Sunday, February 27, 2011

Is Canada Sustainable?

Some of you may have read recently that Canada is now a Petro state. Barrie McKenna writes, “Canada’s fortunes – and its currency – are now more closely tethered to oil than any other industry, including autos, forest products or agriculture”. Of course, a large part of what explains this statistic is Alberta’s relentless pursuit of bitumen, the so-called oil sands, that is expected to produce 2.36 million barrels a day by 2013-2014.

Should Canadian citizens feel a sense of shame when their wealth is inextricably tied to an unsustainable, dirty, and energy-intensive natural resource (cast your vote to the right)? To incite debate, I put forward 5 provocative questions for why this moment in Canadian history might disturb its citizens:

1. Are Canadians Greedy? Is there something wrong with the fact that we as Canadians grow richer as a country by feeding the growing international demand of a substance that is undeniably linked to climate change, ecological devastation and indigenous community despair? Alberta’s recent budget projections are pegged on the assumption that oil sands production will increase 35-40% over the next three years. Compare this to the meager increase in environmental funding of 1.4% over the same time period. As more money flows into our pockets, we compromise the livelihoods of existing and future generations.

2. Are Canadians Unsustainable? Our success as a country, inappropriately measured by Gross Domestic Product (GDP), is predicated on the extraction of a substance that is inherently unsustainable. Fossil fuels take millions of years to develop as the Earth naturally breaks down dead organisms. Because we are extracting this substance at an astronomically higher rate than it can be reproduced, we’ve pinned our livelihood on adding value to a substance that will eventually run out. Then what? Like a vulture, will we move from one natural resource to another until we’ve exhausted them all?

3. Are Canadians Short-Term Oriented? Other wealthy countries heavily reliant on fossil fuels have massive petroleum funds like Norway’s $400 billion pot put aside for a future without oil exports. Not only that, Norway’s fund is the second largest fund in the world affording them immense power to encourage more sustainable business practices. In comparison, Alberta’s “rainy day” fund is at a meager $17 billion. But recently, Alberta announced that it is using this fund to reduce the deficit, leaving next to nothing for future generations to deal with the onslaught of issues associate with climate change and environmental degradation. The Finance Minister said: “the province’s sustainability fund was created for the purpose of a recession”. The province's energy minister, when asked about Norway's fund, said that Alberta has nothing to learn from Norway. Ironically, a recently released report commissioned by the Alberta government recommended that the province adopt a Norway-type fund. This means stop using resource-revenue for today's revenue fund and to instead increase provincial sales tax and/or increase personal and corporate taxes. As Jeffrey Simpson noted, these recommendations were likely "dead on arrival" as Albertans are quite content with the status quo. Not only is this short-sighted environmentally, but it leaves little capacity for Alberta to diversify economically to other industries when international regulation imposes restrictions on oil sands imports. So social and ecological consequences aside, we are not even considering the economic welfare of future generations when we consider the finite substance we are extracting.

4. Is Canada’s Reputation Tarnished Internationally? Is it not embarrassing that we are becoming known as a petro state in the international community? Because the European Union has instructed its fuel suppliers to reduce the carbon footprint of fuels by 6 percent over the next decade, they are looking to block imports of Canada’s tar sands. In response, the Canadian government is threatening to scrap a trade deal with the EU and is lobbying heavily to be excluded from the EU fuel supply restriction.

There was a time where the international community considered Canadian culture as one that embraced the beauty of the outdoors, treasured the natural landscape, and stood up for human rights between and across generations. The massive plots of dead land in and around Fort McMurray now visible from outer space hardly expresses our respect for nature and future generations. We are becoming known as the source for dirty oil. Combined with our fundamental lack of political leadership in Copenhagen and Mexico, our reputation has undergone a complete reversal from the early 1990s.

5. Are Canadians De-evolving Economically? Economies usually start with agriculture then move to the extraction of natural resources, then manufacturing, then service. Germany, Japan, and the US garner tremendous economic advantage from their intellectual prowess in advanced technologies, not their brute power and force in mining and extraction. Poor countries lacking the educational infrastructure to develop and retain good talent need to rely on their natural resources and then through time evolve to more advanced forms of economic development. I do not mean to insult the mining and oil and gas industries because I recognize the technological innovation they have achieved in extracting seemingly inaccessible natural resources. However, we chose to dedicate our intellectual capabilities to these efforts rather than supporting the development of capabilities in more sustainable sources of energy or other creatively destructive technologies that position Canada as a premier hub for technological advancement and its role in a sustainable society.

I’m sure there are many out there wondering about the benefits associated with oil sands development. The process is labor intensive creating up to 540,000 jobs per year by 2020 and exchanging $170 billion worth of goods and services from other provinces. Isn’t that fantastic for our economy? Isn’t oil sands development, as the conservative and liberal governments would argue, necessary for jobs and the economic welfare of our nation? On top of that, isn’t it our responsibility to make use of the natural resources that we have inherited as the second largest land-based country in the world?

These are indeed important arguments. Yet they suffer from three misguided and often overlooked assumptions. First, the role of oil as an anchor of our economy is by no means an accident or a result of a seemingly uncontrollable set of circumstances. Government policies put in place over lengthy periods of time have fundamental impacts on the subsequent economic behavior of a country. At the time of a chronically weak Canadian dollar we chose to focus on extractive industries to attract foreign markets. Rather than planning for the long-term by instituting policies that would build intellectual capacity in non-energy intensive industries, we took advantage of the 20% discount afforded to the international community through our weak dollar and invested heavily into commodity-based industries. Any politician, business person or economist who claims that we are uncontrollably dependent on our natural resources for the sake of our economy ignores the series of short-term decisions that have and continue to lock us into this scenario.

Second, there are many different ways to achieve economic development, some easier, some harder. There is no doubt that the relatively simple way to develop economically in a country like Canada is to extract natural resources that are so readily available under our feet. Lumber, potash, oil, gold, nickel, copper, you name it. Why take the extra time to endure the physical and intellectual effort to cook a healthy and tasty meal when you can eat ready-to-serve processed food caked with sugar, salt and fat right out of the freezer? Why bother creating new industries, the value of which are based on our intellectual prowess when we can sell commodities and manufacture vehicles that require no need for creative destruction and keep our comparative advantage pinned on readily available resources (e.g. nature and labor)? Why reinvent the wheel when we can simply use sources of economic development already proven around the world?

Finally, and perhaps most importantly, "We don't inherit the earth from our ancestors, we borrow it from our children". What will be the state of the earth when we return it to future generations?

This ultimately comes down to a question of leadership. My fundamental beef with my country is its lack of leadership at the political level, at the business level, and at the individual level. Although there are minor exceptions, the bottom line is that we are no longer known as a country of leadership. We base our growth and development on practices that are based on the status-quo, that don’t question taken-for granted behaviors. Practices that create jobs easily, feed mouths more easily, make money more easily, and grow our GDP more easily all for short-term gain at the expense of future generations. When we think of the most memorable leaders of our past, we think of those who have inspired change in others, those who have led groups of people in new directions that challenge fundamental assumptions in the face of great uncertainty. Canada unfortunately lacks this leadership at a pivotal moment in time when our future requires leaders who inspire such change.

Canadian Flag of oil picture taken from Adrian Wyld of the THE CANADIAN PRESS Reproduced under Creative Commons
Greed photo taken Word Press Reproduced under
Creative Commons
Oil Sands photo taken from Google Earth Reproduced under
Creative Commons
MLK photo taken from reproduced under
Creative Commons

Wednesday, February 16, 2011

SEKEM: A Beacon in an Otherwise Oppressed Egypt

In my last blog post, I highlighted the destructive role business has played in Egypt and in Egyptian democracy more generally. Less recognized unfortunately are those companies that stand up to oppressive regimes by addressing head-on some of the undemocratic and social injustices that plague a nation.

During my PhD field research in 2005, I was very fortunate to visit such a company in Egypt. It is to this day one of the most remarkable I’ve had the pleasure of visiting. By remarkable I mean its fundamental contribution to human rights, social equity, cultural freedom and the environment in the backdrop of an autocratic regime complicit in social and ecological degradation.

The Beginning

The company is called SEKEM (meaning “Vitality from the Sun” in Ancient Egyptian) and was started by an entrepreneur named Ibrahim Abouleish in 1977 (photo to the right). I use the term “entrepreneur” lightly here because Abouleish’s motivation for starting SEKEM did not fit the mold of a typical entrepreneur where the underlying drive is associated with filling lucrative market gaps and identifying profit opportunities. Abouleish’s primary motivation was to build an organization that would heal the land and the people of Egypt.

Similar to the events that transpired a few weeks ago, the Egyptian people took to the streets in 1970s in anti-government riots to fight market fundamentalist policies that created substantial social inequalities. Unemployment was at a shocking 50% and only 4% of land in Egypt was suitable for agriculture, the output of which was not going to the Egyptian people. Population densities had reached 1,000 people per square kilometer and pollution of the Nile River increased substantially, forcing farmers to resort to significant amounts of agrochemicals, which contaminated soil and poisoned farmers.

Abouleish explained:

“On my last journey through Egypt I had experienced a deep sense of hopelessness caused by the way of life of the Egyptian population. This had deeply moved me, as I knew that people’s surroundings mirror their soul’s disposition. I felt compassion for these people who could not be made responsible for their situation, but were forced to bear it and had learnt to carry it….I wanted to be able to change this situation of hopelessness” (Abouleish, 2008: 67)

What Makes SEKEM Unique?

I recall my first visit to SEKEM, driving 60 km outside of the metropolitan city of Cairo towards the entrance of the SEKEM mother farm – a massive plot of land that looks like a green oasis surrounded by desert. Over 120,000 trees mark the boundaries of the farm, creating a shield against desert storms and a habitat for plants, insects, and large animals. As we slowly drive through the complex, I see a tractor piling compost from animal dung to build soil fertility, a slew of children walking single file from their classroom, and endless fields of agricultural harvest in the background.

Once inside, I learn that the SEKEM Company is made up of three interrelated and remarkable components.

1. SEKEM’s commercial ambition is to prove that desert land can be used to produce natural medicines and foodstuffs that are healthy and environmentally friendly. Through leading agricultural practices in biodynamic cultivation, SEKEM produces fruits and vegetables, pharmaceuticals, and textiles without the use of agrochemicals. But while SEKEM’s mother farm could have alone provided crops, Abouleish chose to solicit Egyptian farmers as partners in the provision of crops to the business. Without their involvement, SEKEM's reach in healing the land would have been restricted to the mother farm. Getting farmers on board, however, was no easy task. Farmers believed that organic farming was a risky venture with low yields and limited returns on top of a very immature market for organic produce at the time. Switching to organic agriculture required that the land undergo a transition phase, usually two years, during which no chemicals could be used.

But Abouleish persisted and to this day has close to 900 Egyptian farmers working with SEKEM. What is more, the total use of pesticides in Egyptian cotton fields has been reduced to less than 10 per cent, saving about 30,000 tons of pesticides per year. By 1999, these methods had been applied to nearly 80 percent of the entire Egyptian cotton-growing areas. The average yield of raw cotton increased by nearly 30 percent to 1,220 kg per acre. SEKEM was the first organization to produce organic cotton at higher yields than conventional agriculture at a similar cost.

2. The second main component of SEKEM is the Egyptian Society for Cultural Development (SCD), the goal of which is to contribute to “the comprehensive development of Egyptian society” and to realize “Egypt’s unique contribution to global development”. It focuses on education and training, establishing kindergarten, primary, and secondary schools for children of all employees and neighboring communities regardless of religion. Conventional courses are supplemented with music, dance, crafts, and culture, a stark contrast to the Egyptian government's suppressive anti-creative education system. These same cultural opportunities are also offered to employees and members of the surrounding community. In light of the poor opportunities in the regular Egyptian labor market, SCD’s goal was to equip young people with the skills necessary for self-employment.

SEKEM opened a medical center in 1996, at which time medical staff found that all members of the community suffered from some form of illness resulting in the treatment and ongoing health care provision of more than 30,000 people. The SCD also established an Academy of Applied Arts and Sciences in 2000 to advance scientific research in areas of medicine, pharmacy, biodynamic agriculture, sustainable economic and arts. The goal of the academy is to serve the needs of Egyptian society by establishing links between development-oriented researchers and development practitioners.

3. The third component is called the Cooperative of SEKEM Employees (CSE), the objective of which is to make sure “that all members of the SEKEM community grow towards taking responsibility for society”. I was fortunate to join all SEKEM employees at the end of the workweek to recite a brief text that reminded everyone of the shared values of SEKEM. Its purpose largely revolved around establishing a common identity among SEKEM employees, one that centered on healing the Egyptian people.

Lessons for Business

Although this description only scratches the surface of what SEKEM has and continues to accomplish, there is a clear distinction between what SEKEM is doing and what many western companies are doing when they claim that they are “embedding” sustainability into their core operations. SEKEM therefore offers a wake up call for what this means along with a number of important lessons to businesses out there working to take on this task seriously.
  • A company like SEKEM acts like a change agent. They’re not just creating a new business model that is meant to satisfy a market need. They are changing the way the agriculture industry works in Egypt. They are changing the way Egyptians experience freedom. They are challenging the fundamental ideologies of the Egyptian government by promoting creativity and cultural awareness. Any company looking to embed sustainability needs to think beyond the provision of a product or service…they need to help lead change.
  • SEKEM thinks systemically. A company like SEKEM builds the supporting infrastructure for its business rather than relying on what’s already in place. Notice that SEKEM redefined the agriculture supply chain in Egypt or at the very least created a parallel supply chain. SEKEM had to build the biodynamic cultivation capacity of over 800 farmers who eventually became suppliers. They had to develop an independent inspection and certification body called the Centre for Organic Agriculture in Egypt (COAE) because no such body existed previously. They had to build the educational infrastructure to support research in biodynamic cultivation. And they had to build consumer markets in Europe and in Egypt for organic products that had not existed before. Most firms refer to the limits of the existing infrastructure when explaining their lack of progress in sustainability - "There are no suppliers available"; "The market isn't ready for this product"; "There is no certification body". SEKEM took it upon themselves to build the infrastructure to support their vision.
  • A company like SEKEM makes decisions for the long-term. The educational and health care facilities for employees and the surrounding community attests to SEKEM’s view that their survival and integrity is inextricably linked to the health and welfare of the Egyptian people. By making these elements central to the SEKEM business, they take full ownership and responsibility for their development. This means that SEKEM is able to incorporate social, ecological, and economic dimensions in an integrative way. Each of the three components described above feeds the other. Without one, the business model fails. Adoption of sustainability means that firms have to emulate the intricate interconnectedness of social, ecological, and economic systems.
  • SEKEM possesses a common identity, a consensus among employees of why the company exists. The movement of goods from farmers to the consumer is really only part of a broader purpose associated with healing land and people of Egypt.
SEKEM redefines the purpose of business. It demonstrates the feasibility of a for-profit entity to deal with the complexity of sustainable development. When managers, students, and colleagues ask me what a firm that has embedded sustainability looks like, I tell them about SEKEM. In my view, they remain the most impressive expression of how business can be a fundamental agent for social change in a destitute environment. They act as an inspiration for what the private sector can be in an era of public mistrust towards the for-profit entity and unprecedented social and ecological issues.

The SEKEM logo was reproduced under Creative Commons
Photos were taken from the author and were reproduced under Creative Commons

Reference: Abouleish, I. (2004): A sustainable community in the Egyptian desert. Berlin: Verlag Johannes M. Mayer & Co.

Thursday, February 10, 2011

Egyptian Democracy in the Hands of Corporations

The situation in Egypt has made headlines around the world and a lot of the focus has been on the Mubarak Regime and its role in suppressing the Egyptian people and, in effect, democracy. But less obvious is the role of the private sector in propping up the regime in the 30 years of oppression and more strikingly in the last 2-3 weeks.

The controversial role of business in Egypt is largely based on the military industrial complex that has proliferated in the U.S. and globally in the last couple of decades. Egypt has been and continues to be the second-largest recipient of U.S. foreign aid. Roughly $2 billion per year is funneled to the Mubarak regime, the majority of which is used to buy military equipment from U.S. companies like Lockheed Martin, Boeing, and General Dynamics for things like F-16 aircraft, M-1 tanks, aircraft engines, missiles, guns and, as we’ve all seen, tear-gas. These weapons are of course justifiability used under the 30-year Emergency Law where the Egyptian government has power to sharply circumscribe perceived dissidents who may disagree with the regime and its puppet masters from the West.

More recently though is the enabling role that many companies have played in supporting the regime’s recent crackdown on protesters. Narus, a U.S. subsidiary of Boeing Corp., provides the Egyptian government with the technology to conduct “deep packet inspections” to identify and track down dissident voices while Vodafone supported the regime by shutting down phone and Internet services. One can draw parallels to IBM's role during WWII in providing Nazis with punch card technology to manage the millions of prisoners slated for execution.

So what? It’s not the role of business to engage in political activism, is it? In the case of weapons manufacturers, this is simply the free market playing its role. A country needs military equipment, they use money received from foreign aid to buy that equipment and it just so happens that U.S. companies are the top producers of this equipment. This is merely the invisible hand doing its job. In the case of telecommunications companies, they are simply responding to the demands of their customer – the Egyptian government – in the same way that RIM yielded to governments in the Middle East demanding access to confidential blackberry communications. Many market fundamentalists would certainly put forward this very convincing argument.

But there are at least two problems with this logic.

First, it makes no sense to argue that companies have no right to act as political activists when for decades they have been playing a deliberate role in influencing political decisions. Anyone who argues that companies are mere recipients of market trends is not considering the rather pervasive role many companies play in directly or indirectly changing the rules of the game in their favor. Companies of the military industrial complex like Lockheed Martin, Haliburton, and Xe (formerly Blackwater USA) have played a very influential role in pushing for foreign policies that support the war in Iraq and Afghanistan. (President Eisenhower warned of this exact scenario in 1961). To now say that we shouldn’t expect companies listed above to get involved in politics is sheer double-talk.

Second, the above logic is predicated on the assumption that the primary purpose of business is to create financial returns on capital, the negative consequences of which are left to government and other organizations to address. But this view of business was not always paramount. In the early 1900s business students were taught that the role of the firm was to consider economic and noneconomic factors in their decision-making including those expectations imposed upon business by society. This implied that managerial decisions were to be based on values internal and external to the firm.

But after World-War II, influential thinkers argued that business should focus on its economic foundations and leave all other social responsibilities to government and charity. Organizations like the Ford Foundation and popular luminaries like Milton Friedman further pushed the role of business to be all about profits in support of shareholders’ interests. This represented a direct challenge to the original approach to business set out in the early 1900s and it’s pretty obvious who came out on top.

The impacts Vodafone, Narus and Lockheed Martin have had on the very foundations of democracy highlight the need to revisit the boundaries of private sector responsibility and accountability. As the prolific business scholar Kenneth Andrews warned in The Concept of Corporate Strategy, failing to do so locks us into an environment where we spend our energy keeping watch over “corporate behavior, ferreting out problems, designing and revising detailed laws to deal with them, enforcing these laws even as they become obsolete” and suffering the public disservice that persists as companies work to delay appropriate regulation (quoted in Christensen et al. 1978).

Should IBM have provided punch cards that were instrumental in enabling the Nazis to keep track of prisoners? Should Lockheed Martin and other military equipment manufacturers be selling equipment to a regime that is fundamentally destructive to democracy? Can they claim innocence as mere providers to the market when they lobby heavily to make sure that there is indeed a market for military equipment? Does this not mean that they are complicit in the suppression of democracy when such lobbying encourages the Obama Administration to support a Mubarak-type regime?

Many of my business students would argue that business has no role in political activism and should focus exclusively on shareholder wealth-maximization. But the Egyptian uprising has further illuminated the fundamental flaws with this logic and more generally the relationship between business and politics. There are indeed a large number of politicians who have benefited directly from this rather large oversight and would rather afford companies the flexibility to engage in this behavior. But because companies are engaging in political activism for this very purpose, they are not only complicit in their harm to society but active players. Some would argue that this is indeed the greatest market failure of all time.

Protest photo by Dylan Martinez Reproduced under Creative Commons License

Tank photo by Associated Press Reproduced under Creative Commons License

IBM Photo by Edwin Black Reproduced under Creative Commons License

Keyboard lock photo by TechWorld Reproduced under Creative Commons License

Reference: Christensen, Andrews and Bower (1978): Business Policy: Text and Cases: Homewood, IL: Irwin

Sunday, February 6, 2011

Tropicana Orange Juice: Not So Orange!

Alissa Hamilton, author of the book “Squeezed: What You Don’t Know About Orange Juice” describes the undisclosed process by which orange juice is produced. If you look at the ingredient list on an average Tropicana Orange Juice container, you would think that you are getting the equivalent of freshly squeezed oranges. “Pure and Natural” is what the ads tell us. PepsiCo and many other processed food companies are only required by law to list the ingredients in their foods and beverages, not the process by which those ingredients are used to create the final product.

Is this really a big deal? If oranges are all that make up the ingredient list, then what’s the difference? Well, Hamilton concludes that Tropicana Orange Juice doesn't possess the same amount of fibers, vitamin C and other nutritional benefits that oranges provide. To understand why, we need to understand how the juice is made. Did you ever wonder why the juice in the carton lasts a couple of months? Clearly an orange wouldn’t last that long. Hamilton explains that the juice is heavily pasteurized, heated and stripped of oxygen. Once deoxidized, the juice is put into huge storage tanks where it can be kept for upwards of a year. During this time, the juice is stripped of its flavor-providing chemical because they are volatile. When it’s ready for packaging, flavour companies are brought in to engineer flavor to make it taste fresh. But here’s the kicker, to avoid adding another ingredient to the list, the companies use orange-derived substances, essence and oils. Companies break down the essence and oils into individual chemicals and recombine them. As Hamilton put it, “With orange juice, it’s masking the processing procedure rather than the diversity of ingredients”.

So what are the implications of this?

For some companies, an increased pressure to reveal production processes will mean dramatic revelations of some of the health and safety effects associated with how they make food and beverages. The challenge, I think eventually, will be to sustain a market for high-margin processed food in an environment where consumers and regulation are demanding a move back towards raw non-processed food. PepsiCo, through its recent release of its Tropolis product, is ultimately trying to do just that by positioning it as fruit in a package. But then why not just eat the fruit separately without the package? The line between processed and whole food will likely start to become finer and companies will either lose the battle for consumers or they will find some very impressive marketing approaches to convince the consumer that it is worth spending more money on processed food items that are in reality similar to their whole food counterparts.

Whatever the case, companies will grapple with the question of whether humanity is smarter than nature. Are we able to recreate the synergistic effect that nature provides nutritionally in the food it produces by engineering it through science? As I've stressed in other posts, answering yes to this question is highly dangerous and likely informed by our own hubris.

For those companies volunteering information on process, some of them will be found guilty of greenwashing. The Tropicana website proclaims "Grove to Glass" but then quite humorously elaborates on 8 steps required to actually achieve this feat. Unfortunately, the descriptions are largely sugarcoated like the "safety always" tab where they claim the importance of pasteurizing the juice. But this step is only necessary because of the underlying dangers of processing food. This step is not because companies are going out of their way to protect their consumers, they are merely abiding by the law so that they can prolong the shelf-life of the product, the direct consequence of which exponentially increases sales. Michelle Obama is presently working on pushing companies to voluntarily label the ingredients and nutritional information of their products. But this is a far cry from getting companies to volunteer a non-sugarcoated version of how their food is processed.

Finally, the increased pressure to reveal the process by which food is made means that companies cannot rely on the ingredient and nutrition list as the extent of their transparency. Consumers will increasingly demand this information and eventually regulation will require it. But doing so will unleash a wave of resistance by the private sector. In the same way that companies have lobbied against the releasing of their ingredient list, they’ll be especially resistant to any regulation that imposes transparency on the process of making food. Doing so would compromise their intellectual property. This is another interesting circumstance where the firm’s quest for competitive advantage runs up against the goals of sustainability.

The David Suzuki Foundation ranks seafood according to the process by which it is produced and subsequently distinguishes fish based on how it is caught. This is an important step in understanding what we’re eating because it gets to the complexity of the process that is otherwise overlooked when considering the end product. Loblaw has announced that they will source all seafood from sustainable sources by 2013 but they are finding variation in what suppliers are using to claim "sustainability". For something as tricky as seafood, which some argue can never be produced in a sustainable way, companies will likely have to be part of an ongoing dialogue with multiple stakeholders on the definition of sustainable seafood that balances the social, ecological, and economic pillars of the triple bottom line.