Finding profitable solutions to the problems of people and planet
New paradigms are needed as new realities unfold, and Covid-19 is a wake-up call that offers an opportunity for Singapore to leverage its position as an innovation hub and testing ground.
THE iconic deadline for many an economic plan - 2020 - is turning out more to be Year 0 as the world is being remade by the global pandemic. In six short months, entire industries have been brought to their knees, household brands made bankrupt, and more than 195 million jobs lost, according to International Labour Organization (ILO) estimates in April.
Could we have been better prepared for this? Epidemiologists and virologists warned of a pandemic of Covid-19 scale decades ago. More recently and famously, Bill Gates - in a 2015 TED talk - pointed out that the world was simply "not ready for the next epidemic".
Even as we failed to heed the warnings this time round, it would be remiss if we continue to ignore other imminent and potentially more devastating threats: climate change and its attendant ecological impacts and the debilitating social and income disparities, which are exacerbated by Covid-19.
Singapore corporates have an opportunity to emerge stronger from the current crisis by pivoting adroitly to these emerging realities, and by carefully considering new paradigms.
Over the past 50 years, Singapore has successfully repositioned itself to surf the changing tides of globalisation. This agility has helped to keep the nation on what has been an exceptional growth trajectory.
In the 70s and 80s, Singapore industrialised rapidly by positioning itself as a choice destination for global multinational corporations looking to tap low-cost manufacturing bases in a newly industrialising Asia. As Singapore lost competitiveness to lower-wage venues like China in the 90s, the focus shifted to higher value industries such as semiconductors, petrochemicals and pharmaceuticals.
After the global financial crisis in 2008, Singapore again transformed to become an attractive global hub for companies in which to base their regional operations. It successfully attracted global capital flows and welcomed knowledge workers in the technology, professional and financial services fields to create a compelling ecosystem connecting Asian markets to the rest of the world. The current push-back on globalisation and the global lockdown is once again forcing Singapore Inc to rethink its strategy to stay relevant and vital.
An ancient philosopher-king once said: "Cast your bread upon the waters, for you will find it after many days. Give a serving to seven, and also to eight, for you do not know what evil will be on the earth."
Business leaders and policymakers will need to resist the urge to rely on models of past success to find a formula for the future. The global city model has worked well for the past decade. It is time now to take what we have been blessed with and invest it into the needs of a recovering Asia.
Singapore Inc needs to galvanise its entire machinery towards a "venture builder" strategy, in order to find new growth drivers for the next decade. With much of Asia facing a perilous climb out of the Covid-19 crisis, there is an opportunity for Singapore to leverage its unique position as an innovation hub and testing ground to uncover profitable solutions to the problems of people and planet. These solutions can then be scaled and contextualised as an offering to the four billion humans who live within a seven-hour flight time from Changi Airport.
UNDERLYING QUESTIONS
We can begin this process by answering the following questions:
To be sure, corporates are not charities, yet profits can no longer be construed narrowly. Underlying these questions is a broader understanding of returns not just in financial terms but on social, human and natural capital as well. Profit thus defined elevates other forms of capital, on an equal footing with financial capital, to provide a "true north" for value creation.
A key question asked is whether it is possible to take a wicked problem and pivot it into a sustainable business solution. Bruno Roche and Jay Jakub answer this by introducing a concept known as "the economics of mutuality" (EOM). Their book, Completing Capitalism: Heal Business to Heal the World, provides a blueprint on how businesses can meaningfully put purpose before profit, not just for shareholders but all stakeholders.
It is not just a woolly concept. The authors propose that such holistic value creation can be captured, through a strategic alignment process from board mandates down to line-manager key performance indicators. The end goal is a mutual bottom line which combines financial and non-financial metrics in a coherent manner.
We opine that the EOM approach can lead to higher equity valuations by influencing two key assumptions in the cost of equity applied to future cashflows. First, an EOM-based business strategy will translate to a lower beta. Operational risks will be lowered systematically as businesses are held equally accountable for social, natural and human capital outcomes, alongside the traditional financial metrics. On the other hand, a higher long-term growth rate can be imputed to the firm as they tap new growth opportunities. And they do this by focusing their strategy purposefully to solve significant challenges to the problems of people and planet within their market context.
A cogent framework which empowers firms to put purpose into practice is what Singapore Inc needs to find its way out of the Covid-19 maelstrom. It is our hope that this wisdom will emerge from the deliberations of the Emerging Stronger Task Force, as they forge a blueprint for the road ahead. Singapore's smallness and agility are its greatest assets. It is now time for us to live for something bigger than ourselves. If Singapore Inc resists the urge to follow the easy money, the smart money is likely to start following Singapore Inc once again.
