The power of pragmatism

The urgent transformation of the theory of economics and business science

Do less harm - it's not good

The avalanche of bad news concerning the environment, poverty, unemployment, human rights violations and the inaction of political decision -makers, combined with the usual approach to businesses, leaves many worried citizens. The data we have is clear: climate change is progressing, there is no chance to absorb the hundreds of millions of young unemployed people, while the competitiveness of most worlds in the world continues to erode. The only solution that economists imagine to all problems and all wrongs is a growth fueled by increased consumption for which citizens are supposed to accumulate more debts.

Lots of time and efforts are devoted to the analysis of all the information available. While many are desperately looking for alternative solutions, there is not one, or some, which seem capable of reverse negative trends. There is a blind belief in a single solution: growth and nations that lack growth should first go through a period of austerity. Each expert addresses the mass of information from its point of view, in a well -defined silo, depriving the world of knowledge necessary to create an essential vision for the design of a new and effective path. This article tries to open our minds.

The absence of in -depth knowledge of the functioning of economic and social systems leaves no room for the wisdom which is urgent to demonstrate to mobilize the best minds and those involved in order to pass analyzes of the dramas in progress to a Pragmatic portfolio of initiatives. In my opinion, too much efforts are reserved for the analysis of problems, the theorization of solutions and the hard debate on these options as if the dominant theory was considered a dogma. Almost no one focuses on the demonstration in the field that it is possible to surpass the current growth model by obtaining better results - even according to their success parameters.

During a recent exchange with the very honorable Anders Wijkman, co -president of the Rome club and one of the opinion leaders in the design of policies in favor of sustainability, it appeared clearly that few people understood that Analysis and theory, the development of concepts and case studies can do nothing against current negative trends without a fundamental change in the economic model. We should go from the logic of economies of scale and the reduction of costs to a company that uses what it has, first meets the basic needs of all and circulates the newly acquired purchasing power in communities local.

Blind belief in growth

The millions of students who aspire to a better financial award thanks to their investment in an MBA diploma barely realize that they all learn the same business model which was once designed to the famous Harvard Business School. MBAs are as much the product of economies of scale and standardization as the industries they are supposed to manage in the future. Everything results in financial results, market share, economies of scale and a classification. This dominant model prescribes that we sell what we produce and that the growth combined with the domination of the market will not only offer the best return on investment to shareholders, but will even align performance by the management of awards and bonuses. And if the company is confronted with pollution scandals or social problems, the system will do its best to reduce pollution and social injustice. We know that doing less harm is just not good. Companies must seize the opportunities to do much better.

This dominant economic model that guided the business world is supervised by a simple logic: competition on the basis of price and quality. This basic adagio has resulted in the theory and practice of economies of scale, with incessant research of marginal costs ever lower by standardization, which led to a dramatic concentration of production, with only a few leaders determining market standards. The obsession with cost reduction, in particular the reduction of the work factor, has led to a logic that confirms that companies that merger and fire thousands of workers are immediately rewarded by the Stock Exchange with a higher evaluation of shares.

The magnitude of these mega-fusions leads companies to focus on their only core business by relying on their basic skills; They eliminate any external activity thanks to outsourcing and a strict discipline known as the supply chain management. That there is no doubt: companies are in the permanent search for low costs and continuously sacrifice quality in order to ensure their growth by multiple consecutive sales. And if this strategy must be continued by the design of service models, then there are consultants to implement this part of the new strategy in order to generate more profits and a safe cash flow.

The logic of free trade has favored the rapid globalization of a reduced number of actors thanks to the adoption of this commercial model motivated by the reduction in costs. Surprisingly, people are ready to buy 3 refrigerators over 25 years saving 30 % on the first and 50 % on the third, without realizing that on a generation of a quarter of a century, double disposable income was spent For goods imported cheaper than for the "good old local manufacturer" which produced white products which lasted 25 years and would have offered permanent possibilities of maintenance services, while considerably improving the efficiency of resources and reducing the management of waste.

The sales and marketing strategies have managed to blind the customer with a lower price and the promise of the latest innovation, as well as the best energy efficiency, without realizing that in the end this strategy leads to the Predictable collapse of local industries. Worse still, the money circulating in the local economy is now channeled outside the community, which leads to a slowdown in local development, a loss of competitiveness and an increase in unemployment which drains more purchasing power outside the community. This is where the notion of "underdeveloped nations" appears.

The urgency of change

The fundamental evolution of the business model is to go beyond this incessant cost reduction effort and adopt a commercial strategy aimed at generating more value with what is available locally. This fundamental change requires companies that they leave from the Tyme of Force which consists in focusing on a single product portfolio. This is a major challenge, because it is fundamentally different from what MBA have learned to believe as being the path of success.

The advantage is that this new business model offers possibilities to generate multiple income with resources that are in the immediate reach of the company and the entrepreneur. The surprise is that when you generate several income flows from available resources, you can extract its activity from the difficult world market games! Imagine, farmers and minors can look at the figures that flash on their Bloomberg screen and relax: this is only an indication of one of their sources of income and it is no longer a question of life or dead.

How many times farmers or small producers are ousted from the market by foreign competition which can beat prices, including transport, and which finds an easy partnership with local distribution which is indifferent to the creation of a power local purchase? What would be the remedy? It is obvious that if workers' compensation is reduced to one dollar per day, European social security is subject to a free fall towards bankruptcy with the pressing call of all industrialists so that the market becomes more flexible. But even African and Latin American wages cannot compete with wage dumping practiced elsewhere in the world.
The call for "flexibility of labor markets" is the sublimation of a request for reduction in labor costs and social security. The developed assessment of the competitiveness of nations is determined on the basis of the basic commercial logic where the overall cost performance decides on the position on the market. If this game is successfully played by less than one percent of the largest companies in the world, the remaining 99 % have practically no chance of survival. Consequently, consumers are buying more and more materials, nutrients and energy of global origin provided by some actors who control capital. Europe seems to have accepted the inevitable disappearance of its social system and imagines solutions based on "more of the same thing", such as the free trade agreement with the United States which claims to create fair competition conditions for 800 millions of consumers.

First use local resources

The new business model that we have tested in more than 100 sectors of the economy will not only generate more value locally, but it also guarantees that more money will circulate locally. Better still: it surpasses the current globalized model in terms of return on investment, cash flow, poverty reduction and capacity to meet basic needs, especially in terms of employment, without the need for subsidies. Governments can now spend time and efforts to guarantee equal opportunities. We cannot insist too much on the difficulty of implementing an intelligent and inclusive growth strategy in a region or a nation when the economy is permanently emptied of its liquidity. When the primary and secondary sectors are not able to compete with prices dictated by the international market, hard -won income leave the local economy, generating unemployment and economic contraction which have become characteristic of the majority of European countries and Japan (and other nations). The only way to reverse the trend of high unemployment and the descending spiral of economic development is to ensure that the generation of more added value with available resources creates more money that circulates in local businesses. Although this logic goes against the dominant dogma of free trade at the macroeconomic level and ever lower costs at the microeconomic level, on the basis of our experience in the field, we see no other way to get out societies of the poverty and unemployment trap.

There is another means, which consists in considerably reducing the cost of labor, or even practicing social dumping and weighing on the government the costs of health care, unemployment benefits and pensions, this which results in an unbearable increase in public debt, followed by a long period of austerity in order to limit the tax burden, already too high for an active population in decline. Let us not forget that global companies do not pay taxes and that, consequently, the burden rests entirely on the shoulders of citizens alone. If we admit that the increase in public spending and the digging of the public deficit beyond 3 % of the GDP are not options to adopt, it is urgent to change the rules of the game, because the current correction of unfortunate expenditure n 'has only one option: austerity. Thus, the first and main rule of the game which must be changed is the transition from "ever lower costs" to "an ever higher production of value" with what is available locally. The Zeri Foundation, which is actually a network of organizations around the world, has demonstrated by the study and practice that this change is not only viable, but that it can be implemented in the short term. We attended the mobilization of 4 billion euros and the implementation of +100 projects which generated 3 million jobs and kiss this logic with such ease. The search for value - and not the desire to reduce costs - very quickly brings additional products and services to the local market, which can also and quite easily compete with the goods exchanged internationally. The local economy then enters a growth spiral which goes beyond the overconsumption of rare resources. This phenomenon is counter-intuitive, but easy to explain.

China is the leading supplier of photovoltaic panels in the world. The unit cost has dropped so much that it is only a few cents to compete with the traditional sources of fossil fuels. However, an innovative technology from Sweden helps combine the energy of the PV with hot water and cold water generated by hair pipes inside a PV sandwich. It is a thicker panel which is now solid enough to be placed on the roof, provided that the base is heat resistant, ideally made from recycled heat resistant plastics offering more jobs since This replaces aluminum. The profits cascade continues since now the water is stored at high temperature, not only to kill bacteria, but also to store energy, thus replacing batteries which too often make renewable energies not competitive. The profitability threshold of the local assembly is reached with only 200 units sold per month. The combination of all these advantages results in a cost per kilowatt hour which represents only a fraction of that of solar. It is not a question of beating the manufacturers of Chinese photovoltaic systems on the cost level, but of winning the competition game by generating much more value! It is not surprising that Solarus won this year the innovation prize for processing industries in China!

The coffee affair has been at the heart of our work for 20 years. Recent developments amply demonstrate that this commodity which is the subject of an international trade has enormous growth potential that goes far beyond the cup of coffee. On the farm as in town, coffee waste can be transformed into a substrate for mushrooms. The used substrate, the rest after the mushroom harvesting, can be converted into animal food, thus generating three income instead of one. From now on, the cost of proteins (fungi and animal feed) is lower than the cost of foodstuffs and imported animals. Better still, it generates local jobs and local income. While this program was rejected as too little and too late, we must remember that the world volume of coffee waste exceeds 10 million tonnes, good for 10 million tonnes of mushrooms and 4 million tonnes of food For animals, all products locally. And now, new biochemical industries have appeared, selling UV protection and odor control. If we could win the same thing per tonne of soy today, then the triple flow of income adds $ 14 billion to the coffee economy, money that not only comes back, but that does not come out of local communities !

Any change is difficult

Large companies find it very difficult to adopt this multiple income model, unable to explain to the scholarship financial analysts their passage from a main activity to a multiple cash flow model beyond established markets. This situation is illustrated by Nestlé's response to the opportunity to cultivate mushrooms. Indeed, the largest coffee processing company in the world, whose waste is estimated at 3 million tonnes, has decided to recover the energy of coffee waste, thus reducing its dependence on fossil fuels. While the production of energy from waste is prominently in its sustainability report which underlines the performance of this food group to reduce its carbon emissions, it is part of the traditional logic of cost reduction. This case would be celebrated in the traditional logic of the company. The waste that had to be eliminated at a certain cost now produce energy and increase the profits. This is perfectly part of the dominant business model where the company demonstrates its social and environmental responsibility by "doing less harm"! Would it be possible to convert the strategy into a strategy which consists in "doing more well"?

Imagine that Nestlé has gone from the “cost reduction” model to that of “value generation”. The financial, social and ecological advantages linked to the burning of a few million tonnes of coffee waste would seem very pale compared to the production of healthy foods with low cost (edible mushrooms offer healthy food), and to supply of food For animals which depend today on the import of soybeans from Brazil or the transformation of slaughterhouse waste. It is not necessary to be an experienced economist to quickly calculate the impact of fungi and animal food on the local economy. The internal opposition to the proposition first invokes the fact that mushrooms are not part of Nestlé's activities. Second, we often hear that mushrooms are not part of our daily diet. We reply that the burgers and the corn flakes were not part of our daily diet either. However, the largest obstacle to the omnipresent logic of the proposal relating to human and animal food is that Nestlé determined that it was not in the mushroom sector or in that of animal food. Therefore, Nestlé will not grasp this chance of adding a few billion dollars in turnover.

We are aware that companies are not prepared to adopt this business model, and the millions of MBAs that come out of thousands of business schools around the world are all imbued with the same logic: rationalize competition with the search for Reduction of costs as a safe means of improving cash. This imposes a strict discipline on the supply chain by imposing strict compliance with the financial objectives defined in budgets, reducing the number of suppliers and by putting the screw to price negotiation. These budgets determine management premiums and thus guarantee that everyone performs the expected performance. Any insensitivity that could be perceived is then quickly overcome thanks to a social responsibility program of the company that projects the company as a responsible citizen, even if it has just given up the opportunity to create thousands of jobs and Provide millions of tonnes of quality food at a local cost, stimulating the local economy with easily available resources and helping to eradicate world hunger - not by a genetic modification that puts seeds in hands Some producers around the world - but rather using easily available resources.

We must go from the current model to an inclusive growth model, and this can never be done through a massive additional taxation of citizens or by an energetic austerity program putting thousands of unemployed people, reducing the diets retirement and health care programs. The time has come to accept that the only way to advance is to change the way we do business. To do this, it will take more than an economist who preaches converts, it will take a minimum winning coalition ready to demonstrate on the market that this new model can surpass what has dominated logic until today. After all, we are not against someone or something, we are in favor of much better.