Invisible Hand Says We Should Focus on Environmental Solutions
“By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.” ~ Adam Smith Book IV, Chapter II, paragraph IX of The Wealth of Nations.
This excerpt from Wealth of Nations describes how Smith defined “the invisible hand” of the marketplace. The metaphor of the invisible hand is tossed out by market purists whenever the government tries to regulate industry for the “common good” or commons.
The commons are, among others, the air we breathe, the water we drink, the food we eat, and the security forces we share from police to military. These benefit everyone. Smith’s metaphor describes the, “unintended social benefits of individual self-interested actions.” Ask anyone in the world if they want clean air and water, wholesome food, and security; you get the same answer, yes.
These are the basic necessities of modern life.
A History of the Invisible Hand Concept
Prior to Smith’s assertion and from which he is said to have developed his concept, Richard Cantillon’s “An Essay on Economic Theory (1755)” stated that, “Business productivity and profitability are improved when profits and losses accurately reflect what investors and consumers want.” (My emphasis)
Lord Shaftesbury called the invisible hand the “will of nature” where “acting in accordance with rational self-interest produces socially beneficial results.” He defined “rational self-interest” as the “preservation and advancement of the self.”
Francis Hutcheson described it as personal intuition or “moral sense” rather than rational self-interest.
Smith expanded on his concept in 1759 with “The Theory of Moral Sentiments” where he describes the psychological motives of individuals toward the common good stating, “by acting according to the dictates of our moral faculties, we necessarily pursue the most effective means for promoting the happiness of mankind.” (My emphasis)
Economists from that era seem to agree that the invisible hand is an effective component of economic reality. With this in mind, we can see that the invisible hand is indeed operating as it should.
Majority want Climate Action
Most Canadians agree that climate change is everyone’s responsibility:
- Four-in-five (85%) Canadians agree that citizens, businesses and government need to make “a stronger commitment to environmental responsibility and sustainable development.”
- A further 57% of Canadians believe that Canada should be doing more to address climate change.
- 87% of those surveyed believe it’s important for business to “make greater efforts” toward environmental issues.
- 74% support increased renewable energy solutions to meet future demands.
- 79% of Canadians feel that environmental solutions will increase quality-of-life.
- 66% believe it’ll add jobs to the economy.
- 56% believe clean energy solutions have a positive impact on international competitiveness.
And that’s just Canada!
Globally, 82% view climate change as a major threat, according to a December 2015 worldwide poll by Ipsos Global.
We can see from the numbers that the invisible hand is indeed working indicating that the majority of the global population believe we should be taking greater steps toward environmental issues.
Now, let’s take a look at the business case for environmental and corporate responsibility (CR).
$3.7 Billion Annually – Business Case for Climate Action
In 2016, Fortune 500 companies moved the “invisible hand” to near majority status for planning and implementing climate change initiatives- 48% or 190 companies, according to “Power Forward 3.0: How the Largest U.S. Companies are Capturing Business Value While Addressing Climate Change.”
In the process, they racked up annual savings of $3.7 billion while reducing CO2 emissions by 155.7 million metric tons. According to the report, reductions of GHG emissions by the 190 companies “is equal to taking 45 coal-fired power plants offline for a year,” and every year thereafter.
The Fortune 100 continue to lead the world in climate action with 63% of the companies’ acting on climate change and sustainable development. Even the smallest of the Fortune 500 are getting in on the action with 44% setting environmental goals inching the “invisible hand” toward the inevitable majority.
Reporting on climate action is voluntary according to Lance Pierce, President of the Carbon Disclosure Project CDP North America, “Voluntary corporate disclosure highlights the compelling business case for corporate clean energy procurement and clearly demonstrates the transition underway in the energy markets. Companies in turn have benefited, identifying billions of dollars in savings and new opportunities through their disclosures to CDP.”
He highlights the fact that the, “CDP and the investors we work with, representing over US$100 trillion in assets, engage thousands of the world’s largest companies to measure and manage climate-related risks”
More recently, institutional investors representing more than $17 trillion in assets are urging business leaders and state governments to stand by their commitments to the Paris Climate Agreement.
We’re at a critical tipping point!
Invisible Hand Working as Predicted
Business, consumers, and investors are leading the charge to renewable energy and reduced carbon emissions thereby moving the invisible hand to majority territory. As renewable energy sources continue to decline in cost, more business leaders will recognize the benefits whether or not they believe in climate change.
It’s just good business.
Author Bio
Russell Richer has 15 years of experience as a B2B copywriter. A former 17-year corporate accountant, I specialize in promoting B2B products, software, SaaS, and services related to sustainable manufacturing, industrial contracting, supply chain, environmental health & safety, and business process automation. Contact Russ @ richer-communications.com.