Need for a new paradigm
A question of the new paradigm will always arise when one starts reflecting on the adverse effect of global warming. In fact, global warming and its associated natural calamities are an outcome of human’s uneconomical business activities and related to an uncontrolled used of natural resources destroying the ecology. In brief, these type of reflections always come to a conclusion that the ultimate driving force causing global warming and related adversities are excessive production triggered by human greed. Can human greed be harnessed? Theoretically, maybe it is possible but practically it is not, entirely unfeasible. Obviously, there is even no need to attempt to justify this fact. Thus, usually, these sorts of reflections end up with a vicious circle where there is no feasible sensible way out for the steadily deteriorating situation with ecology. This has been thought to be true until I have come across with two striking facts.
Fact #1: Story of Gold Producer with different management goal
About ten years ago, while meeting local gold producers with the purpose to identify gold producers who might be potentially interested in receiving loans from International lending institutions we come across with rather an unusual producer. He was running a small company working on alluvial gold deposit with proven reserves of no more than 110–120 thousand ounces. According to him, he was extracting roughly about 3’300–3’500 ounces of gold each year. He kept explaining his operating costs were about 40% of the total sales and if non-operating costs, taxes, and royalties were added on a top of that it would be still less than 65% of his total revenue. So, a profit margin was roughly around 35% from his total sales. This translated to as having at least USD360.0 thousand  of net profits each year that were fairly sufficient for him to live a lifestyle that he always wanted.
When we asked him whether he would be interested in debt financing to expand his operations his answer was a counter-question in an astonishing intonation which I can still remember clearly. He asked: “what for?” and kept on explaining “increasing operating capacity would result in depletion of reserves in two year time and ending up with all sorts of mounting debts and a large fleet of broken machines that would be nowhere to dispose of?”. “A thrifty use of resources is more rational because the exploration of gold is not only expensive but also very difficult task,” he said at the end.
At that time his answer did produce an impression as lacking rationality. Only after many years, I realized that at the end of the day, he was more rational than we were since the strategy he was pursuing contained apparent wisdom that was beyond of our comprehension at that time due to different motivations. Perhaps a Hindu proverb saying ‘hasty climbers have sudden falls’ explains better his strategy.
The bottom line was that a desire to earn more would end up with a never-ending cycle of greed and increased risks to ruin his business while the desire to keep his business small would likely to result in a long-lasting business. Later I have found several facts supporting this concept of long-lasting businesses while I was collecting facts for my book on management practices lacked by Mongolian businesses the essence of which will be briefly outlined below.
Fact #2: Becoming big implies increasing risk of getting bankrupt
The Royal Dutch Shell, a well-known Dutch company, conducted a study in 1983. Findings revealed that one-third of the companies being identified as top performing ones by Forbes Journal in 1970 was wiped out of the market by 1984 (de Geus, 1988). According to the study the average age of large businesses in the world is about 40 years (de Geus, 1988). In other words, if newly established businesses manage to survive its initial three years then they are operated in course of 40 years in average and wiped out for various reasons from the market.
On the other hand, statistics on global businesses suggest that not many firms manage to survive for more than 100 years. Only Japan with its more than 25 thousand businesses lasting for more than 100 years leads the list with some significant margin (NHK — Japan Broadcasting Corporation, 2016).
Table #01: Businesses lasting for more than 100 years by countries.
# Countries Number of businesses
1 Japan — 25’321
2 USA — 11’735
3 Germany — 7’632
4 UK — 3’435
5 Switzerland — 1’747
6 Italy — 1’472
7 France — 1’319
8 Austria — 1’086
9 Netherlands — 1’060
10 Canada — 826
Source: NHK World, 2016
A striking fact is that majority of Japanese businesses sustained for more than 100 years are of SME type. In other words, one can infer from these statistics that the businesses which grow into large firms are prone to exist shorter period, while those businesses managing to stay small are likely to sustain on the market for the incomparably longer period. An intuition behind is that ‘growth of businesses’ usually ‘brings a range of’ multidimensional ‘management problem’ to tackle (Phelps, Adams, & Bessant, 2007). Evidently, it is not always easy for managers of large firms to cope up with the ever changing environment and come by the needed knowledge to ensure competitiveness.
Indeed some studies prove that ‘as firms increase in size and complexity, managers face a number of problems and necessary, more sophisticated capabilities are required’ (Miller & Friesen, 1983).
These two facts alluded above triggered for thoughts that central assumption of the business management goal, i.e. profit maximization being preached by the economic theory seems to be irrelevant and needs to be either adjusted or replaced entirely.
Instead, an assumption of business life maximization can be used successfully as an alternative business management goals to be pursued by firms. This will allow keeping business small which has several significant advantages in contrast to a strategy of pursuing ephemeral profit maximization which can be summarized as follows
- Thrifty use of natural resources will be more feasible;
- Small businesses are more favorable for individuals to develop personal mastery by ‘becoming committed for their own lifelong learning’ (Senge, 1994);
- Survival of small businesses are contingent on clients, partners and all other stakeholders for the reason of which it provide better grounds for undertaking businesses in compliance with societal moral and spiritual norms thanks to a stronger sense of interdependence;
‘According to eco-scholar Thomas Berry’ ‘the most dangerous institutions in the world’ are universities (Sivaraksa, 2009). They mint ‘armies of economic rationalists [text] who overlook genuine moral and spiritual issues’ putting ‘rationality at the service of financial interests’ (Sivaraksa, 2009). Outcomes of their endeavors are well known — ‘increased inequality in wealth, [text] environmental degradation and cultural deterioration’ (Sivaraksa, 2009). Evidently, we can’t stop them merely contending that they are subverting our livings through ruining nature and devastating ecology. But what we can do is to force universities to stop nurturing central principle of business management namely the assumption of profit maximization. Instead, we could propose that business life maximization is a new paradigm that needs to be cultivated.
Practice suggest that those firms that do survive in the competitive environment make other business goals of their highest priority but not a profit maximization. If the assumption of business life maximization will be employed as central business management goal, managers will be put into a situation where they will not be more concerned only with firm’s short-term profit. Instead, commitment to long-term survival will be fostered which in turn will create an entirely new paradigm complying with the principle of harmonious coexisting with nature, thrifty use of natural resources and ethical business behavior.
The conviction is that if we are to solve ecological problems, the key assumption of economic theory profit, i.e. profit maximization nurturing greed and hatred need to be dismantled and replaced with a new paradigm embarrassing wisdom of the harmonic coexistence of human with nature.
de Geus, A. P. (1988). Planning as Learning. Harvard Business Review(March-April), 70–74.
Miller, D., & Friesen, P. H. (1983). Successful and unsuccessful phases of the corporate life-cycle. Organization Studies, 339–356.
NHK — Japan Broadcasting Corporation. (2016). NHK World. Retrieved March 26, 2016, from http://www3.nhk.or.jp/nhkworld/en/vod/
Phelps, R., Adams, R., & Bessant, J. (2007). Life cycles of growing organizations: A review with implications for knowledge and learning. International Journal of Management Review, 9(1), 1–30.
Senge, P. M. (1994). The Fifth Discipline: The Art & Practice of The Learning Organization (First Edition ed.). New York, London, Toronto, Sydney, Auckland: Currency Doubleday.
Sivaraksa, S. (2009). The Wisdom of Sustainability — Buddhist Economics for the 21st Century. London: Souvenir Press.
 Please be aware that these numbers are very rough approximation of the true numbers designed to give an idea (author).