"We’re at a moment when the boundaries of capitalism are being reshaped."
Michael Porter, June 28, 2010
Economist and business guru Michael Porter was in Montreal last week as the guest of Sustainable Prosperity, to speak about the "Porter Hypothesis" he developed 20 years ago. The hypothesis posits that, contrary to the naysayers who hold that economics and environment are mutually exclusive domains, strict environmental regulation of the economy generates an innovation effect that triggers the development of new technologies and improvements that confer competitive advantage on companies and countries.
For the assembled Deputy Ministers, CEOs, and researchers, plus thousands more tuned into a webcast, the evidence was clear. Governments and companies applying this hypothesis are leading value creation in the global race to build sustainable economies. They do so in at least three ways. First, on the principle that pollution + waste = inefficiency (and liability: hello BP!), they make companies more efficient. Second, they use collaborative policy development to foster market-leading technology clusters. Third, they preserve natural capital.
So, what about the next 20 years, a period when futurist Ray Kurzweil predicts as much change will take place as occurred in the last 100? Just as businesses now compete to reduce environmental impact, Porter says that the next wave of innovation will occur as private, public, and non-governmental organization resources are directed to solving social deficits that condition economic performance, in areas such as community economic development, employee health, and gender equity. Addressing these deficits reduces operating costs and enables quantifiable increases in productivity.
Porter illustrates the point with worker safety, where its absence indicates poor process design and lack of training. Address those issues and business is both more competitive and humane. Consider what this means to any number of other pressing issues and soon it becomes possible to imagine a future you wouldn’t mind leaving to your grandchildren. Sustainable Prosperity and others have already taken Porter's Hypothesis to its logical conclusion on the environmental side, by making the case for a carbon tax. Porter supports it because it is simple and transparent - better in his view than complex cap and trade schemes. But we all know what happened to that idea in the last election: a key reason for the Liberals' defeat was their support for a carbon tax that proved unpopular with voters. Another good example of how not to solve a complex social challenge is the government's plan to reduce crime by building more prisons and removing judge's discretionary sentencing powers. Perversely, this kind of thinking only exacerbates the underlying problem, while reducing the resources available for prevention and remediation. Compare this approach with the UK Social Impact Bond - which enables innovators to raise funds to introduce proven innovations that do things like reduce recidivism rates and thereby reduce the burden on taxpayers. The point to highlight is that the bridge from injustice and vulnerability to sustainability and resilience is built with a sustained commitment to innovation (technical, social, and regulatory), rapid learning, and open collaboration.
In a recent talk presented by SiG@Waterloo, MaRS Discovery District CEO Ilse Treurnicht made the point that addressing the social context of technological innovation presents Canada with a unique advantage. With a diverse, well-educated population that generally gets along together across a wide geographic area, we can position ourselves as leaders in developing technology that is socially sustainable. So, not the next expensive medical machine for the privileged few who can afford it, but the disruptive technology that improves population health. By hosting events like the Business of Aging MaRS is demonstrating that cross-sectoral collaboration on complex challenges is at once socially innovative and economically advantageous.
It is up to us - innovate this way or fall further behind in the global race to compete on productivity and and sustainability. Undoubtedly, Mr. Porter would agree.
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