Tom’s book Profit Beyond Measure received the Shingo Prize for Excellence in Manufacturing Research, and in 2007, the American Society for Quality awarded him its prestigious Deming Award. You can contact him at johnsoht@pdx.edu.

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Executives today are constantly seeking to predict how their organizations and the marketplace will behave. But because many leaders continue to use traditional reductionist methods to understand organizational behavior ones that focus more on symptoms than on causes of a company’s success they fail to gain real insight into how to build and sustain that success. The result is often reactive, crisis driven management with unanticipated side effects and unforeseen outcomes.

Contrary to this rigid perception of organizations as predictable machines, some management thinkers have come to view them as complex and evolving organisms. Accordingly, the tendency in the business world to define companies in terms of simple formulas and numerical results is slowly being replaced by the recognition that, to be effective in leading organizations, we must think of them in terms of the underlying structures and dynamic patterns of behavior that produce those results. In other words, we must begin to complement or replace linear thinking about how our businesses work with nonlinear approaches by applying the principles and tools of system dynamics.

System Dynamics Theory

Why do so many brilliant management strategies lead firms directly into decline or not produce the anticipated results?

In his classic 1961 book Industrial Dynamics, Massachusetts Institute of Technology professor Jay Forrester originated the ideas and methodology of system dynamics. He pointed out that the traditional approaches of the management sciences could not satisfactorily explain the causes of corporate growth or decline because they focused on simply explaining behavior. He believed that a system’s behavior is actually a product of its structure and that leaders should seek to identify where changes in structure might lead to significant, enduring improvements. They could then design organizational policies and processes that would lead to even greater success.

In order for managers to undertake this design process, Forrester advocated that they must analyze their organizations using dynamic models. For this purpose, he developed tools such as causal loop and stock and flow diagrams. These tools serve to illustrate the interconnected feedback loops that form a complex system. By identifying these feedback loops, management can figure out a system’s basic patterns of behavior, which include growth(caused by positive feedback), balance(caused by negative feedback), oscillations(caused by negative feedback combined with a time delay), and further complex interconnections.

Applied to organizations, this way of thinking challenges the notion of measuring success only through financial results. Because people can see financial results, they think they have control over them. But these results are actually produced by the organization’s underlying structures. These structures consist of:

• Organizational Architecture: the basic organizational design (such as the functions or divisions that the company includes) and the governance system (such as the planning and control system)
• Organizational Routines: standard operating procedures, decision making processes, behavioral archetypes
• Tangible and Intangible Resources: financial capital, human resources, buildings, machinery, land, brands
• Organizational Knowledge and Value Base: patents, core competencies, cultural beliefs, attitudes

When we focus on systemic structures and behavioral patterns, we gain the knowledge to design our organizations to produce desirable day-to-day results in areas such as profits, employee motivation, customer satisfaction, and so on (see, “Structure, Behavior, and Results”). The basic idea of the dynamic approach is that, although people shape their organizations, their behavior is ultimately influenced, and therefore limited, by the organizational framework in which they operate. Consequently, leadership means much more than optimizing businesses for short-term outcomes; it involves creating and cultivating structures and enabling organizational behaviors that guarantee the viability of the whole firm. Therefore, in order to manage their organizations successfully, leaders must realize that the best way to achieve sustainable results is not by relying only on what they see or measure but by:

• Describing and assessing the observable behavior of the system;
• Understanding the interdependencies between a system’s behavior and its underlying structure;
• Making assumptions about and modeling these interdependencies using system dynamics tools; and
• Finding and implementing policies to redesign the structure of the system in order to improve its performance.

Building on this system dynamics foundation, we propose to take leadership one step further, to what we call evolutionary leadership. The natural process of evolution offers a compelling model of how leaders might intentionally design and guide growth and balancing processes to create a viable organization. Evolutionary leadership involves the deliberate interplay of two management functions: strategic management (designing structures and processes that stimulate growth) and management control (guiding the external and internal factors that regulate growth). But before we explore the synergy between these two functions, we need to talk about how evolution works in nature and in organizations.

Evolutionary Theory in Organizations

Evolutionary theory has been the predominant paradigm in natural sciences for more than a century. Recently, theorists and practitioners in the social and management sciences have begun to adopt the ideas of evolutionary theory as a framework for describing and analyzing organizational development. The basic concept these pioneers have set forth is that processes of variation, selection, and retention as well as the struggle for scarce resources trigger the evolution of an organization.

Sociocultural evolution differs from biological evolution in that it allows for the intentional variation and selection of ideas. In this context, an organization’s fitness its “viability,” or ability to survive and thrive depends on how its decisions and strategies affect its position in product and resource markets and on its legitimacy from the point of view of important stakeholders. Chilean neurobiologists Humberto Maturana and Francisco Varela have deeply influenced thinking about viability with their theory that living systems are complex systems that can self-generate. A system dies when it loses its ability to renew itself. In the business world, a company that fails to renew itself by changing its strategic orientation and/or internal structure in response to shifting conditions will die. In contrast, a viable organization is one that can continually create its own future and there by assure its fitness in an evolutionary sense.

But how does a viable organism develop this capacity to self generate? According to Maturana and Varela, it happens when the organism

• Preserves its identify by repeatedly drawing system boundaries (i.e., defining what is “internal” and, “external”); and
• Maintains its ability to adapt to a changing environment.

Within ever-changing environments, external forces constantly threaten the existence of a species by altering its living space. To survive, a species must adapt to the changing conditions successfully without losing its identity. For example, in nature, many kinds of birds have adapted from natural to urban environments, but not all have managed to do so. In the banking industry, banks have profoundly shifted their strategies in the past decade in response to technology changes and new competitors. Many brick and mortar institutions have gone “virtual.” In doing so, they are able to maintain their existence by simultaneously preserving their identity while adapting their strategy and structure to a changing environment.

The key to an organization’s survival lies in mastering the trade-off between preserving its identity and adapting to a changing environment. Leaders do so through strategic thinking and acting, and by asking how they can maintain the fit of the organizational structure and its environment. There are two ways to achieve this goal:

• Maintain your identity and structure and avoid fundamental adaptations by changing the environment or searching for an appropriate new environment.
• Fundamentally change your structure and redefine your identity to reestablish a fit between the organization and its ever changing environment.

In reality, most organizations choose adaptation strategies that lie somewhere between these two extremes.

Organizations can only make alterations to the extent that their structures and resources make modifications possible. A firm has a good chance to successfully adapt to a changing environment when it has a strong learning capacity, that is, the ability to anticipate, influence, and quickly react to environmental changes, along with the ability to recognize, vary, and advance the underlying mechanisms of the learning process itself. For example, Shell Oil enhances its learning capacity by combining strategic planning and organizational learning through scenario planning. Scenario planning provides a mechanism for thinking in alternatives and making underlying assumptions explicit. This process reduces the company’s risk of encountering negative surprises and increases the speed with which it can implement changes. In short, organizational learning is a dynamic feedback process that can help organizations remain viable and therefore survive the external pressures of natural selection (see “The Evolutionary Cycle in Organizations”).

Growth and Balance

In addition to having the ability to adapt and learn, systems must be able to grow. Generally speaking, growing means incorporating more and more available resources like nutrients for a plant or natural or human resources for a company in order to become larger and larger. For a company, growth can mean an increase in market share or market value. But is growth in itself sufficient for survival? Clearly, the answer is no, because nothing grows forever. But where and what are the limits to growth?

In nature, reinforcing processes, such as population growth, are slowed by balancing processes, such as limited food supplies and the spread of diseases. If normal balancing processes aren’t blocked and assert themselves before a population reaches the limits of its habitat, that species can maintain a harmonious relationship with its environment. Such balancing processes ensure that the evolving system remains within a viable range of activities, in this case, healthy population density. Indeed, these balancing processes are more crucial than reinforcing processes, in that they keep the overall system alive. If, on the other hand, important balancing processes are missing, the species might become extinct by overtaxing the resources in its environment.

Are there similar natural boundaries to the development of social systems? The answer is yes. For example, a firm’s development can be limited by its production capacity, the size of its market, or the number of its competitors. The faster the company grows, the more rapidly it reaches these boundaries. From time to time, such limits to growth can change. For example, shifts in market conditions, such as those created by the Internet boom or the world oil crisis of the 1970s, can increase or decrease the time it takes an organization to reach a certain limit, unless people find ways to use their limited resources more efficiently.

We can say that an organization is evolving when its configuration, routines, tangible and intangible resources, knowledge, and value base develop in accordance with the changing external environment. Scientists now know that most healthy living systems follow a developmental path described as punctuated equilibrium periods of balanced growth that are interrupted by periods of exponential growth (see “The Stages of Organizational Evolution” on p. 4).

We regularly underestimate the tremendous power of exponential, or reinforcing, growth. We tend to assume that growth is linear and increases consistently over time. However, exponential growth happens much more precipitously. If we observe the two over a short period of time, exponential growth approximates linear growth. Over a longer period, however, the gap between the two becomes enormous.

Because human beings tend to perceive short term rather than long-term changes, we often reach the boundaries of exponential growth faster than we anticipated, often completely unexpectedly. We see this happen to companies when booming success is followed by equally dramatic failure. For example, cellular telephone companies experienced this phenomenon when they projected that their sales would continue to increase at a high level. But they eventually saturated the market and experienced declining sales. For this reason, unless we understand and anticipate the impact and boundaries of exponential growth, we will have a distorted perception of the evolutionary process, leading to unpleasant surprises and even to an existential crisis for the whole enterprise.

Organizations sustain themselves when they attain a balanced evolution off setting reinforcing growth action with timely balancing impulses. Sustaining this balance is the only way to ensure that companies remain in the realm of “sound growth” as they develop and that they don’t exceed the limits of their environment or resources. Balanced evolution plays an especially critical role during periods of exponential growth, when the organization is at a much higher risk of losing its viability than in periods of balanced growth, when the stakes aren’t as high.

For example, when a leap in growth occurs for a limited time(through external factors such as deregulation or new developments in technology, or through internal factors such as changes in top management or a merger and acquisition), leaders need to off set that growth by intentionally introducing balancing feedback loops. They can do so through control and coordination systems as well as productivity enhancement programs. These loops keep the organization’s growth from consuming the company.

Leadership in Organizational Evolution

But how can leaders help firms achieve the balanced growth they need to evolve? Through strategic management, leaders expand the business; through management control, they regulate the growth process, making sure that it remains within a sustainable range. Together, the two functions form a balanced leadership cycle for guiding and controlling the company’s evolution.

Strategic Management. Through strategic management, leaders cultivate the conditions for a company’s sustainable growth. Specifically, they perform the following three functions:

1. Set Direction. As mentioned earlier, leaders need to preserve or redefine the organization’s core identity and develop its structures in ways that lead to lasting success. They do so by communicating the company’s values and beliefs to employees and external stakeholders through shared vision and mission statements, and by strengthening internal rein forcing processes such as employee morale. They also formulate and implement strategy, not by detailing a map of action but rather by defining a corridor of learning opportunities.
2. Build Resources. Leaders need resources to support entrepreneurial activity. They can acquire them externally (such as machinery or capital) or develop them internally (such as people or policies). From a resource based perspective, only internally built resources can provide the basis for competitive advantages and above average returns, because they are specific to the company and therefore more difficult to imitate. On the other hand, resources that are available on the open market are available to all competitors.
3. Create Infrastructure. Leaders must not attempt to drive growth but rather to influence the factors that can block or support it. As such, they need to design an organizational context that eliminates barriers to company development (such as fear, distrust, centralized decision making, too tight control, and insufficient resources) and develop processes to promote learning (such as organizing flexible teams, supporting communities of practice, creating incentive systems for transferring knowledge, and creating learning spaces).

From a system dynamics perspective, these three functions combine to form a reinforcing process called the “Strategic Management Loop,” which strengthens the company’s growth(see “The Balanced Leadership Cycle”). But for the organization to remain viable, this reinforcing loop must be reined in by balancing processes, such as those that make up the “Management Control Loop.”

Management Control. Management control acts to bring equilibrium to the expanding system. To do so, leaders must perform three central functions:

1. Assure Internal Consistency of Infrastructure, Resources, and Direction. Leaders need to maintain the coherence of a system, particularly in large companies where management functions often get split among different organizational units or departments. To handle this specialization of functions, they must synchronize the development of strategy, resources, structure, and systems. They do so by working with others to develop a shared view of the system, which acts as a basis of companywide activity. However, this model is necessarily a subjective simplification of complex reality, so it can easily become selective and distorted.
2. Compensate for Selective Perception. Therefore, leaders and their teams must compensate for their selective perception by continually enriching their assumptions with relevant new information and challenging their mental models. For example, they might use management information and decision support systems, which provide comprehensive data and make blind spots of organizational perception visible. Management control thus leads to more informed decision making and better anticipation of the consequences of those decisions.
3. Appropriately Limit Developmental Dynamics. Designing appropriate limits on developmental dynamics involves two realms: content and time. Leaders must analyze whether the firm’s expansion exceeds the limits set by its internal conditions (for instance, the number of staff with expertise in certain areas) and the external forces of its environment (for example, the size of the market), thus endangering its boundaries. They also must regulate how fast the firm grows. They do so by pacing the speed of growth so it doesn’t over tax the current management capacity (resources and infrastructure) or environmental limits (size and growth of the market).

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Leaders put these functions into action using different diagnostic tools, such as the balanced score card and budgeting. The balanced scorecard helps them see the inter connections among the key measures of the business, for instance, between employee capacity and customer satisfaction, or between customer satisfaction and market share. Executives can then ensure that key measures stay in balance. Through the budgeting process, they translate strategic direction into financial objectives, setting the frame work for the allocation of resources and the utilization of infrastructures to assure internal consistency. By limiting and balancing developmental dynamics as well as by assuring internal consistency, these tools contribute to the fulfillment of the management control function in the balanced leadership cycle.

In order to avoid survival threatening oscillations between growth and decline, leaders need to take into account the time delays that occur before balancing impulses take effect. Working properly, the interplay of strategic management (growth actions) and management control (balancing impulses) assures a synergistic rhythm of a company’s evolution, a characteristic of particularly successful firms in dynamic environments.

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This essay was inspired by a chapter on comfort zones in a book, The Bigger Game, by Laura Whitworth and Rick Tamblyn, with Caroline Mac- Neill Hall (Outskirts Press, 2009). My attention was grabbed by this sentence: “All comfort zones have some kind of benefit and some kind of cost attached to them.” The essential point is that if we want to play a bigger game in life, if we want to grow, we’re going to have to identify our comfort zones and leave those that don’t serve us behind.

Kinds of Comfort Zones

Whitworth and Tamblyn identify two types of comfort zones: habits of action and habits of thinking. Habits of action could include never missing a particular TV show, eating certain foods, always brushing your teeth, reacting by yelling when something doesn’t go your way. Habits of thinking might be things like noticing what’s going well, feeling grateful for small things, focusing on what’s going wrong, finding fault with others, feeling inadequate to many tasks. Habits that include both action and thinking include the roles we gravitate toward in our lives. We may find ourselves repeatedly playing the caretaker, the expert, the general, the free spirit, the martyr, or some other role.

The Irony

The irony is that we develop comfort zones to keep ourselves safe and happy, yet over time, these habits actually devolve us to a state of boredom and complacency. So if we’re interested in growing, having more meaning in our lives, or succeeding at a new level, we need to:

• identify our comfort zones, and
• ask whether or not they’re serving us.

The trouble is that we are usually blind to our comfort zones because they’re so familiar to us we think they ARE us. All the more reason this is important. Whitworth and Tamblyn say, “The fact is that unexamined comfort zones run our lives.”

The Good News

The good news is that when we actually do identify and step outside a comfort zone, we build a new comfort zone with greater capacity. The more we do this, the more we grow, the more we’re able to accomplish, and the better we feel about ourselves.

Cost/Benefit Analysis

Part of the examination of our comfort zones needs to be identifying what the benefit is and what the cost is. So one comfort zone my friend Stephanie has developed is cooking healthy, homemade meals. The cost is that it takes more time and some thinking ahead. The benefit is that she stays amazingly healthy. Sometimes this analysis is tricky. I have a comfort zone of doing yoga and chi kung every morning. I’ve been doing this for a long time. Because I do almost the same thing every day, it’s become really easy. I realize now I need to do some different or more difficult moves.

A Reason to Change

This whole idea of looking at your comfort zones may be interesting but not make any difference in your life, unless there is a vision or a dream big enough to pull you out of that space. For me, the goal of staying healthy to enjoy my children and grandchildren keeps me walking outside even when the weather is cold. My friend Krishna is leaving a good job he’s had for years because he’s written a book that is changing people’s lives. He wants to share that message broadly through workshops and webinars (see Beyond The Pig and the Ape by Krishna Pendyala).

So what is your reason to move out of a comfort zone? Where might the benefit be greater than the cost? I love the “final note” in Whitworth and Tamblyn’s chapter on comfort zones:

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