A major first response to our sustainability challenges has been to try and turn profit to more sustainable ends. Alas, even ‘purposeful profit’ seems unable to overcome the deeper momentum of what might be termed ‘externality-denying capitalism’ – ‘externality-denying’ in that billions of daily investment and consumption decisions ignore certain of their social and environmental consequences.
As just one example, the World Bank reports that less than 4 percent of global carbon emissions are currently priced at levels consistent with the Paris Agreement’s temperature goals, endorsed by 194 nations. Hence, hardly any of today’s market transactions are fully costed, in terms of reflecting their contribution to climate change. The same neglect repeats to varying degrees for certain other environmental and social problems.
We don’t call our predominant socio-economic system ‘externality-denying capitalism’, but possibly we should, to constantly remind ourselves of what we are doing.
Caught in this embracing dynamic, first-response market-led sustainability strategies – such as SRI, CSR, ESG, sustainable investing, etc. – are showing signs of exhaustion. While these strategies have helpfully accelerated awareness of sustainability challenges and have catalysed fresh innovation paths and business models, they are being overpowered by the externality-denying capitalism that remains the larger force shaping our social and natural worlds.
Hence, there is a pressing need to step out of the day-to-day frame to appraise this bigger system…
Maybe the difficult truth is that sustainability just is not much of a market opportunity, but rather a profound moral challenge.
And perhaps the increasingly desperate insistence that sustainability be a market opportunity is merely the means to fend off acceptance of the moral obligation.
It is becoming too late in the day to maintain the pretence that a Voluntary Market-Led approach to sustainability can achieve enough change, fast enough – for multiple social and ecological issues. Persisting with Voluntary Market-Led tactics – seeking the perfect ESG rating, formulating the ideal corporate disclosure framework, announcing the most eye-catching pledge etc., – is simply doubling down on avoidance of policy, behavioural and cultural changes now urgently needed.
It is to keep believing that markets can solve problems markets are still organized not to recognize. Markets ‘see’ prices, but – just one example – the World Bank reports less than 4 percent of global carbon is yet priced sufficiently. So-called ‘Mr Market’ has no inkling there is a climate crisis because we haven’t yet told him in the language he understands!
Like many, I hoped our sustainability challenges might yield to enlightened, voluntary actions within unchanged markets, but it is clear (and has been clear to many others for much longer) that the very mindset that casts sustainability primarily as a new ‘market opportunity’ is central to our unsustainability.
We are effectively trapped in the ‘double bind of externality-denying capitalism’ (see image). In continuing to resist solutions that might be costly or growth-detracting, we pursue with increasing urgency ‘win-win’ solutions compromised by rebound and backfire effects. At best, these foster a dangerous complacency that sufficient progress is under way. At worst, they aggravate the situation by constituting brand new ways by which we accelerate transformation of the matter and energy of the world, which is the root cause of ecological crisis.
Markets can be enormously beneficial, but – remember the theory – *only* if all costs are recognized. If that is not true, as today, then however ‘generally accepted’ profit and growth figures might be, they are not ‘fully costed’. Indeed, the flaw in our socio-economic system in a nutshell: our ‘generally accepted’ profits are not fully costed. Is any company in the world yet reporting a fully costed profit? If reported profits are not fully costed, do we want more profit or less? Who knows?! Ditto for ‘economic growth’.
In continuing not to properly internalize large and known externalities – ‘consequences’, in plain English – the capitalism we currently practice and so daily reinforce is externality-denying in character. It is innately extractive as a whole system. No ESG rating or data initiative or voluntary pledge can overcome that fundamental problem or is really trying to. Policy and moral leadership – both costly and effortful, unfortunately – just might.
Note:
Double binds were first formulated by Gregory Bateson and colleagues in the 1950s as part of the search for causes of schizophrenia. While they would not be considered a distinct cause of schizophrenia today, they are seen as a contributing dynamic in a wide range of mental health problems and dysfunctional relationship patterns.
Anthony Chaney, author of an excellent biography on Bateson, Runaway: Gregory Bateson, the Double Bind, and the Rise of Ecological Consciousness, defines double binds as follows:
“Double binds are impossible dilemmas that occur within complex systems when premises at different levels of generality contradict each other [hence the need to draw concentric or nested circles to convey different ‘levels’ of logic]. They persist because conditions prohibit communication about the contradiction. Life finds ways to live with them that are often increasingly destructive.”
While Bateson originally described double binds in relationship terms – e.g., a dysfunctional parent-child relationship (Steps to Ecology of Mind, page 206), the ‘double bind’ we have collectively fallen into with externality-denying capitalism is a system in which we are both perpetrator and victim. As Sally Weintrobe, psychologist, has expressed it:
“It is traumatising to see that you are caught up in a way of living, whether you like it or not, that makes you a victim and a perpetrator of damaging the Earth.”
Chaney’s point that ‘they persist because conditions prohibit communication about the contradiction’ rings true about the appetite mainstream business discourse has for candid discussion about concepts such as ‘degrowth’ or ‘post-growth’ etc. These would be distinctly uncomfortable topics to bring up in the corporate board room, for example. Different spaces permit different conversations.
Hence, part of the vexing character of the double bind is not that they can’t be recognized, but that they can’t – yet? – be acknowledged and discussed in the arenas where it might make a real difference.
How to escape from a double bind? Acknowledge that the logic of the outer loop is the locus of the problem and go single-mindedly after that. But, of course, easier said than done. It requires overcoming norms, incentives and even one’s sense of identity if that identity has been shaped by success within the externality-denying paradigm.
The Invisible Hand is proving no match for the Unmentionable Foot.
Externality-denying capitalism – or ‘consequence-denying capitalism’ – is what systems thinkers term a ‘fix that fails’. That is, it seems like a ‘fix’ at first, but ultimately proves to be a fail as the unaccounted consequences accumulate and become apparent.
Economic orthodoxy assumes that the Hand can continue to ‘fix’ faster than the failures of the Foot accumulate. Ecologically, the ‘wealth’ created by growing the economy will help us restore or remediate the environmental damage incurred along the way. Socially, wealth will ‘trickle down’ soon enough to make temporary inequality just a necessary phase of development. That’s the theory, anyway.
However, the continuing and persistent deterioration in many ecological and social justice metrics indicate that the Hand simply cannot ‘fix’ fast enough to keep up. The Foot is proving the more muscular force. The system overall is dysregulating and generating more net harm than good, now threatening to breach ecological thresholds and levels of social tolerance.
The basic shape of the remedy is extra-market fixes (regulations, laws, new cultural norms) that make visible the externalities or consequences that the market system we defer to simply cannot see. In other words, to cure our system of the market myopia to which we have succumbed.
One of Escher’s themes was the idea that you can set out in a new direction only to find yourself back where you started, because you have failed to break out of some larger encircling loop.
He expressed visually the notion that systems thinkers label a ‘fix that fails’ and that psychologists term a ‘double bind’ – essentially actions that may not only not fix a problem, but inadvertently reinforce it.
The major problem with Voluntary, Market-Led sustainability is that it is failing to ‘break out’ from the underlying dynamic that is ‘externality-denying capitalism’. Because voluntary ESG-type efforts seem able to make only a small dent in this, the vast majority of investment and consumption actions continue to act as daily micro-reinforcements of the underlying externality-denying model…
The problem is multi-layered: ‘externality-denying capitalism’ has been rationalized by ‘externality-downplaying economics’, which has served to amplify deeper ‘Other-dismissing’ and ‘Nature-disregarding’ attitudes of the dominant Western/modern mindset.
Hence, ‘deep’ changes are needed – at the policy and cultural levels beneath, but prior to, the market system.
Our age in a nutshell: externality-denying capitalism is now spawning reality-denying business models.
In October, Mark Zuckerberg announced the rebranding of Facebook as ‘Meta’, short for ‘metaverse’. Based in virtual and augmented reality, the metaverse (‘beyond the Universe’) will provide a whole new space for human beings to meet, attend concerts and even try on clothes. It has been brilliantly lampooned by the rival offering of Icelandverse.
The announcement of Meta provides just the latest hint that externality-denying capitalism is detaching from reality, and dragging ‘common sense’ with it.
Karl Polanyi warned of exactly this in 1944, with his thesis that markets would slowly ‘disembed’ from social and ecological reality unless they were continually re-grounded by extra-market input. The market system, compellingly logical and ‘complete’ to the producers, consumers and investors acting within, would cultivate a collective decision-making that would progressively favour market signals over non-market signals, to the eventual neglect and erosion of its own social and ecological foundations. Virtual business models – epitomizing a virtual capitalism – would seem to be a near-terminal phase. As Bob Collie has succinctly expressed it, a virtual, or externality-denying, capitalism effectively eats itself.
More recently, Iain McGilchrist has warned that the same pattern appears in our human brains in which the ‘newer’, more abstracting left brain emerges out of the ‘older’ more grounded right brain, only to then deny the dependency.
Behavioural guidance systems – whether left brains or left brain-inspired market systems – that detach from reality risk entering into a self-destructive runaway spiral of eroding their own foundations.
Alas, the pattern describes our whole approach to the climate and biodiversity crisis. We are seeking to solve real, biophysical problems with a disembedded market logic that solutions must be profitable, denying that it is precisely the pursuit of disembedded, reality-denying, profit that is creating the problem.
We are becoming dangerously meta-foolish without recognizing.
Or perhaps not all of us. A big economy that was pivoting away from virtual business models might be gaining an advantage over those economies content to drift into a make-believe world.
What to do? Re-grounding would seem to be order of the day. Digging back down through the disembedded decision-making structures we have unwittingly developed, to reattach our perception of the world and our values to biophysical reality, before building up again – crudely, working down the left-hand side of this picture and then back up the right-hand side.
By nobody’s explicit design, the socio-economic system most people live under today is ‘externality-denying capitalism’. When people defend today’s capitalism, that is the system they are – almost always unknowingly – reinforcing.
Of course, we don’t call it ‘externality-denying capitalism’ because acceptance comes slow. While we long ago identified the market’s favourable Invisible Hand, we have resisted recognizing the market’s Unmentionable Foot until circumstances have given us no choice.
Because incomplete markets must generate non-market social and ecological consequences, a culture of market primacy is a ‘fix that fails’. The market certainly produces a great many ‘fixes’ but, with a delay, the social and ecological ‘fails’ mount.
We are only about two centuries into the experiment, so we can’t know whether the ‘fixing’ can forever compensate for the ‘failing’, but the latest readings are troubling. With the climate crisis, the Great Acceleration, and persistent social inequalities, it is starting to appear as if capitalism’s fail loops are overpowering its fix loops. The real concern is that the Foot may have the power to cause damages that are irreversible in nature, such that no amount of subsequent fixing by the Hand can repair them.
To anticipate the obvious riposte, ‘externality-denying socialism’ may be no panacea either, if it denies ecological consequences. It is almost as if our default ‘capitalism versus socialism’ discourse is a false binary that has distracted us from some greater awareness.
Wherever we are headed, and whatever we decide to call it, a sustainable human culture will be much more alive to – and respectful of – its feedback loops than we seem to be today.
…but It May Have Been the Necessary ‘Defence at First Depth’
The story in 12 pictures…
We are a complex system – ‘humankind’ – pitched into adaptive crisis.
Over the last half century, we have suddenly noticed and begun responding to a new sense of our external context. We have abruptly perceived that our surroundings are finite and fragile and that we have attained the numbers and technological capacity to destabilize those surroundings in harmful and irreversible ways.
Our ‘first response’ to this crisis has come to be dominated by Voluntary Market-Led (VML) strategies – CSR, SRI, ESG, ‘impact investing’, divestment campaigns, disclosure frameworks and more.
For all the apparent differentiation, these strategies share the view that voluntary behaviour within existing market frameworks will be sufficient for human culture to become ‘sustainable enough before it is too late.’
Alas, after 25 years, it is becoming clear that the VML meta-strategy is a ‘fix that fails‘. A ‘fix that fails’ is a systems archetype in which a first-order solution triggers a less apparent or delayed, second-order unintended consequence.
Too many of our sustainability ‘solutions’ have rebound and backfire effects, while a discourse ‘fix that fails’ sees enthusiasm for market-led solutions continuing to divert energy, attention and resources from policy and cultural change.
A root cause of our persistent sustainability crisis is that Western thinking has not achieved sustained acceptance – very different from mere theoretical admission – of the scale of market externalities, and what that implies for claims made about the superiority of market outcomes.
We have known about market externalities since 1920, but we have accepted them since… when?
In other words, the market system has always had both an Invisible Hand and an Unmentionable Foot. We have celebrated one and, well, simply not mentioned the other. Yet, in today’s shrinking and ever more transparent world, the Foot can no longer kick costs out of sight as it was long able to.
To believe economic growth can solve environmental and social problems is to believe the Hand can repair what the Foot damages before irreversible harm occurs.
A major part of the sustainability challenge is reconciling ourselves to this long overlooked Foot…
(From a forthcoming essay. Thanks to Matt T for illustration).
Following Iain McGilchrist, have we trapped ourselves in the ‘Matrix of the Emissary’?
I’m delighted to have had my essay, ‘The Matrix of the Emissary: Market Primacy and the Sustainability Crisis’, published on Channel McGilchrist (full essay here).
Four decades after sustainability first emerged as a concept, we are witnessing a profoundly important ‘net zero moment’. First gradually, and now suddenly, countries and companies are making ‘net zero’ pledges to reduce carbon emissions in line with the temperature goals of the Paris Agreement. This represents a substantial and welcome upgrade of national and corporate ambitions regarding climate change but poses the obvious challenge. In March, a survey by Standard Chartered found that 64 percent of senior corporate executives do not believe that net zero commitments are commercially viable, contradicting the longstanding ESG narrative that ecological sustainability is a ‘win-win’ – good for profit and planet.
The contradiction reveals that there have all along been two fundamentally different interpretations of ‘sustainability’, whose inconsistency is only now finally surfacing because of the severity of our situation.
The win-win claim of sustainable business has always tacitly depended on the ecological ‘win’ being defined as ‘more sustainable than before’.
In contrast, the net zero imperative emanates from the very different perspective that we need to achieve ‘enough sustainability before it is too late’.
I believe much of the ongoing confusion within the sustainability debate arises from individuals and organizations – and even individuals within the same organization – working to conflicting interpretations of sustainability, without fully realizing. Some regard ecological sustainability as a relative concept by which it is sufficient merely to make progress – to ‘become more sustainable’ – while others view sustainability as an absolute concept that demands we be ‘sustainable enough in time’.
In turn, these markedly different perspectives rest upon individuals’ generally implicit views on whether the world does or does not contain real thresholds and limits whose breach may have severe, even existential, consequences for humankind. In other words, though rarely discussed explicitly, the fundamental clash is between limits-denying and limits-accepting worldviews. (See Figure ).
Hi. My name is Duncan Austin. The conventional bio: I have spent 25 years working in the area of sustainability, for both non-profit and for-profit organizations. This blog comprises personal and occasional reflections regarding economics, culture and sustainability.
An alternative bio: I was raised ‘Orthodox Reductionist’, but have recently converted to ‘New Systemism’. Loops, not lines. Everything in layers. We have both a left and right brain, but seem to have built a world with the left brain only…
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