We saw in the post (Productivity gains are the conquest of happiness) that productivity gains, by generating surpluses, opened the way to innovation. Without the productivity gains made possible by the steam engine during the first industrial revolution or by electricity during the second, the many innovations we use today would never have been born. The current industrial revolution is based on information, it still has many promises to release. We have seen in the post (prices, firms and innovation) that, because of the organization of markets, the surpluses generated by the productivity gains of economic agents are captured by some firms. As a result, companies, more than in other industrial revolutions, have a major role to play in the industrial transformations that our global societies must carry out, particularly in order to meet the challenges linked to the climate, the environment and social rules.
The company is the ideal relay for an effective economic and cultural transformation of our societies. Indeed, it intervenes at two levels.
- At the individual level, because each worker is integrated into a work hierarchy, linked to his know-how and skills, at the same time as he works for the owners, shareholders, of his company. He or she guides them and helps them, at his or her level and according to his or her skills, to implement the strategy they have decided upon, while conforming to the standards, good practices and code of ethics of his or her profession.
- At the company level, because as a legal entity, it must support and apply the social and environmental choices of the country in which it operates. These are legislative and regulatory obligations, which are increasingly constraining when the law is freed from territoriality
Corporate ethics has become a strong, albeit recent, requirement of Western societies. During the 1970s, with globalization, these societies transformed themselves and wanted to spread humanist and universalist values to the whole of humanity. Through NGOs, intermediary social bodies, or directly, citizens have demanded and still demand that economic activities take into account national priorities, particularly in the social field, with regard to discrimination, whatever it may be, in the environmental and climatic field, in the fight against corruption and money laundering. Frequently, the law obliges them to do so.
Today, the requirement goes beyond mere compliance with the objectives set by the nation. Citizens want economic agents, and especially companies, to be stakeholders in national and transnational policy objectives.
Businesses must not simply bring their production processes into compliance with new standards, societies expect them to join the movement, and create new products and services that support the energy transition, recovery, waste management, frugality of its customers. The investment is huge, especially since it is accompanied by an equally large divestment of existing and profitable activities. The automotive sector is a flagrant example of the violence of the change to be undertaken, and it is only at the beginning.
To achieve this, the financial system must undergo a thorough reform. Companies that capture the surplus generated by productivity gains must reinvest them massively, to the detriment of dividends. I had shown in a previous post (Les échos : La transformation digitale en panne doit repartir | capirossi.org) the importance of investments and the harmful effect of dividends. In particular, dividends should not be used to buy real estate assets and contribute to further inflate a bubble that does not stop inflating by storing a part of the country’s wealth. However, without an efficient financial system, which facilitates the circulation of capital and allows investment where it is needed, the efforts of a few are doomed to failure. In this respect, France has a long way to go, specializing in asset management is not the most suitable way to support the development of industrial economic activities. We know the difficulties with our startups.
Certain steps along the way are marked out. To guide their commitment, the French legislator, with the PACTE law, has already allowed companies to include their ethical, social and environmental objectives in their statutes. Some have done so, such as KPMG France recently. They should all do so. At the international level, a new legal discipline, compliance law, based on these principles (see the monumental goals of compliance), serves as a basis for establishing national and transnational regulatory standards.
Companies are nothing without people. The challenge of transforming skills is immense. They are obviously stakeholders in the system of skills development in the professions, but they are insufficiently involved. They invest little in vocational training, apprenticeship is weak, and courses of excellence beyond initial schooling are non-existent or ignored, except in regulated professions such as the medical sector, aviation or law. Companies have delegated this mission to the national education system, whose role is not to define the state of the art of a profession. We must put an end to this old-fashioned, purely financial vision of the worker as a commodity at the disposal of companies in exchange for payment. They have the responsibility to develop the skills of men and women. This subject is at the heart of the questions raised by the bicycle delivery drivers and Uber drivers. Without sufficient skills, the investment will remain sterile; this is the problem encountered during the construction of the EPRs.
Finally, we need to revisit the notion of value that leads some to massively capture the surpluses of other economic agents, whether companies or individuals. The notion of wealth in classical economic theory is based on the accumulation of capital that benefits its holder, the shareholder, who in return has the right to pay himself dividends, often resulting in the market for real estate assets. We need to change our point of view and extend accumulation to know-how, to knowledge, to all the factors that lead to the optimization of production and that are the work of the company’s workers. This is in line with the concept of experience formalized by Bruce Henderson at BCG and widely used to define company strategies. In this respect, part of the accumulation of capital, linked to intangible factors, must be returned to the workers.
The wider redistribution of surplus earnings is essential to allow economic agents to acquire new goods and services, without customers, that is overproduction. This will also have the advantage of tightening the ranks of Western societies agitated by inequalities and the feeling of social injustice. Everyone must be able to participate in this formidable movement, otherwise success will be as painful as failure, because it will lead to authoritarian societies whose losers will be the most fragile.
All companies must take part in this movement. As it becomes widespread, or even the norm, it will lead to a readjustment of remuneration and subcontracting prices without distorting competition. The companies that wish to continue in the current way will suffer from massive disinvestments, and will disappear or almost disappear, like Nokia or Kodak.
Today, no company can avoid thinking about and, above all, deciding on its ethical commitments on an individual and societal level. It must understand the overall movement in which it is immersed. The strategy can no longer be only profit for profit’s sake, although it is useful to invest, it must be profit for what ethical objectives, for what future society. By displaying its objectives and its strategy, the company transforms its links with its customers, its suppliers and its financiers. As a result, ethical objectives also become a determining part of the strategy in that they have a decisive influence on the future trajectory of the company.