Article Summary
The article sheds light on how large corporations such as Enron and WorldCom have been involved in malpractices related to the way these corporations were run. Both Enron and WorldCom were guilty of ignoring the demands of the stakeholders. Therefore, there is a strong need for major changes in the way such corporations are run, and for environmental and social factors to be kept in mind. One way of pleasing all parties is through a process called Socially Responsible Investing or SRI. SRI does not mean that businesses ignore the financial side of things and safeguard social and environmental factors at the cost of lowered profits. Instead, SRI merely states that businesses should take the usual financial decisions while keeping the social and environmental side of things in mind. The article further goes on to state that while SRI has been around for a long time, it is only now that the term is being taken seriously, and conventional financial markets are now paying more attention to it. The increased importance and stature of SRI can be gauged from the fact that according to the Social Investment Organization, by June 2004, there was a massive $63.65 billion that fell under the SRI category, which amounts to 3.5% of the total investments made in Canada. SRI uses 2 main strategies, with the first being ‘Screening’. There are two types of Screening; Inclusionary and Exclusionary Screening. Inclusionary Screening looks for corporate social opportunity leaders and companies that value the views of their stakeholders. Exclusionary Screening on the other hand, refers to a process where companies and countries where social and environmental factors are not taken seriously are excluded from the portfolio. The second SRI strategy uses shareholder power to increase social responsibility. Furthermore, the world in general has become more socially responsible, with massive developments being made in favor of SRI. In the UK, all pension funds are required to state investment principles. The International Finance Corporation and the Asia Development Bank have been coming up with policies that promote SRI. Other, quite valuable developments have also been made in Countries like Australia, France, South Africa and Belgium.
The news that SRI is being implemented increasingly in the financial sector is certainly a sight for sore eyes. However, whilst SRI continues to grow in the developed countries, the third world is still a long way from making such policies come into effect. For instance, companies in countries like India and Pakistan still engage in malpractices. The malpractices involve major issues such as child labor, exploitation of labor, unsafe working conditions, the use of chemicals in products, and environmentally damaging manufacturing processes. Yet, none of these issues are taken seriously, and the companies who are involved in such practices continue to thrive without any government checks. And, it is not just the developing world that suffers from such malpractices. For instance, in the United States too, the Freddie Mac and Fennie Mae accounting scandals involved both companies performing accounting tricks to overstate their accounts and mislead shareholders. While both the companies were fined and increased government intervention was then implemented, the scandal proves that SRI is still a long way from being a complete reality, and the scandal indirectly paved the way for the global economic crisis. In addition, the world still lacks transparency when it comes to the way certain organizations are run. For instance, while SRI can be implemented to ensure that businesses accept their social and environmental responsibility, there is no accounting for the way governments around the world go about their daily business. Government corruption is still a major issue that almost the whole world faces, and increased government intervention in such cases is not an option at all. However, the mere fact that SRI has become a major part of financial and other organizations certainly is good news. The process might have its imperfections, but it is at least a positive move forward, and shows that social and environmental responsibility should be on the minds of everyone. While businesses are run to make profits, the profits should never be at the cost of a darker world overall. Therefore, it is necessary that business malpractices should be kept in check and minimized, for only if that is done can we make the world a better place to live in.
In this article, the authors Ted Halstead and Clifford Cob discuss all that is wrong with the conventional methods of measuring an economy’s output and growth, the GDP and GNP. The authors state that despite growth in the US GDP figures every year, the real condition of the economy, and the people who make it up, is anything but improving. The common man finds himself working longer hours and being paid less, a sign that the overall standard of living is taking a turn for the worse each year. Instead of being a true measure of an economy’s power and strength, the GDP is merely a figure that reflects outright rigging by those in charge to make things seem look alright even in the face of adversity. The GDP was developed after the World War II. It was used to support the Keynesian School of thought. The situation post-depression was such that the US needed to increase its total output, and the GDP was a perfect measure of this. Therefore, there was a huge rise in the production of goods and services, and according to the GDP, everything was going smoothly. However, what the GDP does not take into account is the real costs of production, and in the case of the US, the costs of the increased output. Social and environmental factors were not paid attention to, and it seemed that everyone was happy with the so called ‘growth’. The most major flaws with the GDP are that it does not take into account the depletion of natural resources. In addition, GDP does treats the use of natural resources as income instead of treating them as the using up of assets. Similarly, GDP also pays no heed to events such as family breakdowns, and instead treats these as part of the growth figures that add up in the GDP. Moreover, the GDP figure is a mere account of monetary transactions. Therefore, any event or transaction that does not involve money is not used to calculate the GDP. Most importantly though, the GDP figure assumes all individuals that are a part of the economy will enjoy a better standard of living when the GDP rises. Again, this is incorrect, as no matter how much an economy grows, there will always be some people that will not be better off. Lastly, the GDP also ignores the use foreign assets. The authors state an alternative for GDP, which they label Genuine Progress Indicator or GPI. The GPI aims to tackle all the flaws of the GDP, and takes into account factors such as the depletion of resources, pollution, long term environmental damage, and change in leisure time, housework and non-monetary transactions, unemployment, income distribution, sustainable investments, and much more.
The critique the authors provide of the GDP has been a long time coming. The GDP only merely measures total output, and therefore, does not take into account all the damage that output does to the environment. The GDP ignores nature, taking natural resources as factors of production which can be used up anytime to boost production and output. However, there are major flaws with the GDP approach, flaws that have long term implications. Environmental damage and the destruction of the Ozone layer are signs that we have been misusing natural resources just to satisfy our ever growing list of wants. Therefore, what we see on the news as growth of an economy is instead, a sign that the country is using up its natural resources faster that it can afford to. The misleading nature of GDP figures can be gauged from an example. Suppose a car accident occurs, and both the cars and their occupants are seriously damaged and injured. The cars are sent for repairs, and their occupants to the hospital. Since the accident is serious and has caused a lot of damage, both the costs of the repairs and medical charges are likely to amount to several thousand dollars. Now, all these costs are added in the GDP, and, the large the figure is, the higher the amount that is added in the GDP. Such is the GDP calculation method that accidents and injuries that cost more actually add more to the GDP. Hence, the GDP completely ignores all the personal injuries and damage, and instead shows progress. Yet, we have become so accustomed to the GDP and GNP figures that it is hard to take a new approach such as GPI and stick with it. After all, the GDP and GNP figures have been around since the 30’s, and have become part of not only mainstream economics, but textbooks as well. To change the approach requires some massive changes to be made to the way the calculations are performed. Moreover, while it is important to take into account factors such as pollution and depletion of natural resources, giving these factors a monetary value and calculating an economy’s GDP is tough indeed. For instance, it is hard to calculate the cost of cutting down a tree in monetary terms, and this is the reason why the GDP and GNP figures do not take in account such factors. That is not to say, however, that the GDP approach is correct. It is obvious that there are major flaws with the approach, and that some major changes must be made to it. However, sidelining GDP and GNP altogether on the other hand, is not a viable option. Therefore, there needs to be an approach adopted that combines the best of both worlds, and then provides a true reflection of an economy's performance.
