Striking the right economic balance
Real values: Social capital brings creativity, innovation and trust to economic activity
Few things confuse and concern us more than the economy. That may be truer today when, despite several positive signs, there is an uneasy sense that something has changed. Something is offbalance.
Since the recession of 200809, the market economy has been slowly coming back from the brink. We’ve seen an increase in job creation, our incomes are growing faster than our debt and real-estate and stock-market values are recovering. Much of this growth can be attributed to the large amounts of fiscal and monetary stimulus measures governments provided since 2008, including setting historically low interest rates to encourage consumer spending.
Yet, despite these stimulus measures, the real economy (where people live, where goods and services are produced and purchased, where businesses and organizations are active) in the developed world has expanded more slowly than before the recession.
In fact, in recent years, gross domestic product has grown by less than two per cent annually in the U.S., less than one per cent in the U.K. and about three per cent in Germany. And real GDP growth is forecast to be slow for some time — the potential is 2.5 to three per cent, assuming productivity growth in the same range.
At the same time, a key generator of wealth — job creation — has been anemic. Canada has added only about 7,000 jobs over the 12-month period ending April 2014, the weakest showing in seven years — even despite strong monetary stimulus.
British Columbia’s labour market reflects how slowly our provincial economy is growing. Average employment growth through the first eight months of 2014 was up just 0.6 per cent. That’s fewer than 2,000 net new jobs a month. Fulltime employment in B.C. was flat from August 2013 to August 2014.
So why has fiscal and monetary stimulus failed to generate a more balanced recovery — one that benefits a larger majority of us?
Think of the economy as a stool. A stool with just two legs — the market economy and market policy, including government stimulus spending at near-zero interest rates — offers poor balance and is unsustainable.
What balances the stool is the addition of the third leg. And that’s the so-called “values-based” economy. This is the activity going on within the real economy that can’t be measured quite so neatly as GDP. Rather, it is the stock of cultural, natural, spiritual, economic and social goods that contributes to civility and a healthy community.
A growing body of literature now argues it is this social capital that emits creativity, leads to innovation, enables trust and contributes to communities that are not just financially healthy — but are socially and environmentally healthy too.
As we continue to rebuild from the global recession, we are seeing a shift in societal and consumer attitudes. According to the 2014 Edelman Trust Barometer, 84 per cent of respondents believe that business can pursue its self-interest while doing good work for society.
Businesses have an opportunity to capitalize on creating shared value — or a social return on investment — growing profits by taking advantage of market opportunities that create social and environmental value. These values-based businesses can include anything from credit unions that reinvest deposits in the local community to small retailers that employ people with barriers to employment.
Building a healthy community by focusing more on a valuesbased economy helps develop a more sustainable market economy and financial system. We know, for example, that a healthy community alleviates poverty, and one of the contributing factors to our poverty rate is inadequate income. A living wage, therefore, is a prerequisite for community wellbeing. Vancouver’s living wage is $20.50, almost twice the B.C. minimum wage.
Affordable housing is another feature of a healthy community.
Proper housing alleviates much of the social cost related to homelessness and poverty. As land values have risen, it has become costlier to maintain affordable housing. Business needs to put more of an emphasis on building more affordable living options, particularly in high-priced markets like the Lower Mainland.
Applying a values-based approach to our economy is not a utopian quest but a historic moment. Financial institutions are pivotal as a growing number are taking a valuesbased banking approach that leverages billions of dollars in deposits to create positive economic, social and environmental impact.
It’s time to balance the stool so we can all be participants in an economy that acts as a foundation for the creation of healthy communities over the long run.