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Bertrand Collomb, former CEO and current honorary chairman of Lafarge
View from the private sector on the case for sustainable development
This article discusses the way in which the current economic crisis may help start a shift to a more sustainable model of development. It begins with a look at current innovation models, contrasting the popular focus on Silicon Valley with the less well known but equally important innovation that happens in large companies and programmes. The piece goes on to argue that our belief in the free market should not be allowed to grow into the myth that it can achieve anything. Actually, it will take concerted political action to prepare for a future of more sustainable development, perhaps through some form of global governance. The piece concludes by arguing that we may need to choose now between a short-term economic stimulus and long-term sustainable development.
eIQ Action Points – preparing for sustainable development
Bertrand Collomb is former CEO and current honorary chairman of Lafarge, chairman of the Institut des Hautes Etudes pour la Science et la Technologie (the Institute for Advanced Studies in Science and Technology) and chairman of the Institut Français des Relations Internationales (the French Institute of International Relations). He is spokesperson for the European Corporate Governance Forum, and a director of Lafarge, Total, DuPont and Atco. As Head of Lafarge, he campaigned to promote sustainable development and respect for the environment. He was also chairman of the World Business Council for Sustainable Development and a member of the European Round Table of Industrialists. Dr Collomb is a member of the Governing Board of the EIT (European Institute of Innovation and Technology).
Innovation and technology breakthroughs are the key to growth. It’s been clear since the emergence of Schumpeter’s concept of creative destruction that innovation is linked to increases in gross domestic product and improving labour productivity. But when a crisis hits we know that companies cut spending over which they have a choice – and R&D is just that.
Innovation is a mindset, a desire to look for change
The same is true for governments. There are more governments trying to fight the current recession by putting money in the hands of consumers than by increasing R&D spending. And research is only one factor in successful innovation. Innovation is more of a mindset, a desire to look for change, new problems and new solutions.
In some countries, the main obstacle to innovation is resistance to change. For example, information and communication technologies are not as widely used in Europe as they are in the US. The problem is that to develop, implement and use those technologies you have to change your organisation, people’s habits and their working methods. These constraints are more of a cultural issue.
Innovation models
There are various models for innovation, for example Silicon Valley’s well-known start-up culture that created industrial giants such as Microsoft and Google. But innovation also happens in large companies and large programmes, especially those that need a lot of investment such as the civilian nuclear power industry. Such innovations happen because someone spots a market need, or there is a strong political will to make something happen, or because of a visionary individual. The same is true with the Internet: it began because someone had a vision to connect many universities using a network, and then found a funding agency to provide the money. This kind of innovation can not flourish spontaneously.
The current financial crisis comes at a point where our model of economic and social development is facing big issues, even if the crisis itself is related mostly to our inability to control the globalisation of finance.
Climate change is the biggest and most pressing of these issues, due to the brief time we have in which to act. But there are other problems we need to address, including security challenges such as the potential and the risks of bioscience, as well as social issues such as health and poverty. These problems are a consequence of economic growth, population growth, technological progress and the lack of global governance. And it is governance that is the main issue here. So how do we deal with such issues? There is a role for regional and national organisations, and for global organisations that are yet to be created.
Market myth
Global issues cannot be resolved by market means
Over the past 25 years there’s been a pervasive ideology that the market will decide everything. People have gone too far with a belief that governments are unable to influence key issues. Global issues cannot be resolved by market means. It is not the market that will decide how we tackle health care or climate change. Yet the ideology has become so strong that we had to tell ourselves that our solution to climate change, the European emissions cap-and-trade system, was a market-based approach rather than an administrative system that takes advantage of some market mechanisms.
Our current economic crisis is breaking down some of these ideological taboos. The world is upside down and everything is possible. And the G20 group is at last recognising that there is a need for some global governance.
From a business point of view the crisis enables us to look at things differently. Underlying trends, such as the world’s industrial centre of gravity moving towards Asia and the displacement of unskilled work from industrialised nations, are accelerating. Business is reacting much more effectively than in the past in terms of decisiveness and achieving results. It is also more concerned about human resources needs, having recognised that people and their skills are not expendable.
Preparing for the future
Business is also trying to see beyond the crisis, asking itself what future it should prepare for. Both government and business appear to realise that this crisis is breaking down the resistance to change.
Both industry and government agree that we should be preparing for a world of sustainable growth, which will demand substantial levels of innovation to achieve.
The global car industry provides a good example of some of the challenges this approach will bring. The US economic stimulus package is being used to guide the car industry in a more sustainable direction. The short-term answer to the economic crisis is to give consumers money to buy the cars that GM can make now. The mid-term answer is to give them the money to buy better cars. It’s encouraging that this crisis has been seen as an opportunity to redirect the US car industry.
The same change in attitude is possible in the building industry. We could cut the carbon dioxide emissions of buildings fourfold with current technologies, at about a 5 to 10% increase in cost. Studies show that this could even be a profitable investment. It doesn’t happen because people don’t consider their investments over 30 years, or because of habit, or because builders carry the cost while the tenant gains the benefits and we haven’t found a way to transfer those gains back to the builder. So if we want to create this kind of change it will take a range of measures, including new standards, education and new pricing mechanisms, to work alongside economic signals. One study suggests that if we want to get people to change their behaviour through economic signals alone, we need to set the price of carbon dioxide at €150 a tonne. It’s not possible – it would cause chaos. So we have to find other ways.
Global governance
Business is not going to decide how much carbon dioxide we emit or how we handle health or security issues
The carbon dioxide target for 2050 is so demanding that we will need to develop a whole set of breakthrough technologies over the next 30 to 40 years. The problem is that if you have a carbon dioxide market it is likely to rise and fall rapidly and therefore investments in it are going to do the same – much like oil exploration. So the carbon dioxide price itself is not enough. We need to have a vision for change as well, which means we need political objectives. Business is not going to decide how much carbon dioxide we emit or how we handle health or security issues: these things have to be internationally agreed. Yet the free market remains vital to our prospects of success, because once the political framework has been set the market can help us optimise the solutions. The market, though, should remain a tool, not an end in itself.
How do we make this change, to a world of sustainable development, happen? Europe has been better than the US at understanding and acting upon the threat of climate change. And through our experience of the creation of the European Union, we are better prepared intellectually and culturally than the US for some form of global governance system at the G20 level. I also think it is encouraging that China, one the most important of developing nations, is now taking an active role in global groups such as the G20. I think the Chinese are people of vision and know where we should be going. They are also negotiators and will negotiate the best deal for themselves, but they recognise a long-term vision. And they have the resources to make enormous improvements to the current situation.
Fifty years is a short period in global politics, but a long time in climate change. We have to make a choice here and now, deciding how we allocate our economic resources between short-term relief and setting off on the path to long-term sustainable development.
Bertrand Collomb
Former CEO and current honorary chairman of Lafarge
bertrand.collomb@lafarge.com
eIQ Action Points
- Never waste a good crisis - use it to break down resistance to change
- Remember that innovation can spring from both fast-moving start-ups and large companies and programmes
- Don't forget the power of a personal or political vision to make things happen
- Challenge the idea that governments are powerless in the face of the free market – the market is a tool, not an end in itself
- Recognise that the current economic crisis is accelerating industrial change, and prepare for a future of sustainable development
- Don't expect economic signals to drive change alone - consider the impact of education, partnerships and political vision as well
- Prepare for the emergence of new forms of regional, national and global governance to tackle development issues on an international basis