A Good Disruption, a great read

Politics around the world are, to put it mildly, rather unsettled. But step back from the nitty-gritty and ask, what is the biggest challenge facing the world? One plausible answer is: to spread the benefits of economic growth while preserving the earth’s natural patrimony.

This is, again to put it mildly, no easy task. The 19th and 20th century model of growth was resource-intensive; for much of this period, there was little appreciation for the side-effects of industrialization, in the form of air and water pollution, and more recently, in concern over biodiversity and climate change. Now we know. That means in the 21st century, we need to do things differently. There are those who believe that that means doing less, being satisfied with a low- or no-growth world. I disagree. There are still 767 million people living in extreme poverty (less than $1.90 a day). For them and millions of others, a future of less is unconscionable. But how can we do more, better?

Three former McKinsey colleagues of mine address that question, cogently and humanely, in their new book: A Good Disruption: Redefining Growth in the Twenty-First Century (Bloomsbury Business, 2016). The book is distinguished for its down to earth outlook. The authors provide real-life examples to bolster their arguments, and they never imply that the disruptions to come will be easily managed. Neither, however, do they succumb to the temptation of world-weary cynicism. In a phrase, I would say that they are shrewd optimists. Or perhaps hopeful pessimists.

Here are a few takeaways from A Good Disruption:

On externalities: This is an inelegant term for an important concept. “Externalities” refer to the unintended but real consequences of economic growth in which third parties are affected. Think of air pollution that spreads far beyond the factory floor. Everyone recognizes the existence of externalities and there is lively debate about how, and whether, they should be priced into the cost of doing business. One example of pricing an externality is the cap-and-trade system that successfully reduced sulfur dioxide emissions from power stations in the United States. So how big are today’s externalities? The authors argue that profits in many industries, including coal, synthetic fertilizer, and cattle farming, would disappear if these were fully accounted for. Globally, they cite estimates of total externalities of $7.3 trillion in 2009—or 13 percent of that year’s global GDP. One implication: if such sectors “had to take care of the environmental damage they cause, they would look very different from how they do today.”

On the Kuznets gap: A concept known as the environmental Kuznets curve suggests that at a certain point of economic development, growth becomes greener. And there is evidence to this effect, as the authors acknowledge. The Thames, for example, used to stink of dead fish, and was declared biologically dead in 1957. But it has returned to life, and there are now 125 species of fish sporting in its depths. In many developed countries, the amount of energy required to create a dollar of GDP has plummeted over the last generation—classic Kuznets territory. But the larger point, the authors argue, is that there are problems with the “grow-green view,” for two main reasons. First, the resource intensity of some items, such as cement and bauxite, is increasing, not lessening, and trends like ocean plastics are decidedly in the wrong direction. Second, the pace of change is not fast enough; global resource consumption continues to grow.  Their conclusion: “We are not growing green, but only less brown.” And that is not nearly good enough.

On the value of new metrics: So how can companies do better? One way, the authors suggest, is to develop internal accounts that recognize and price externalities to create an idea of “net-positive” results. At first, this metric will be aspirational, but on the basis of what-gets-measured-gets managed, doing so can be useful on its own terms. And progress, the authors assert, is possible, because it has happened before. Then they go a step further, detailing six specific actions that companies could take to tap into lucrative business opportunities while muting environmental harm. For example, it is already possible to create paper napkins and other consumables in a way that causes no depletion of natural capital.

The authors also discuss the possibility of using new metrics to complement the familiar one of gross domestic product. GDP is useful in measuring economic output, but does not account—indeed, it is not designed or intended to—for things like resource use, pollution, or human welfare. The Genuine Progress Indicator is one attempt to do so; this supplements GDP with the analysis of a number of environmental and social factors. The Inclusive Wealth Index attempts to measure the social value of a country’s capital assets. GDP is not going away; people are used to it. But it’s useful to think more broadly, and to remember that the point of economic growth is not a number, but to improve lives.

On government and innovation: There is a tendency to see innovators as inspired geniuses toiling away in a garage, and of course there is something to that. But A Good Disruption notes that most innovation is not about creating entirely new things out of nowhere, but “from combining existing technologies and business models in novel ways.” That isn’t nearly so romantic, but it is more realistic. Another nicely counterintuitive insight is how they document the incredible innovation record of US government agencies, arguing that the “single biggest innovation engines” of the last couple of decades have been the US Department of Defense’s research division (DARPA) and the National Institutes of Health. These institutions (and others) have the resources to spend time on possible breakthroughs. The US public sector played a huge role in the development of satellites, jet engines, new molecular entities used in drugs, GPS, voice controls, the Internet, the Google search algorithm … and on and on. Of course, the authors note, many government projects have failed. But the point to remember is that a healthy innovation culture deploys the best of the public and private sectors.

On the power of examples: One of the minor pleasures of A Good Disruption is that the authors are willing to recognize the positive. Along these lines, they offer several intriguing case studies. There is, for example, the wastewater sludge that powers 259 Stockholm city buses. Or the electric car-sharing program in Paris that is tripling every year, and helping to reduce traffic and parking congestion. Another fascinating story has to do with the Amazon rain forest. From 1996 to 2005, an area half the size of Denmark was deforested every year, due to logging and slash-and-burn agriculture, releasing a billion tons of CO2 and damaging biodiversity. In recent years, though, this has been sharply reduced, and could go to zero, and reforestation is possible. The reason: a mix of technology, in the form of satellite-based monitoring, and incentives to encourage more sustainable farming practices, many of them financed by international donors.

“Nothing is more powerful,” the authors quote Victor Hugo, “than an idea whose time has come.” That is as true now as in Hugo’s 19th century. A Good Disruption contains many such ideas.