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Economic resilience

The “Common Good” is evaluated using 17 indicators, with the “economy” only being assessed to a limited extent in B1 and E4. A possible term for describing the Common-Good oriented “economy” of a company could be “economic resilience.”

Economic resilience also means tolerance towards internal and external disruptions. The core question would be:

“If the framework conditions worsen or particular disturbances occur, can the enterprise survive, react creatively and in keeping with the situation and at the same time serve the Common Good?”

Possible disturbances can be:

  • Declines in sales
  • Rises in costs, for ex. through rises in prices for resources
  • Macroeconomic crises (financial crisis, Euro crisis, recessions…)

What exactly does economic resilience comprise?

The following (incomplete) list of business and Common-Good oriented parameters constitute an attempt to define the concept more clearly. Several of them are easily quantifiable, while others require qualitative assessment and are not so easily represented in figures:[1]

Foundation = First Steps and Advanced

  • high proportion of equity capital (100-200% over sectoral average)
  • Production facilities have a high internal value for the company (for ex. entirely depreciated production facilities which will still be operational for quite some time to come have a high internal value for a company)
  • high level of reserve assets
  • outside capital available to the company long-term which can be repaid at any time
  • high degree of turnover profitability
  • high cash-flow quota
  • high order volume and capacity utilization
  • quality of management + executives (external and internal feedback)
  • well-known in the target group – brand value

High degree of Common-Good orientation / resilience  = experienced and exemplary [2]

  • high workplace quality and employee participation (C1/C5)
  • low degree of dividend payout to employees / partners and investors (at most inflationary adjustment)
  • sustainable supplier relations (“loyal suppliers – duration of cooperation”)
  • sustainable customer relations (“loyal regular customers – number of regular customers and repeat sales”)
  • high proportion of socio-ecological investments (in terms of overall investments / profits)
  • sustainability / ECG involvement of the company (overall assessment of the Matrix)
  • Independence from rare earths and peak raw materials
  • long-term planning of business activities in regard to sustainability and Common-Good orientation (instead of short-term profit gain for external partners)

 

Ecological responsibility and response to drastic resource depletion and rises in resource prices

C3, D3 and E3 address the ecological footprint of a company. At present, companies and people consume more resources than the planet can provide. This leads to an increasing scarcity of resources such as oil and rare earths and consequently, higher prices. This development is uncontested over the medium term.[3] The Centre for Transformation of the German Bundeswehr, for ex., makes the following prognosis concerning the imminent oil shortage: “Over the medium term, the global economic system and every national market economy would collapse.”[4]

What we need would be true-cost pricing of resources. In this model the negative environmental impact of oil, for example, would be accounted for in the prices (cost internalization). This would lead to a rise in prices for raw materials as well.

The post-growth economy as well as various ‘peak-everything’ approaches are extremely critical for economic growth. The mantra of undifferentiated global growth needs to be scrutinized in a differentiated way because further growth merely accelerates the process of resource depletion and the negative effects associated with it. Even ecological growth cannot necessarily check such negative effects. On the one hand, a change in mindset is called for, and on the other a mixture of

  • personal and entrepreneurial simplicity / sufficiency;
  • companies with an ecologically optimal size;
  • growth in selected ecological fields; and at the same time
  • the “death” of environmentally harmful enterprises

is required to take any real, halfways reasonable responsibility for creation / Mother Earth. The principle of “Buen Vivir,” as it is anchored in several constitutions of Latin-American countries in the Andes, which ascribes a high status to the environment, can serve as models. What has begun as a cognitive turnaround is being put into economic practice by Common-Good pioneers in an exemplary way, and a legal framework is needed to create sanctioning mechanisms accordingly.

Prompt questions

  • Which approaches exist for securing high contributions to the Common Good even in cases of difficult economic circumstances (drops or fluctuations in turnover, rising costs, etc.)? How does the company assess its own crisis resistance in comparison to that of other companies?
  • In which areas of its activities (for ex. procurement of resources, dependence on fossil energy carriers, creation and preservation of jobs, …) does the company see a potential for conflicts between economic and ecological development?

Possible evaluation of economic resilience

Here one can rely on established instruments and concepts of business management (for ex. risk management). In this connection, the following aspects are rewarded:

  • economic crisis resistance which stands out in a sectoral comparison (for ex. above-average EQ quota, low capital / financing costs)
  • active engagement with the inter-dynamics of socio-economic aspects and economic stability [5]
  • a high degree of flexibility and little dependence on resource consumption and general market fluctuations (for ex. through diversity of product portfolio and customer structure)
  • high degree of resilience through cooperation and risk sharing along the added-value chain (for ex. through innovative forms of financing such as solidarity-based agriculture)

 

 

First Steps

(1-10%)

Advanced
(11-30%)

Experienced
(31-60%)

Exemplary 
(61-100%)

Economic resilience

Examination of the dynamics of business and socio-economic aspects (for ex. integration of social and ecological aspects in risk management and business management

Economic stability above sectoral average (for. ex. above-average EQ quota)

 

The company maintains its stability even in difficult market environments (for ex. drops in sales) and can continue to make its contribution to the Common Good (for ex. no dismissals necessary) [6]

Little dependency on scarce resources (for ex. energy carriers) and small impact of tax regulations (effect of ecological tax reform on company)

High degree of resilience through cooperation and risk sharing along the added-value chain (for ex. innovative forms of financing [FN: solidarity-based agriculture]

 

An in-depth treatment of the topic will be provided in the next revised version of this text.

Contact partners for this article: Manfred Blachfellner, manfred.blachfellner@gmx.at; authors of the previous version: Christian Rüther, Christian Loy, with the assistance of Gisela Heindl and Christian Felber


[1] Cf. Wirtschaftskammer Österreich ratings at http://portal.wko.at/wk/dok_detail_file.wk?angid=1&docid=644336 &conid=247313

[2] abbreviation for: high degree of Common-Good orientation and resilience towards ecological change and resource depletion (peak everything)

[3] Cf. the example of greenhouse emissions sketched by the WBGU (Wissenschaftliche Beitrag für Global Umweltfragen der deutschen Bundesregierung -. http://www.bmbf.de/pubRD/wbgu_sn2009.pdf) for assessing the necessary reduction on the basis of a budget approach. To reach the goal of 2.7 t CO² per person (http://de.wikipedia.org/wiki/L%C3%A4nderliste_CO2-Emission), a drastic reduction of emissions is necessary (requiring, among other things, much higher levies on CO² emissions than those on which certificate trading is currently based). This has economic consequences (increased costs for fossil energy carriers, resources and primary products, investments in alternative technologies, large drops in the demand for resource-intensive products, etc.).

[4]   Cf. http://www.peak-oil.com/effizienzrevolution-nach-peak-oil/peak-oil-studie-bundeswehr/  and  http://www.spiegel.de/wirtschaft/soziales/rohstoffknappheit-bundeswehr-studie-warnt-vor-dramatischer-oelkrise-a-714878.html

[5] In the case of business consultancy this could be dependence on mobility, in the case of trading companies it could be transport and in the case of manufacturers it could be energy costs; coal producers would most likely have to question their entire business model.

[6]  This tends not to evidence itself until a crisis has begun or is already over; cf. responses to financial crises (concerning banks, for example).