The Case against the Global Economy - Research Paper Example

Article Summaries Table of Contents Article Summaries 3 The Case Against the Global Economy” (Halstead and Cobb, 1996) 3 A. Synopsis 3 B. Key Features, Highlights, Facts 4 C. Reactions, Thoughts, Reflections, Feelings 4 2. “Socially Responsible Investing” (Hawken, 2004) 5 A. Synopsis 5 B. Key Features, Highlights, Facts 5 C. Reactions, Thoughts, Reflections, Feelings 6 References 8 Article Summaries 1. “The Case Against the Global Economy” (Halstead and Cobb, 1996) A. Synopsis The article posits a critique of Gross Domestic Product as a measure of progress for countries in general, and offers an alternative means of measuring economic progress that takes into consideration such factors as the environment and the impact of economic activities on the lives of people. The criticism of GDP as the central measure of progress in an economy is that at heart this false measure leads to false conclusions about the economy and therefore also lead to falsely crafted policies that do not address true economic needs. There is a disconnect in other words between what the real economy is actually especially with regard to the impact of the economy on ordinary people, on the one hand, and the use of GDP as the measure, on the other. The authors talk about the way GDP distorts reality, as when it fails to account for damage to the environment as a result of economic activities. GDP sees environmental destruction as revenue, whereas in truth damage to the environment is a loss. GDP counts social havocs, such as health problems and divorce, as gain. GDP excludes non-money transactions, such as those that occur outside of the realm of the formal economy. GDP also fails to account for the long-term fiscal damage wrought by debt on the economy, seeing consumption based on credit as a plus. The alternative measure they are proposing, termed Genuine Progress Indicator or GPI, generally addresses the shortcomings of GDP as a measure of the economy for policy and other vital public purposes (Halstead and Cobb, 1996). B. Key Features, Highlights, Facts The alternative GPI measure has for its rationale plugging what the authors perceive as the ignored aspects of the economic reality in the GDP, as well as taking into account some vital costs that GDP now does not measure, including the environmental costs of economic activities, income distribution which is tied to economic justice, and non-money contributions to the economy, such as those that are tied to housework and to taking care of matters in the home. The authors furthermore contend that there are some of the things that GDP either does not see, or sees, but sees as positive and contributing to growth, when they actually hinder growth. GPI corrects these by counterbalancing GDP growth revenue items with cost items. The hope is that GPI will be a more accurate measure of the state of the economy, and that GPI will be a better basis for crafting policies for true growth (Halstead and Cobb, 1996). C. Reactions, Thoughts, Reflections, Feelings The article makes an interesting case for imputing some costs, such as environmental costs, to the growth equation in the traditional GDP, and in factoring in non-money financial transactions into a growth equation, such as what their GPI alternative measure does. We can see that in this latter growth measure, firm activities that cause harm to the environment are taken into consideration. From a policy perspective too, measuring growth that takes environmental and people impacts as essential variables translate to growth policies that foster ecological and social sustainability. At present there seems to be a very glaring disconnect between GDP and the proponents of growth on the one hand, and those who are lobbying for growth that can be sustained and supported by societies and ecologies, without damage to them. GPI hopefully is a step in the direction of resolving this disconnect (Lovins et al., 1999; Wesley, 2012; Ruggie, 2007; McMaster and Nowak, 2009; Halstead and Cobb, 1996). 2. “Socially Responsible Investing” (Hawken, 2004) A. Synopsis The article dissects the industry of the so-called socially responsible investing or SRI mutual funds. The article likens this industry to an organic organization that has no external standards for organic certification, in essence claiming that any fund can call itself an SRI fund, lacking the rigorous external standards and arbiters for inclusion. The rationale of course is that investors have become aware of social responsibility issues and are tying investments to programs for such issues, but the reality is that with the lack of standards mutual funds that have 9 out of every 10 Fortune 500 companies in their investment portfolios are considered to be SRI funds. This amounts to fooling and misleading investors by claiming to be ethical in their investment decisions but may not actually be that in practice. The article also makes recommendations on reform to make SRI funds truly socially responsible and ethical (Hawken, 2004). B. Key Features, Highlights, Facts The project called for surveying the state of the SRI mutual fund industry by analyzing how SRI funds actually allocated their monies into the public shares of various companies in the stock markets, with a result being a database of mutual funds in this SRI grouping and how they make their investments. The second part called for generating a set of criteria for vetting whether SRI funds are actually socially responsible, by coming up with a list of companies that are potential investment vehicles and that satisfy criteria for social responsibility. With regard to the first part, the key questions involved SRI funds criteria/definitions for social responsibility; whether SRI funds influence firms to be more socially responsible, and to what extent; on whether SRI funds portfolios should be benchmarked against the general market or a specialized basket of socially responsible firms; determining a return rate for socially responsible investing (Hawken, 2004; Plant, 2005). The size of the SRI funds industry makes it a very important segment of the total mutual funds industry, accounting for about 11 percent of all funds invested in 2003. This translates to $2.16 trillion during that time. The key findings are that SRI funds have similar portfolios to non-SRI funds, and that SRI funds have inconsistent and lax screening tests for considering whether potential investment vehicles are socially responsible or not (Hawken, 2004). C. Reactions, Thoughts, Reflections, Feelings The article makes a brilliant point highlighting how practice and theory relating to SRI funds activities deviate from each other. On the one hand investors want to be on the side of social responsibility and ethics. On the other hand, SRI funds have the natural pressure to generate returns, because they are not only competing with other SRI funds within their group, but with the general market. In other words the profit pressure may have diluted or compromised their ethical convictions. On the other hand, the article also posits that within the circle of practitioners in SRI, there is the assertion/belief/conviction that ethical investing is also financially rewarding. If we are to take the actual practices of SRI funds as being representative of the real state of the market on the other hand, it seems that SRI funds have to take in the non-SRI portfolio of competitors in order to generate acceptable returns. This is the dilemma that SRI funds seem to find themselves in. On the other hand one can also see that given these findings, the next step is to actually come up with stricter definitions and for the industry maybe an external group to vet the integrity of SRI investments versus its mandate for ethical investing. A similar report in 2005 stresses this too, as various third party groups such as the Asian Development Bank and the International Finance Corporation, have come forward with policies that can guide decisions tied to ethical investing. In other words, I believe the article points the way for improving investment practices in the SRI mutual funds sector to make them choose truly ethical and socially responsible investment vehicles, while keeping an eye on investment returns and risks (Hawken, 2004; Plant, 2005). References Halstead, T. and Cobb, C. (1996). The Need for New Measurements of Progress. The Case Against the Global Economy Mander and Goldsmith Eds. San Francisco: Sierra Books. Hawken, P. (2004). Socially Responsible Investing. Natural Capital Institute. Lovins, A et al. (1999). A Road Map for Natural Capitalism. Harvard Business Review. McMaster, J. and Nowak, J. (2009). Fiji Water and Corporate Social Responsibility- Green Makeover or “Greenwashing”? Richard Ivey School of Business. Plant, B. (2005). Socially Responsible Investing: The Maturing of Financial Analysis. Policy Options. Ruggie, J. (2007). Business and Human Rights: The Evolving International Agenda. The American Journal of International Law 101 (4). Wesley, D. (2012). Mining and Corporate Social Responsibility: Newmont Mining Corporation. Northern University College of Business Administration/Richard Ivey School of Business. Read More