Businesses can gain from shift to fairer economic model if they play active role in system change

The world faces a long crescendo of ever worse disasters if it continues with the economic policies of the past 40 years. Decision-making-as-usual will drive up inequality and social tensions, which in turn will lead to a decline in trust, political destabilization, and economic stagnation. All this will make it increasingly difficult to take coherent long-term decisions to tackle existential threats such as global warming.

Powerful state-of-the-art computer modeling used in a two-year research collaboration for our new book Earth for All: A Survival Guide for Humanity shows that continuing with the current system and making only incremental efforts to deal with existential crises would lead to declines in wellbeing, even in wealthy nations. In this ‘Too Little, Too Late’ scenario, global temperatures would reach 2.5C above pre-industrial levels by 2100. All societies would suffer shocks from extreme events such as heatwaves, drought, crop failure and floods. Around two billion people would be living in areas close to the limits of human habitability.

But there is an alternative. The book, which builds on the experience from the Club of Rome’s groundbreaking 1972 report The Limits to Growth, sets out a clear pathway for a reboot of the global economic system so that it works for all people and the planet.

This ‘Giant Leap’ scenario entails rapid system changes, or ‘turnarounds’, in five areas – poverty, inequality, female empowerment, energy and food – which societies could start implementing now.

The model indicates that this bold strategy could lead to prosperity for all on a livable planet by 2050. It would make it possible to limit global warming to less than 2C, stabilize the world’s population at well below nine billion, reduce material use, and approach an end to extreme poverty globally within this timeframe. At the same time, average income per person grows. In this scenario, average wellbeing would rise throughout the century not least also because of greater income equality and a better environment.

This would not mean an end to per capita economic growth, but an end to a myopic focus on growth at the expense of what really matters in economic policies – human wellbeing. This new direction for our economic system requires a more nuanced approach to growth. Consumption of many materials cannot keep growing, and greenhouse gas emissions need to be halved every decade. Happily, revolutions in energy, food, and material flows will also drive jobs and economic growth. Low-income countries need to rapidly grow their economies.

The book outlines a simple set of policy recommendations that we assess have the greatest potential to accelerate these turnarounds in each of the five areas.

To lift 3-4 billion people out of poverty, it proposes investments and debt cancellation for low-income countries to enable them to achieve annual GDP growth rates of at least 5% until GDP per capita reaches $15,000. At this level, most social sustainable development goals can be met.

To reduce inequality, it argues for increased taxes for the 10% richest in societies until they take less than 40% of national incomes. Globally, this group currently takes over 50% of national incomes, which is a recipe for deeply dysfunctional, polarized societies. The book also proposes the creation of Citizens’ Funds that would distribute common and national wealth through fee and dividend schemes.

While we recommend additional taxation to transfer wealth from corporations and capital owners to the rest of the population, this redistribution in favor of the 40% on the lowest incomes will actually be positive for businesses because inequality acts as a brake on growth. When the purchasing power of the poor goes up, so does growth, and this is good for corporate profits.

The same goes for pay. In the United States, the Palma ratio, which measures the incomes of the top 10% divided by the earnings of the bottom 40%, is around 3. In South Africa, it is 7. But research shows that if this ratio can be reduced to around 1, this leads to greater wellbeing, health, and improvements in GDP growth. It improves both labor and resource productivity, as we see already in many Scandinavian countries. A society with more tolerable levels of inequality benefits everyone, even the very rich.

To empower women by achieving full gender equity by 2050, governments should increase education access for girls and women, and all corporations and public bodies must reach gender equality in leadership positions. Market economies that invest in gender equity and families regularly top international polls on innovation, wellbeing, and happiness.