Economists predict that the current recession will continue through at least July 2009 (with recovery effects lasting the rest of the year or longer), making it the longest period of economic downturn since the Great Depression. The economic crisis will not only transform finance and business, but the way we think and behave. Then there’s the environmental crisis, and the realization that most of the institutions and systems that regulated our lives in the 20th century need to be reconfigured for the 21st century.
Over the next year, people around the world will continue to suffer from the recession’s devastating impacts, and as is often the case, the ones who will suffer most are the ones who can least afford it. The Great Depression, and the recovery period that followed, irreversibly realigned the values of those who struggled through it, leaving its mark on the way they raised their families, spent their money and did their jobs. What legacy will this convergence of crises, both financial and environmental, leave on the psyches of today’s young workers and students? And what intelligent solutions will subsequently emerge?
When things are going well, it’s hard for most people to stir things up, to change their own lives, their jobs and their communities. Yet when times are hard, we might just be more likely to run with that startup idea we’ve always dreamed about, if for no other reason than the simple fact that there isn’t much to lose. For better or for worse, collective action for change often requires a period of collective discomfort. Lean times can arguably beget innovation that is smarter than the innovation that springs from fatter times – innovations that are more practical and effectively more sustainable from both a social and financial standpoint.
“There are two main differences in social innovation during difficult financial times,” venture capitalist Rob Katz writes. “First, the need for true social innovation is never more acute than when things are not humming along in the global economy. Second, there is increased oversight on social innovators to be ruthlessly efficient and profit-driven.” As Chuck Vest, the former president of M.I.T., said: “…Innovation is the only mechanism that can actually change things in substantive ways. Innovation is where creative thinking and practical know-how meet to do new things in new ways, and old things in new ways.
“The irony of ignoring innovation as a theme for our times is that the U.S. is still the most innovative nation on the planet,” he added.
Instead of investing in superficial solutions that make people feel like there is progress being made, now is the time to move forward selectively, favoring the ideas that will pay for themselves in the long run.
As one example directed at institutions, Katz says, “you should sink money into weatherproofing your entire college campus by improving heating and cooling, installing motion-sensor lighting, making your buildings more energy-efficient post-construction. We should be thinking about how we could be saving money from an environmental standpoint. If we were to upgrade all the existing buildings in America, it would save on the order of 25 percent of our energy consumption. In difficult financial times, social innovation has to be ruthlessly cost efficient and in pursuit of those innovations that don’t come out negative on the balance sheet.”
The recession also showcases the resilience of – and levels the playing field for – socially responsible investments. Investing in a portfolio of microfinance institutions, which offer a four to five percent rate of return, would have been below market rate. Now, four to five percent looks very competitive. People who have been investing in microfinance institutions haven’t been losing money in the last six months, while other investors across the board have been watching their holdings drop. Microfinance offers an option for low-risk, medium-return investment that isn’t directly correlated with the financial world, and that kind of investment looks much smarter to prudent investors right now. To borrow a line from one of my favorite hip-hop groups, CYNE: “I’m just trying to make a dollar out of what makes sense.”
At the World Economic Forum summit meeting a few weeks ago in Dubai, the dominant words were “change,” “reboot” and “transformative.” There was clear consensus on the need for fundamental change and for experimenting with new approaches to achieving it. As I’ve written before, I’m a huge Thomas Friedman fan. Unlike Al Gore, Friedman is a distinctly different shade of green, a deeply pragmatic green that believes economic forces can usher in a revolution in environmental policy. He argues that systemic change simply requires showing the world that it needs green technology and letting pure economics do the rest. For Friedman, the system works but it’s not immune to bad decision-making. Green industry, like globalization, will come of age if given the right market environment. America, as the bastion for innovation, Friedman argues, should play a big role. America is slipping down the ranks of hegemonic power and climate change is its big chance to reposition itself as a global leader. Indeed Friedman’s latest book was written before the financial meltdown but recent events have furthered his argument that environmental technology is the solution of all solutions.
To put it succinctly, innovation is now the only path to growth, prosperity, environmental sustainability and national security for America. So tell me, what innovations do you hope to see spread and take hold as we recover from this recession?
Ben Eckold is a business senior, the president of the Empower Poly Coalition and a Mustang Daily columnist.