We cannot return to the old ways

Gregori Saavedra

The Harvard economist Rebecca Henderson is an adviser to many of the world’s leading companies. Over the years, she has had the opportunity to study change – or the lack of it – up close at pivotal exemplars of corporate decline, such as Kodak and Nokia. Her view is that the coronavirus crisis is another Kodak moment: a failure to act and transform the global economy will imperil all else.
The economic term “externality” is defined by the OECD as “when the effect of production or consumption of goods and services imposes costs or benefits on others which are not reflected in the prices charged for the goods and services being provided.”


While there can be positive externalities – for instance, the development of the semiconductor – the most significant challenges human beings currently face are the result of negative externalities. For instance, the cost of the NHS treating a patient for asthma caused by pollution is not priced into the theoretical valuation of an oil multinational or an automotive manufacturer. Fast fashion might mean cheap goods on our high streets, but its externalities are environmental degradation and social inequality.
Covid-19 itself can be thought of as an externality. A few years ago I spent some time with Larry Brilliant, the epidemiologist who led the WHO team that eradicated smallpox. Brilliant and his team were clear: there would be a future global pandemic that would be caused by a virus that had jumped species to human beings. Its origin was likely to be a live market where wild animals are slaughtered, or the result of activities such as the lumber industry or mining, which put human beings into contact with viruses and species in deep, natural ecosystems.
Geopolitical dysfunction and human capacity for cognitive dissonance have not helped with this crisis and must be overcome to face the next. The only way to keep the increase in global average temperature to below 2°C above industrial levels is through multilateral co-operation. There is no silver bullet, but the scientific consensus is that an optimal approach involves renewables, EVs, nuclear, carbon sequestration, prevention of further deforestation and a global policy on carbon taxation.
The last of these is crucial. According to Climate Interactive, a non-profit from the MIT Sloan School of Management, the most effective way to tackle emissions is to appeal to a metric that motivates human beings: price. By not treating greenhouse gases as an externality, but pricing them into the cost of goods and services, business would be motivated to move to non-carbon alternatives. The International Monetary Fund agrees, suggesting a sliding scale of pricing so that richer nations – many of which are the biggest polluters – would pay more.


Understandably, the instinct of many organisations is to return to the old way of doing things. But the crisis offers an opportunity for regeneration and fresh thinking: the capacity to innovate and re-imagine in order to build new products and services that create wealth without negative externalities will separate the businesses of the future from the Kodaks.
Greg Williams is WIRED’s editor-in-chief. He tweets from @GregWilliams718
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