It was an animated conversation with Darinka (she introduced the sustainability concept in Slovenia in the 90′ of last century) about profit and driving forces behind successful and, at the same time, responsible companies that helped me to find a rock-solid explanation of why homonism that is founded on the maximization of added value is an inscribed human modus operandi if not modus operandi for everything that share the property of life. I will not repeat conversation since that should also include some screams (I was driving our car on a pretty busy road with “slightly” above-average speed); so let me only state my conclusions here.

Added value and profit

Capitalism is an existing economic system in which humans strive for added value. Capitalism is often blamed for not being sustainable since its only driving force should be profit. 

I hope it is clear from the previous paragraph that I have used “added value” and “profit” first in positive and followed by a negative connotation. But then, isn’t profit just one example of added value? Does not life come from adding value to the effects of entropy, and is as such a breach of the second law of thermodynamics?

Suppose you accept that profit is yet another explication of added value. In that case, it is easy to understand that not only shareholder values (profit) are essential but also workers, the local community, and society at large (profits). So, to blame capitalism as a system that is disintegrating society and leading to the destruction of civilization is false and misleading. 

My argument is that if the majority or even many of existing corporations (and societies) would operate on such blindness, civilization would long ago already be history. It is impossible in practice to run a company on profit performance indicators only, even if one would like to. Due to the lack of intellectual power of contemporary business leaders, they do not resist capital-haters. 

Let me prove it with a metaphor.

Sailing boat metaphor

A sailing boat can be a perfect metaphor for any living system and any business. First, there is a peculiar dynamic relation between a sailing boat’s speed and direction. Sailing boats with higher speeds can be slower in reaching a goal (finish line) if their course goes astray too much. On the other side, a boat with the straightest direction typically has no or even negative speed, so it does not reach a finish line at all.

The speed is a profit, and the speed towards the goal is an added value. The highest added value is most frequently achieved with the most top speed. On the other hand, if a boat has no speed (if a company produces no profit), there is no hope for added value.

The goal is to build and steer a sailing boat that can go as far in the direction possible with the highest speed possible. And how can that be achieved? With a construction that balances those performance elements (indicators) that add speed (sails size and quality, lowest friction of haul, lightest construction possible, etc.) with elements that help that same boat to keep the direction. It is funny that those later elements/factors/moments of truth/performance indicators…) impede the speed itself. Most notably, a ballast helps the sailing boat follow the straightest line possible. Without a ballast, a boat cannot keep a direction and can be overturned. However, since ballast adds friction and weight simultaneously, it enhances two factors that lower the speed. Many other significant infringements to the speed (costs) enable the boat to be “faster to the goal” while simultaneously slower.

Sustainability

A sailing boat is a perfect and, at the same time, an intuitive metaphor for any sustainable living creature. We all know we need friction, a cost, to jump (to develop added value). The company thus has to invest in many factors that seem like a complete waste from a profit view but are indispensable in achieving added value and sustainable existence. The company has to “spend” resources on people, suppliers, materials, the local community, the regulatory environment, etc.. to balance the inscribed speed (profit). Such an understanding of the micro-economy is not rocket science, as Brussels bureaucrats would like to persuade us with a circular economy scam, but something that each living entity is intuitively living in. It is like air. There is not much to learn about the principle itself. If this principle is not breathed, then death comes immediately. The money that Brussels spent on various circular economy projects was spent on the discovery of America. We are already there. We are there from the very beginning. One must unlearn all bureaucratic nonsenses to breathe with complete lounges.

When I say that we are there from the beginning, I mean that each entity strives to find an optimal balance between speed and ballast, profit and costs. There is no one magical formula that would work for all individual cases. The principle is evident, but each boat is different, though. Some companies find a better balance and produce higher added value; others fail either for having no speed/profit or too much speed/profit. 

Who decides whether there is too much or too little profit? No one but evolution. The owl of wisdom always comes too late. Companies do not fail because capitalism sucks but from their lack of knowledge/skills or, most often, pure luck.

Integrated reporting

In support of my claim, an initiative tries to quantify performance indicators that cause both speed and direction, as well as both profit and costs, invested in producing added value. It is called the Global Reporting Initiative (GRI), and recently, you can find an upgraded version with Integrated Reporting (IR). Both initiatives try to quantify some performance indicators (KPI), such as investments in so-called responsibility towards stakeholders that are not shareholders, on the same scale as profit measurement. If possible, we would have a common quantitative ground for all performance indicators that trigger the success. We would have listed them as if they were listed for a sailing boat. It is not essential if such a goal is achievable; it is much more critical that we know how the machinery of life operates. 

Intuitively. Everlasting.