Why do we ignore climate change?

The scientific community has reached a consensus that the build-up of heat-trapping emissions from burning fossil fuels and clearing forests is changing the climate, the result of which imposes significant risk to our well-being. Yet as conclusive as these studies are, we continue as a society to accelerate our emission levels putting us on a trajectory of temperature increases well in excess of the two degree celsius target established by the international community in the 2009 Copenhagen Accord. 

This shocking ambivalence persists in the backdrop of 2011 being a “real killer” when it comes to hot temperatures and a record number of extreme weather events including droughts, catastrophic floods, and forest fires, including the worst ever in Texas.  This alongside a recent study that showed how our current trajectory will lead to an unprecedented and permanent tipping point in the Earth’s ability to provide ecosystem services.

Why then, despite unequivocal conclusions, does society drag their feet in acting?  Several studies have looked at this question and through doing so they tend to distinguish between those people who deny that climate change is a reality from those people who accept human-induced climate change as reality, yet are inactive in response.   Let's look at each in turn.

Why do people deny climate change? 

You may be surprised to learn that only a small minority of people actually all-out denies that climate change is real and/or caused by human action.  Even in the US, a country known for being skeptical of climate science, only 10-20% of the population is in denial. This denial persists despite some of the worst skeptics coming out to admit that the leading scientists are in fact correct including Richard Muller at UC Berkeley who originally set out to debunk climate change mantra but then after an objective analysis conceded in a wall Street Journal article that “GlobalWarming is Real”. 

Misleading Media:  The media unfortunately does a very poor job at educating the public on the facts of climate change and instead has played an important role in spreading doubt by giving the false impression that climate science is one side of an equally valid set of arguments. David Johnson at Huffington Post remarked on this pathetic reality and blasted the integrity of the journalistic profession for perpetuating this very ambiguity in their efforts to be objective.  I recently attacked Margaret Wente and Canada's Globe & Mail for spreading such doubt through outdated scientific knowledge and opinions of highly unqualified individuals. 

Related to this is the fact that the deniers, according to Dr. Leiserowitz, Director of the Yale Project on Climate Change Communication, oftentimes drown out the broader conversation about the subject, making themselves seem more numerous than they are in reality.  These individuals have borrowed from the tobacco industry’s playbook of the 1980s/1990s of dis-information where the objective is not necessarily to deny climate change but to raise enough doubt so that you can “blunt the urge for calls for political reform”.  As a consequence, the 70-80% of the public who are neither strong believers or strong skeptics are highly swayed by this megaphone. 

Political Affiliation:  The second reason has to do with political ideologies.  Of those who reject climate change outright, 76% were conservatives.  The conservative mantra tends to associate action on climate change with a breach of fundamental human liberties presumably because such action will impose unnecessary regulation that will choke the very foundations upon which freedom flourishes.  As a consequence, right wing conservatives have lumped climate change among other topics that carry “liberal views” such as pro-choice, same-sex marriage and gun-control. 


(Allow me to digress: This is a very simplistic argument because on the one hand it overlooks the fact that a lack of regulation to curb human impacts on the climate is a recipe for a loss of freedom as more and more individuals struggle to rely on the basic necessities that enable such freedoms.  On the other hand it overlooks how a lack of regulation represents a platform through which those actors most complicit in causing climate change are in fact appropriating the very freedoms that we value.)  

Culture of Denial: Australian intellectual Clive Hamilton argues that denial is not necessarily due to a deficit of information as much as it is due to culture. Hamilton demonstrates that society has a history of denial and delusion in the face of substantial threat because people have a tendency to ignore knowledge that unsettles the mind.  As Hamilton explained, “so earnestly did the British public wish for peace that they were prepared to suspend their grasp of reality in return for a comforting delusion” that a world war would never happen.  The desire to disbelieve deepens as the scale of the threat grows, until a point is reached when the facts can be resisted no longer.  Unfortunately with climate change, unlike war, this ‘point’ is largely hidden from daily view.” 

Why do we not act? 

Now what about those who concede that climate change is a reality and that humans are the primary cause yet still do very little in response?  The American PsychologicalAssociation commissioned a task force to look at the Interface BetweenPsychology and Global Climate Change to identify the factors that prevent people from taking immediate action.  Many of these same factors were identified in other sources.  I summarize a selected few here: 

Climate Change Isn’t an Evil Tyrant:  The first reason has to do with the fact that climate change doesn’t represent an easily digestible evil character to which we can all rally against.  We worry more about anthrax (with an annual death toll of virtually zero) than influenza (with an annual death toll of half-million people).  Because climate change isn’t intentional, it does not capture out attention. So it’s a shame that climate change isn’t trying to intentional kill us! 

Climate Change is beyond our Noses:  Some argue that the economic recession has pushed climate change down on the priority list in light of more urgent economic needs.  It costs money to do some of the right green things. But more importantly, like all animals, we are more prone to respond to clear and present danger.  Our brains evolved that way.   Despite the fact that our intellectual prowess has enabled us to predict dangers before they actually happen, our brains haven’t developed the natural biological instinct to do something about it.

Climate Change is Inconvenient.  Old habits die hard.  There is a massive institutionalized system of social norms and practices that make it very difficult to change behaviour. How many times have you forgotten shopping bags or your reusable coffee mug?  Our way of life for the last several decades  (past two generations) has spawned behaviour that presumed that we had unlimited resources.  Look around you – everything you purchase is slated for the landfill.  It is seemingly impossible to do something without living in a clay hut, peeing in a hole in the ground that acts as compost for your garden, or walking several kilometers to the nearest congregation of box stores.  When you go into the grocery store or a home improvement store, the procedures for domesticating our lifestyles is based on an unsustainable system albeit with small yet humorous products that help us to be less unsustainable, perhaps out of guilt. 

Climate Change is an Underestimated Risk.  Finally, we tend to underestimate the risk associated with climate change to the point where we presume that our human ingenuity will come to the rescue.  This very naive perspective is common among neo-liberal observers who claim that the market can and will resolve the problem.  When I hear this rhetoric, i can't help but think of one of Albert Einstein's favourite quotations where he says (if I may paraphrase) that one cannot resolve a problem by using the same approach that initially caused it.  

All in all, the task for social scientists is huge.  The non-social scientists have done their job just as they had done in the 1960s proving unequivocally that tobacco was a cause of cancer.  But it wasn't until the 1990s that we finally began to take action at the societal level.  Let's hope we don't take so long this time around!  

The Veil is Lifted on ALEC

Up until a month or so ago, I hadn’t heard of an organization called ALEC (the American Legislative Exchange Council).  According to their website, ALEC’s objective is to “advance the fundamental principles of free-market enterprise, limited government, and federalism at the state level through a nonpartisan public-private partnership of America’s state legislators, members of the private sector and the general public”.  This certainly reads as a noble mission and until 4 weeks ago it hadn’t really been questioned whatsoever.  In fact, most people had not heard about ALEC. 

But all that changed when member companies Coca-Cola, Mars, Wendy’s and Kraft started withdrawing their membership of ALEC following the Treyvon Martin shooting.  ALEC is a staunch supporter of the infamous “stand your grand law”, which is a law in Florida that permits individuals from shooting someone in self-defense.  The reaction to their withdrawal is what I find especially striking.

On the one side you have right wing pundits at the WallStreet Journal and Fox News strongly defending ALEC’s ambitions and thereby criticizing the companies for withdrawing their membership. On the other side, you have left wing groups criticizing these organizations for taking so long to withdraw and only doing so because of the potential PR backlash that would ensue if they didn’t. 

But the criticism goes much deeper than that.  The stand your ground law really opened a can of worms to a more sinister secret of ALEC. Behind closed doors, ALEC brings together executives of the largest companies and state legislators to draft legislation that promotes the free market, limited government ideology of the organization. Once drafted and accepted by members of ALEC, they are proposed to the state senate by the state legislator who is essentially a member of ALEC.  The fascinating part of this though is that this process has been occurring for decades with no public knowledge.  Al Jazeera uncovered that an National Rifle Association (NFL) gun law was approved through ALEC and subsequently pushed through state legislatures.  It provided a venue for the NRA to present their law. 

The recent revelation of ALEC hints at the underlying objectives of what this organization is trying to do.  The general public is excluded from this conversation, especially since the media has been unable to figure out what this organization has been doing for over four decades now.  ALEC calls itself a charity and by law it cannot engage in more than 20% of their activities towards lobbying, which comes across as amusing when we consider that ALEC’s primary purpose is to draft legislation to benefit its members.  Common Cause argues that what ALEC does is pure lobbying because they are essentially encouraging public policy makers to pass laws that they themselves design.  Common Cause claims that they have thousands of pages of internal records that prove beyond doubt that this is a lobbying organization.  This would mean that they are breaking the law because they’ve denoted themselves a charity to evade federal taxes.  The Guardian noted:

"Alec boasts about how frequently its bills are introduced in state legislatures to show its influence over the legislative process," the complaint notes. In one annual scorecard, Alec's executive director, Samuel Brunelli, told corporate backers that, with a success rate higher than 20%, "Alec is a good investment. Nowhere else can you get a return that high."

Rashad from Common Cause made the point crystal clear on AlJazeera when he explained that by withdrawing from ALEC over the public eye on the Florida gun law, the corporations like Coca-Cola and Wal-Mart were getting their cake and eating it too in that they were supporting an organization that was doing some questionable behaviour yet also helped push policies that were in their best interests.  Only because they recognized the public backlash that could ensue did they withdraw.  One can conclude that they likely wouldn’t have withdrawn if this didn’t happen.  Is this social activism in action or merely the tip of the iceberg of a host of activities like this that we just don’t now about? 

Fox News, WSJ and right-wing pundits argue that there is nothing wrong with this. To them, this is democracy in action with private sector businesses engaging in their right as active and legal citizens to voice their opinion by using ALEC as a mechanism through which to advocate certain policies.  What drives me most crazy is the rather pervasive belief, however genuine, that pushing for limited government and free enterprise policies is analogous to the very freedoms to which we all aspire.  This is the veil that many push on voters because of the perceived implications for job creation.  But it’s organizations like ALEC, the ridiculous super-pacs that Stephen Colbert rightly mocks and the more general pervasiveness of the private sector to push the above-like policies that do the exact opposite.  And it’s still unclear to me whether these organizations really don’t understand market failures or whether they are aware but maintain the rhetoric to prevent the public from catching on. 

Unfortunately, the news about ALEC has all but faded at the time of this posting.  This is disappointing because while it illuminated the destructive effects such an organization can have on a democratic society, a lack of persistence in calling out organizations like this likely won't change anything.   

Oil Sands and Potash OR Canadian Hockey?

A study recently came out indicating that as a result of climate change, the outdoor rink season in Canada has shrunk since 1950. I find this fascinating in the backdrop of our country's relentless pursuit of energy-intensive fossil fuels reflected in its recent fast tracking of environmental assessment plans and the Alberta Wildrose party's complete denial of climate change, a party that apparently reflects the values of a majority of Albertans. Perhaps the potential loss of our common past-time may be what is necessary to rattle the cage of Canadian imprudence to the reality of climate change and our massive role in its unfolding.

Is a Career in Investment Banking of Value to Society?

The recent exodus of former Goldman Sach’s (GS) employee Greg Smith has hit the online newsstands, including Canada’s very own Tim Kiladze talking about similar motives for leaving RBC. If you haven’t heard, Smith resigned from Goldman Sachs (GS) and went straight to the NYTimes to explain why. Smith started his career at GS as an intern before moving to New York and London. He stated that the environment is “as toxic and destructive as [he has] ever seen it”. His beef is with the unprecedented disconnect between the firm’s objectives and those of its customers, brought on by a culture with which he not longer identifies. This culture he explains shifted from one of pride and a collective belief in the organization to one of greed and profit at the expense of the consumer’s trust they inherited over 143 years. His spiel confirmed the highly critical view that the investment banks were indeed a substantial part of eroding a historic level of societal and economic value in 2008’s financial crisis.

As I read his story, I naturally thought of my students, especially when Smith talked about being part of the recruiting and summer intern process. The students I teach at Ivey tend to target the ABCs of the job market – accounting, banking, and consulting – with the second being most popular. In the fall of their final year in the business program, they are inundated with requests for interviews from the likes of Bain Capital, McKinsey, KPMG, Deloitte, and of course Goldman Sachs. These firms want the cream of the crop – the brightest of business students – something on which Ivey prides itself. Many of my students start in the financial services industry with an internship between their third and fourth years before landing a full time job with the investment bank by the fall. Both faculty and students perceive an investment banking job at Goldman Sachs (or its equivalent) to be the ultimate accomplishment, the job that only a selected few will have the fortune of occupying.

I first noticed this in my first year teaching at Ivey in 2010/2011. Two years after the start of the marathon recession, the financial crisis was still top of mind. It was about this time (a few months earlier) that Goldman Sachs was all over the news because they agreed to pay $550 million to the SEC for selling mortgage securities to clients it knew would fail. – precisely what Smith is talking about. But that didn’t seem to phase the top student in my class (and likely of the entire program) who had an internship with GS and accepted a position there upon graduation. Nor did it phase his peers who looked up to him with admiration, not only because of his intellectual prowess in the classroom to which I can surely attest but also because he got the “top job” that many, if not all, Ivey students aspire to get. To put this another way, many of my students aspire to be a position like Greg Smith making hundreds of thousands of dollars a year.

Smith also talked about the mentality of junior analysts where a common question he received from them was, “How much money did we make off the client?”. There is a rather pervasive mentality among my students that there is nothing wrong with this. Many of them are true loyalists to the ‘greed is good’ mantra sung by Milton Friedman and Gordon Gecko. They struggle with the idea that consumers can be manipulated and exploited and have a rather naïve perception that the market will always correct behaviour like what Smith is talking about.

What does it say when the top students in Western society are bred to seek and perform well at an institution that can have substantial negative implications for society? Whereas these negative implications have always been expressed through activists, indigenous people, and the environment, what this story suggests is that the negative implications have emerged through the customer. This dilemma speaks to a more important question related to the growing inability of capitalism to achieve the broader social goals that Adam Smith once proclaimed. This is because modern day business schools presume that maximizing profitability is ultimately the best thing that business leaders can do for society.

What Greg Smith is describing should not come as a surprise. While it has become quite mainstream that the pursuit of profitability can have negative consequences for marginalized segments of society and seemingly distant environmental systems, what is emerging now is that its pursuit is demonstrating negative implications for a more immediate stakeholder – consumers. Gone are the days where we can presume that the pursuit of profitability is by default maximizing customer value. Adam Smith’s view that entrepreneurs would search for profitable ways to fill needs of his/her neighbors, while innovative, underestimated that these entrepreneurs would essentially search for ways to bypass the consumer if such an opportunity arose. And when the top businesses in the world are able to attract the world’s top talent, you can bet that they will be well positioned to exploit this talent and remove any of the unnecessary costs that come with client satisfaction. One way to think about this is that capitalism’s invisible hand has turned on itself because corporate greed that would typically be corrected through market mechanisms is usurped by the very foundation upon which we’ve established western society.

While the capitalist system has garnered tremendous benefits since its initiation centuries ago, there is no question among leading academics and executives that its usefulness and ability to fairly distribute wealth is waning. But the difficult thing is that capitalism put in the most innovative fail safe when you consider the fact that the capturing of wealth through capitalism affords you the power to maintain the system so that the wealth continues to flow. In other words, we underestimated our ability and impudence to manipulate the very system that did so well for us.

I’m excited to discuss the Greg Smith story with my students in September to hear what they think of his views. If what he was saying were at all true, would this discourage them from working in a firm like Goldman Sachs or even in the financial services industry? If not, what is it that students are eager to accomplish with their Ivey degree? Extending this to a more generally question, Smith’s article is a call for capitalists, business professors, and executives to take a hard look in the mirror and to ask themselves: What is the purpose of business in society?

What keeps you up at night?

Back in December, a couple of undergraduate business students asked me what I thought were the top three global issues that worried me the most. I think they were somewhat taken aback when I said that my number one was ecosystem degradation. Not poverty, obesity, climate change or economic calamity. While these are incredibly important, they pale in comparison to my number one because in many ways they represent a fundamental consequence or symptom of ecosystem degradation.

On January 10^th, 2012 the Environmental Commissioner of Ontario released a very important report entitled “Biodiversity: A Nation’s Commitment, and Obligation for Ontario”.  The report strongly advised that provincial governments across Canada stem the continuing decline in ecosystems. Yet it received hardly any face time in the major news outlets. This report joins a barrage of highly consistent studies showing the systematic decline of the world’s ecosystems. The most important study came out in 2005 entitled the United Nations Millennium Ecosystem Report. Many have argued that this is likely the most important document to be released that was read by so few.

Why do we really care about ecosystem degradation? Is it our guilty conscience? Is it the loss of the beauty of a hike, a refreshing swim, or ski trip?

Healthy ecosystems purify water, regulate the climate, floods, and disease. By doing so, they represent a natural healing mechanism for the planet. Like an antidote, they cure the disease that we impose on our planet in the form of pollution that we dump into the air, oceans, and soil, effects that compromise our own well-being. Our civilization is implicated not only in the overwhelming provision of this disease but also the reprehensible erosion of the antidote. That “double-whammy” is the most profound realization that many people fail to acknowledge or understand.

In our very economically-oriented society, it may be appropriate to draw on the analogy of an endowment fund. An endowment fund is a lump sum of capital, from which the owners of the fund draw interest to fund activities. The fund is meant to exist indefinitely because the organization does not draw on the fund itself (i.e. capital) and instead relies on the interest this capital produces. Now imagine a scenario where the organization spends beyond the interest and takes a slice of the capital. Over time of course the interest collected will diminish and the organization will need to take larger and larger chunks out of the fund to maintain its spending amount until it is depleted.

Analogously, the Earth is very much like an endowment fund in that it has a relatively fixed amount of “natural capital” that over the course of time emits interest or ecosystem services for animals and mammals to use. These ecosystem services include water, air, soil, nutrients, food, and a stable climate. They also work to turn our waste (carbon dioxide, effluent) into new sources of food. This cycle is so fundamental yet compromised by our very linear approach to industrialization. Drawing on the analogy even further, the question we need to ask is how much of natural capitals’ interest are we using for our own needs? 

 In 2011, we consumed 135% of the interest (see website that tracks this) provided by the Earth’s natural capital and this number is increasing every year. The water we use, pollute and dump back into our water systems, the air we pollute, the oceans we pollute, the soil that we use and degrade, the plants we consume, the fish we consume, etc. all represent humanity’s use of ecosystem services. But because we consume 135% of the interest created from natural capital, we are slowly consuming the capital the planet has to offer. You don’t need a biology or economics degree to realize that we’re essentially on the road to bankruptcy as NYtimes columnist Tom Friedman wrote.

There has not been one peer reviewed study in over 20 years that has refuted this undeniable fact. Yet, we live our lives and consume in ways that show a profound ignorance of this knowledge. Why? I posted another blog with some answers.  

Business is indeed implicated in this. Politically our obsession with the economy is overshadowing the ecological catastrophe we’re facing. Socially, we fail to understand the complexity of the above and base our everyday decisions on a very uni-dimensional set of criteria. Because we think of economic development and ecosystem repair as a zero sum game, our prioritization of the economy only exacerbates ecosystem degradation. We see this naïve perspective in our politicians, in many executives of today’s leading companies, and in ourselves as investors and consumers.

However, a growing concentration of entrepreneurs and managers see that business survival is entirely dependent on a healthy ecosystem. These individuals are visionaries. They are able make decisions that create financial and ecological value even though the former will not come to fruition well after any of the latter is created. In other words, they are defying the pressures to create short-term value for the sake of our humanity and the planet. Examples include Level Ground Trading, Better Place, SEKEM, FrogBox, Patagonia, Interface, Honey Care Africa, &Beyond, Bullfrog Power, Synergy Enterprises, and Turiya Group. 

 The challenge is that they are up against an economic system that rewards large businesses to continue ecosystem degradation as a means to save cost. How do you compete in an environment where ecosystem preservation represents a competitive disadvantage? A common criticism is that the businesses listed above are small and fail to grow in size that demonstrate that these businesses are sustainable. But their lack of success through growth is not because of a poor business model but because the existing socio-economic system punishes these businesses and rewards those that compete against them unsustainably.

Rogers Claims that False Advertising is Free Speech

Some of you may have heard that Rogers Telecom was accused of engaging in misleading advertising in 2010 when they claimed that they had more network reliability and fewer dropped calls than upstart wireless carrier Wind Mobile. Their defense is as astounding as it is a symbol of the growing incommensurability of business interests and those of society. Rogers is arguing that the truth-in-advertising rules that would prohibit this type of behaviour are a violation of its right to freedom of expression.

More particularly, Rogers is arguing that it is a violation of the freedom of expression under the Charter of Rights and Freedoms to force them to test its products before making claims about them. The Competition Bureau has charged Rogers with misleading advertising given that there is no evidence that users experience fewer dropped calls.

Rogers’ response is fascinating:

The testing rule "prohibits and penalizes entirely truthful claims, including claims made on a reasonably held belief that such claims are entirely accurate and claims that are proven to be entirely accurate through post-claim testing. Not only are these types of claims entirely harmless, but they play an important role in consumer choice and may have a significant positive impact on prices and product innovation.”

It’s important to consider the broader implications of what Rogers is saying here. In essence, they are suggesting that companies should be allowed to over-promise certain features of a product or service so long as they have a “reasonably held belief that such claims are entirely accurate”. Is this argument really about the freedom of expression? There is no doubt that companies are eager to improve the image of their brand in the eyes of the consumer to capture market share. Because price is relatively uniform in an oligopolistic environment, firms can only create value by creating perceptions in the minds of consumers that there is some additional value to be had out there (e.g. fewer dropped calls and better service).

The ironic thing about all this is that Rogers is leveraging the Charter of Rights and Freedom to justify their misleading claims to consumers. When large oligopolistic companies like Rogers, put forth these sorts of claims they are in fact compromising the ability of consumers to make informed decisions. If Rogers succeeds in their argument, what’s next? Is Coca-Cola permitted to claim that drinking their beverages are healthy just because they have a “reasonably held belief that they are accurate”? Do banks have the right to claim that taking on another credit card is going to improve your satisfaction in life because they also have this reasonably held belief? Do oil and gas companies have the right to claim that climate change is a hoax because they have a reasonably held belief?

The impact that companies have on society is profound. Like any other social actor, they shape norms, beliefs, and behaviours of wider society. Companies have a vested interest to create value by increasing the willingness of consumers to pay for their products and services. But this is ultimately a transfer of value rather than the creation of new value. Informed decisions and truth are highly valued in society. All Rogers is doing is appropriating that value; that is, they are transferring value from society to its own margins by fabricating their messages and to influence the beliefs of its consumers.

Mitt Romney Accidentally Shines Spotlight on Free Market Capitalism

Those of you following the circus surrounding the US Republican race likely noticed the recent criticism of frontrunner Mitt Romney on the empire of wealth he created through his firm Bain Capital and a favourable tax environment for investment income. Before democrats even had the chance to launch an attack on the candidate, Romney’s Republican opponents blasted the frontrunner using rhetoric that would be considered blasphemy within Republican circles. They were essentially attacking the very ideology that made Romney rich; that is, his efforts to pursue the American dream by creating individual wealth through self-interest. Almost biblical in the US and other Western countries, there is a strong belief that the pursuit of self-interest in a free market economy is synonymous with freedom and democracy. Yet here we have Republicans, defenders of this rhetoric, criticizing the prodigal son who is doing nothing more than practicing this ideology.

The fascinating thing is that the more popular Romney gets, the more he’ll unintentionally erode the highly conservative republican base of free market ideology. Below, I argue that both democrats and republicans, in their attempts to challenge his popularity, will bring to light the highly destructive and sinister effects of unfettered free market capitalism absent appropriate government intervention.

Stealing Society's Wealth: Let’s start with the relatively low 13.9 percent tax rate Romney has been paying on investment income. Is this Romney’s fault? Here’s a guy who happens to be making wise investment decisions and is fortuitously taking advantage of a low tax rate. What’s wrong with that? Those on the far right would say that there is nothing wrong with this and that changing the tax rate would imply interference by government and an obstruction of freedom. Those on the not so far right would blame government for allowing something like this to happen while releasing Romney of any blame.

Yet the grotesque irony behind the republican ideology is that it is the very advocacy for the free market that is usurping the interests of the middle class. Romney is the most telling example of this. In 2007/8, there was huge debate in the US about whether investment income should be taxed at a higher rate than the existing 15%. Through one of the most ambitious lobbying campaigns in US history, bands of investment banks, private equity, and hedge fund companies expressed their deep disagreement with such a regulation and pressured the US congress heavily against such a measure. Who was the main proponent behind the lobby? You guessed it, Romney’s firm Bain Capital. So people like Romney are not simply benefiting from the existing system, they are shaping the very system for their own benefit.

If Romney hadn’t gone for president, the American public may not have learned that one of the reasons why we have growing inequality is because the rich use their power and resources to ensure these sorts of regulations are in place. Only the wealthy can earn investment income at a magnitude that trumps regular employment income. Yet it is the investment income that gets the shelter, not he employment income. Another way to put this is that the rich like Romney are essentially stealing value from society because the resources paying for public services like roads and infrastructure need to be paid for by the middle class because the money that would otherwise be available from the rich is limited.

The implications of this realization by the mainstream public are profound when you look at this from a business perspective. Romney’s behaviour in influencing tax regulation for his own benefit is very symbolic of what we business school professors teach students to do in their role as a strategic manager. We teach students to mold the firm's competitive environment through for example the shaping of government regulation to favor the firm’s self-interest without considering the effect on broader society. We see this time and time again in the recent lobby of food companies to keep junk food on school menus and the more recent lobby of media companies to regulate internet traffic. Now many of my colleagues would argue that political lobbying is merely one voice in society alongside activists, the public and anyone else who wants to voice their views to regulators. This is a specious argument, one that neglects the complete imbalance of power in today’s society when considering corporate resources coupled with the Citizens United rule in the US.

Shareholder Value is Good for Society? The recent spate of criticism related to Romney’s Bain Capital is an extreme example of the naivety associated with the belief that the creation of shareholder return makes society better off. Bain purchases businesses that they perceive to be undervalued, “fixes” them up and then sells them at a higher price thereby making a return on their investment. Again, what’s wrong with this? By restructuring these companies, Bain is essentially creating value that wasn’t there before. But many commentators have discussed some of the implications of what Bain does with these companies. A New York Times piece a few weeks ago explained that to create this value, Bain needs to extract it from somewhere else. Eliminating jobs, freezing pensions, shutting down factories are but some of the ways in which they squeeze every last drop of financial value from the business. Not only that, after creating the value, Bain does whatever it can to appropriate that value for itself. This is not voodoo management, this is strategic thinking.

Interestingly, Bain borrows huge sums of money and uses the assets of the acquired firm as collateral for the debt. The implications of this are profound. By deferring risk to the acquired firm, Bain is free to engage in highly risky behaviour that would potentially benefit Bain immensely while eroding value of the acquired firm. There is no downside risk for Bain: if the company goes bankrupt, it’s no big deal because Bain doesn’t have that much invested. This is no different than how investment banks deferred risk associated with investments to mortgagees and investors, thereby eliminating any downside risk.

There is more to the story but what the reader should take away from this is that Romney’s Bain Capital is unintentionally illuminating how free enterprise in the last decade has built a strong capacity to make millions at the expense of broader society. As my colleagues Crane and Matten explained: "With Romney in the race, for the first time there seems to be a real public awareness and scrutiny of what has happened in corporate America in the last decade". Bain is showing that companies have an incentive to ultimately shift value from society to company coffers. For the first time, the public is beginning to see what is being taught behind the doors of Western Business classrooms.