Building the Real Economy
Financial experts fail to paint a true picture
by John Neville, Sustainable Arizona
Just how good or bad is our economy?
Not too long ago, a report from a leading financial manager touted how well it was doing. The well-respected investment guru stated that the growing national debt was not a problem. According to his report, subsidies for renewable energy could be a bad thing, and market forces should determine when we move away from fossil fuels.
Don’t worry about Peak Oil, he assured. It has already been factored into the market. “Free Trade is best and should be left unfettered by pesky environmental, health, safety and equity requirements. The economy is going great!”
Clarifying the definition
When I am confronted by these kinds of disconnects between the reality of the world around us and the happenings in the cloistered canyons of Wall Street, I remind myself that these people are money managers, not economists. They know how to move dollars, euros and yen around. They know how to sell and buy stocks. But they really don’t know much about how businesses operate, and they certainly know nothing about the economy…the true economy.
That statement often starts an argument with people who call themselves economists. So, let’s define our terms. When we seek out the definition of economy, we find a couple of apparently conflicting definitions. The first is in common usage today. The economy deals with the production, distribution and consumption of commodities. It also tracks the flow a capital or money through our society.
The other definition – my definition – comes from the Greek (oikos = house + nemein = to manage), which means “to manage where we live.” That definition also involves the concept of the thrifty and careful management of resources. Based on this description, an economist is a “steward.”
Robust economy or false measures?
By the first definition, our economy is doing well. We’re producing, distributing and consuming a lot of stuff, and some people are accumulating much financial wealth in the process.
In the developed world, most leaders eschew the concept of stewardship when it comes to their economies. They ignore the needs of most of the people and externalize or discount the costs placed on the natural environment and communities.
For instance, while the stock market is soaring and the pay for business executives is growing exponentially, there are billions of people in the world who cannot find meaningful jobs, or any jobs at all. Much of the world lives in poverty, and two billion people cannot find safe drinking water. How can our economic measurements ignore that?
Here’s how. One traditional measure of economic success is the Gross Domestic Product, or GDP. It measures the monetary flow of goods, investments and services through the marketplace. It was designed to measure the size of our economy, not the condition.
Is it an accurate measure of our economy? Not at all. Why? Because if a transaction takes place outside of the marketplace, the GDP does not track it. GDP does not track the depreciation of capital stock or commodities. Also, if a negative transaction takes place within the marketplace, the GDP records it as a positive.
Proof of the GDP inaccuracy
Let’s look at an example.
When a mining company clears a forest and strips down a hillside to recover the minerals in the ground, it destroys the forest resources, decimates the habitats of hundreds of animals, alters the natural topography of the area and often pollutes the surrounding rivers and streams. Because the mining company does not have to pay anyone for this environmental destruction, the GDP ignores it.
The only things the GDP records are the labor and material costs of removing the minerals and the profits gained by the sale of those minerals. The mining company may have done billions of dollars of damage to the environment and local communities, but that loss is never recorded by the GDP.
The other thing ignored by the GDP is the fact that once the minerals have been removed from the ground, that resource has been depleted forever. Minerals are not a renewable resource that can be regrown. Any accurate accounting system should include costs for the depletion of the mineral resource. Traditionally, people have considered natural resources to be free, thus the GDP does not include costs for their depletion.
When the recent hurricanes decimated the Gulf Coast, the GDP recorded a positive flow of money through the economy, even though there was no benefit to our society. In fact, the losses continue to be devastating. However, if there had been no hurricanes and no damages, the GDP would have been lower.
All the business and political leaders know the weaknesses of the GDP, yet they continue to use it as an important measure of the health of the economy.
Other traditional measures also have problems. For example, the price of a share of stock in a company should give you an indication of how well the company is performing. If the company is doing well and building a sustainable business, the price of the stock should go up. If the company is doing poorly, such as laying off employees and closing factories, the price of the stock should go down.
But this may not happen. Often the price of a stock is manipulated for its monetary value by the financial markets. Consequently, the price of a stock may go up when the company closes plants and lays off employees due to poor management decisions.
The terrible impacts of those actions on communities and the overall economy are not calculated. The financial markets only recognize that operational costs and payroll have been eliminated by the company. So stock prices go up even when the real economic news is very bad. That’s another poor gauge how well the economy is doing.
How is our real economy really doing?
So how do we know when the economy is doing well when we have sustainable economic development? We have to use a combination of measurements: economic, social and environmental. It has been called, “The Triple Bottom Line.”
For many business people, this is a new way of looking at things. But it is only common sense. The measures of our economic success should be accurate for everyone in our society now and into the future.
The Genuine Progress Indicator is a system that tracks the depletion of natural resources, environmental impacts and the socioeconomic effects. It shows a decline in our true economy while the GDP shows an increase. (www.rprogress.org)
The Index of Social Health tracks 16 government social indicators, including teen suicides, children in poverty, the gap between rich and poor and others. If the economy is how we manage where we live, then our social health should be on the rise with a good economy. In 2005, the Index of Social Health stood at 53 out of a possible score of 100. This indicates a troubling trend. Between 1970 and 2005, America's social health worsened significantly. (http://iisp.vassar.edu/ish.html)
The economic solution
To create a healthy economy that adds value to everyone, not just the few in control of the capital markets, we need to begin with new definitions and new metrics. Economists should act as stewards of our resources: human, natural and financial. We need to realize that the true purpose of business is to provide products and services that improve the quality of life…and generate a profit by so doing.
This gets to the heart of sustainable development and its goal to enhance economic opportunity and community well-being while protecting and restoring the natural environment upon which all life depends.
Sustainable development involves a balance of three elements: the economy, the community and the natural environment. Without a strong economy, it is difficult to maintain a healthy community or to protect the environment. Without a stable, functioning community, it is difficult to support a strong economy or protect the environment. Without a clean and healthy environment, a strong economy cannot last and a stable community will soon crumble.
When people, businesses and governments engage in sustainable development, the quality of life for everyone improves. Yes, there would still be the opportunity for wealth, but there would be little or no poverty. Some businesses will excel while other businesses will fail. But communities will thrive. Schools will have the funding they need to provide all children with excellent educations. Students will not have to be rich to go to a good university. There will be far less crime, because people will have what they need to lead good lives.
Now is not the time to pursue short-term financial gain while being disconnected from the true economy. Sustainable development requires that there be strong links between all elements of human society and the natural world. Individuals, governments, businesses and all organizations must share a vision of sustainability and collaborate to achieve it, forging links in new ways throughout our communities, economies and nature.
John Neville is a longtime sustainable development consultant who currently serves as president of Sustainable Arizona in Sedona (www.SustainableArizona.org). Read more about him on the WHO page. E-mail jneville@SustainableArizona.org.
Green = Green $$$
National forests by the numbers
National forests are 10 times more valuable for their recreation, wildlife and water quality than for timber, minerals and cattle grazing. The forests are worth $234 billion and generate 2.9 million jobs from recreation, fish and wildlife, water quality and wild areas. Meanwhile, the nation's 192 million acres of federal forests generate only $23 billion and a mere 407,000 jobs from timber, mining and grazing. It thus makes far more economic sense to protect our national forests than destroy them.
Clean Environment = Good Economy
According to Gold & Green 2000, a report from the Institute for Southern Studies, the states with the highest environmental standards also boast the best economic performance. The study ranks states on 20 "gold" economic and 20 "green" environmental indicators, demonstrating that the argument of "jobs versus the environment" is just a myth.
Seven states rank in the top 15 for both economic and environmental health. Vermont, Rhode Island and Minnesota rank in the top six on both lists. Other "top performers" on both scales are Colorado, Maryland, Maine and Wisconsin.
Ten states are among the worst 15 on both lists. For example, Louisiana ranks 48th on economic performance and 50th on the environment. Others poor performers include: Alabama, Texas, Tennessee, Mississippi, Indiana, Arkansas, West Virginia, Kentucky, and South Carolina.
Read other related stories on our SUSTAINABLE LIVING page.
The Sedona Observer
Click here to learn more about:
WHO we are
WHAT our ethics are
WHEN we got started
WHERE - Sedona to the world
WHY we do this without pay
HOW to donate to support us
The Future of Work
by Charles Grantham, Ph.D.
Work from Anywhere
Virtual office of the future?
A visionary leader in interpreting the workplace trends of tomorrow, Charles Grantham is co-founder of the Work Design Collaborative in Prescott, Ariz., where he develops emerging forms of work and commerce and manages an extensive applied research program focused on the emergence of the electronic workplace.
Author of The Future of Work – The Promise of the New Digital Work Society (McGraw Hill, 2000), Grantham is recognized as an international expert on the design of information and organizational systems that support these new forms of work. With more than 25 years of experience in this field, he has appeared on national news broadcasts to discuss the social ramifications of new workplace trends.
Currently serving as chair of the Prescott Mayor's advisory committee on Economic Development, he focuses on the design of community-based business centers as a link between “talent” in non-metropolitan areas and the global Internet economy showcasing efforts of Prescott to become a magnet for talent.
I first met “Charlie” three years ago when I interviewed him for an article, ”The Future of Work in Sedona, which focuses on how the work force is changing in response to new technologies. Originally published in The Red Rock Review in April, 2005, it details how Sedona must release its dependence on an immigrant labor force and tourism as its primary source of economy if it is to become a more sustainable community.
I have followed Charlie’s work ever since and am honored to present his extraordinary research in The Sedona Observer with his gracious permission. In this issue, he collaborates with Cory Williamson and Jim Ware, a former faculty member of the Harvard Business School and a widely recognized expert on business leadership, to present this article.
As a digital newspaper, we look forward to featuring more of his work on the digital workplace.
Catherine J. Rourke
Read Charlie’s advice for the local economy in “The Future of Work in Sedona.”
Visit http://www.thefutureofwork.net for more information about his books and research.
Work From Anywhere
By Charlie Grantham, Jim Ware and Cory Williamson
In the future there won't be just one place to work. There will be a network of workplaces. Research conducted by the Work Design Collaborative LLC shows that knowledge workers will spend their time equally spread across three primary work venues: a corporate office, a home office and a “third place” or places. How can emerging third places become a part of a larger workplace strategy?
Let's start by considering what a workplace strategy should include. In our view, workplace strategy includes the active coordination of all resources required to enable work wherever and whenever it takes place. The workplace(s) of the future will be highly agile, mobile and distributed in time and space.
Now, let's turn to an even grander vision of the future of work, in which entire business communities are being developed from the ground up.
One of the most striking findings of our original Future of Work research program was the discovery of a demand for “third place” work locations for mobile knowledge workers. We believe that, within the next couple years, as many as 20 million people will be choosing to work one or more days a week in third-place facilities, which are public or private spaces built specifically for the temporary, or semi-permanent, business purposes of companies and individuals.
In fact, we wouldn't be surprised if that many people are already working one or more days a week in third places right now — they just don't realize it (and neither do their employers or the companies who provide workplace products and services).
Think about your own work patterns: How often do you “log on” from a coffee shop, an airport hot spot, a hotel lobby or some other location outside either your corporate office or your home office? And yet the concept of third places seems to be missing in most current discussions of workplace design.
Third place, a term first used by author Ray Oldenburg way back in 1989 in The Great Good Place, meant a place you worked in that was neither a residential living area nor an office per se. Today, third places typically mean smallish facilities — 10,000 to 15,000 square feet — where business people gather for a variety of reasons to perform a variety of different tasks. Think of a Starbucks on steroids.
Not intended to supplant traditional workplaces, third places, just as the phrase suggests, are an alternative to the first place, the formal corporate office, and the second place, your home. Our research, in fact, shows that workers of the future will on average spend approximately 40 percent of their time in corporate facilities (either theirs, or their clients) 30 percent in a home office, and the remaining 30 percent in one or more third places. We believe the use of such third workplaces will become very common during the next several years, for the following reasons:
* Organizations will continue to move away from fixed-cost structures to variable cost models in order to reduce capital requirements and risk, and to increase their agility or responsiveness to changing environments;
* Most remote and mobile workers do not have adequate alternate meeting places, office services or technical support that are affordable and convenient;
* Home-based independent workers also need and want better technical support and services — after all, they're already paying for the real estate themselves, to say nothing of the fact that most home workspaces are limited in size, and don't include appropriate meeting spaces;
* In order to meet all of their business needs today, workers typically have to go to a variety of different places (like Kinko's, Staples, the UPS Store, Starbucks, hotel conference rooms, etc.).
The point is that third places are locations where people might spend part of a day, or even two or three days a week, working; and within these evolving business environments there will be plenty of variety. Some will be urban third places, serving primarily local working residents. Some will be suburban, situated at the intersections of major transportation routes, including airports, train or subway stations and interstates. And some will be in rural locations, functioning as outposts for major metropolitan areas, much as they did in the Old West.
Business Community Centers
Our vision is that there will ultimately emerge regional and national networks of these shared workplaces, locally owned and operated. In a sense they'll be like individual ISPs, locally owned but connected through the Internet. At any rate, they will be connected electronically and socially, and will be an “operating company without leadership,” something like the Open Source Network. The list of business models is as variable and as infinite as the global market itself.
In response to our own research, and more importantly our sense that the distributed workforce has created a vacuum that must be filled, we have developed a model for a specific type of third place we call the Business Community Center, or BCC. Remember that this will be the workplace of the future where people spend about a third of their time, which is not a trivial matter.
BCCs will be membership-based organizations that provide workstations, communications equipment, document handling, meeting space and other office amenities on a shared, as-needed basis.
BCCs will be designed to serve both local businesspeople and national business travelers, from one-man shops to Fortune 500 companies. Think of a health club, or even a country club; as a member you don't own the facility or the equipment outright; you divide its cost and share its use with the other members. And while most members use the facility only occasionally, you may play 18 holes every day if you like — though, of course, it will cost you.
If you are a small businessman, this “shared cost, shared use” approach gives you access to a far better facility and support services than you could afford on your own, and if you work for a large company, the cost of membership and usage fees for the BCC will cost your employer far, far less than traditional real estate.
"How often do you “log on” from a coffee shop,
an airport hot spot, a hotel lobby or some other location outside either your corporate office...?"
We also expect BCCs to be used by commuters in the event of transportation disruptions, or during personal emergencies, say the illness of a child, which would make it difficult to be an hour away in the office, rather than 10 minutes away at the BCC. They will also be used either by people who choose not to go to a distant corporate facility one or several days a week, or who as small business owners, sole practitioners, and/or free agents, need part-time access to a workplace infrastructure and a community of professionals on a cost-effective basis.
The keys to the BCC model are location, the specific nature of the services provided, which may change location-by-location, and cost. In contrast to traditional office lease commitments, BCC members would pay for space and services only when they need to use them (in addition to a base-level monthly fee required to maintain membership). This business model produces much lower costs for individual members, yet ensures high usage of the space, which in turn provides equity investors and lenders with profitable returns on their real estate and facilities investments.
BCCs will provide their members with a variety of technologically advanced amenities such as conference rooms, workstations, IT technical support, wireless broadband Internet connectivity, back office administrative support and informal café-type facilities, all in an ergonomically-designed environment and complemented by on-site professional development and business development activities and assistance. The real stealth feature of this model is that many of those providers of those specialized business development and support services would themselves be members of the very same Business Community Center.
Our analysis suggests that BCCs are a true win-win-win proposition. They lower costs for employers; they save individuals both time and travel costs; and they reduce traffic congestion, air pollution and gasoline consumption. In fact, we believe the United States could become energy independent almost overnight if BCCs enabled workers to avoid commuting just two days a week. And a BCC is one more way for a local community to attract location-independent knowledge workers as residents.
It is our expectation that each local BCC would be locally owned and managed, with guidance and consultation (as well as some support services) being provided by a national management company formed to promote and guide the development of BCC franchises. Local BCCs would in turn be networked with each other in order to provide all national members with access to one other; and, through a focused virtual marketplace, enable individual BCCs to supply each other with customers.
In conclusion, we believe the major challenge to facilities managers today is figuring out how they can manage a network of places (office, home and third places) in an integrated fashion. But there is no doubt this emergence of a network of places will happen — and happen fast as the pressures to move fixed real estate costs to variable ones continues to intensify.
Printed with permission from Charles Grantham. This article is excerpted from chapter seven of Corporate Agility: A Revolutionary New Model for Competing in a Flat World, by Charles Grantham, James Ware and Cory Williamson. Order the book by visiting www.amazon.com, www.BarnesandNoble.com, or directly from the publisher, American Management Association, at www.amanet.org. For more details, visit the Future of Work Web site at: