Let’s talk about the ’08 crisis.
Some of us have studied it deeply and others have heard about it.
However, we all share one thing; we all felt the effects of it.
Personally, I remember my mother’s friends and relatives losing jobs due to the crisis. My family had to cut spending as my parents were pessimistic about the future. Yet, Malaysia is considered one of the countries that was not significantly affected by the ’08 crisis. Having grown up in an upper-middle income family and in Malaysia, if my family felt the effects of the ’08 crisis, I can only imagine that family households with lower income, or are from countries with more lax-ed capital markets experiencing harder times.
The ’08 crisis caused the world’s economy to shrink — it is estimated that roughly 10 trillion dollars of growth was lost. It’s caused loss of jobs, stagnating wages and have in, some ways, exacerbated inequality. The wealthy suffered a large lost but recovered much faster than the poor. This caused the top-one-percent’s wealth increasing dramatically — not only in terms of absolute numbers, but also the share of the economic pie that they chew from.
How did the economic crisis happen?
Without getting too much into detail, United States’ housing market bubble burst which affected the capital markets and the economy. And, because financial systems are heavily interconnected, other countries felt the shocks of the collapse.
Why did it happen?
Some people blame that “capitalism” is the reason why this happened. Others argued that the U.S. government should have tightly regulated financial institutions. But, we can safely agree that large institutions (i.e., government, central banks, investment banks) were jointly responsible for it.
However, are such institutions solely responsible for the crisis?
Consumers had a part to play in it as well. For a transaction to happen, there has to be at least two parties ; in the case of these debts, there was a high demand for cheap mortgages, which in inflated the housing market into a bubble. A lot of individuals got greedy and got a fair few different mortgages — taking on more than what they can chew on.
However, does this necessarily indicate that individuals are responsible?
The social climate then was one that motivated the action of taking up such debt. The cultural norm in the United States, the “American dream” is premised on the notion that everyone can get wealthy. Whilst that is true, we took it to extremes and wealth became a primary measure of social value.
I’d imagine that if everyone around me were buying houses on cheap credit — it’d look stupid for me to not jump on the wave. I’d be, at the very least, tempted to get cheap mortgages as well. This impulse, I would propose, is not solely my responsibility. We are innately struggling with with self-control and naturally look to other people for signals on how to behave. It’s built into our biology.
Kudos to evolution, we are heuristics-driven social creatures. We avoid pain as much as we can (seek pleasure), use unconscious shortcuts to make decision (heuristics) and are innately social (ever heard of the hive mind?).
I am not defending large institutions. I am merely claiming that norms and our environments perpetrated the problem as well — driving us consumers to behave in a way that contributed to the economic crisis. And, in many ways, it is hardly our fault — it’s just how our systems are designed.
This, I would argue, is also extended to how large institutions behave. Norms, fundamental paradigms and culture play a large part in how organisations make decisions. And, these decisions have a large impact on our society — like the economic crisis. And, if environments were to incentivise a certain organisational behave in a certain way, organisations will keep behaving that way.
There is no denying that we are facing an environmental crisis.
Corporations and businesses are playing a large part in the crisis. However, if directors and executives are constantly incentivised to meet their investors needs, and all investors care about is the bottom line ($), they will be motivated to act in ways to enable short term gains ($) .
In other words, if business leaders are incentivised to make quick decisions that enable short term profit gains (in terms of $), they won’t have the time and space to think of anything else. This comes at the expense of negative impacts on the environment and community around them — but that’s because business leaders are not incentivised to consider and weight these aspects as much.
We need to redesign our capitalistic system — by consuming and investing in such a way where businesses are forced to think beyond the bottom line ($).
Let’s use our power as consumers and only consume from companies that either employ ethical and sustainable means of production. Let’s use our power as consumers and demand that companies reinvest in the communities around them. If a company sees their revenues going down due to failure of satisfaction of these demands, they will be incentivised to behave in such manners.
Let’s use our power as investors (or prospective investors) and value companies not only on their financials, but also other metrics — like social corporate responsibility and ESG (Environmental, Social and Governance) metrics. In return, we will have to readjust our expectations — by being patient with financial performance reports, companies will have more time to be able to focus on what really matters in the long run.
Let’s abandon the notion that ‘bigger is better’. We need to question what it means to ‘grow’. Revenue and employee headcount are not only the metrics we need to pay attention to. Social benefits to humanity and sustainable use of resources are also important. As investors and consumers, we need to request for such information; and incentivise businesses to build infrastructures, systems and a production line to enable that.
As consumers and investors, we have to realise that we have the power to demand and incentivise corporations to behave in a sustainable and ethical way.
Let’s take charge of that power and redesign our incentivisation systems.
Let’s make it a norm for companies to compete in doing more good.
Let’s take charge, make more wealth, and use that wealth to enable future generations to flourish.