The Market is a Double-Edged Sword: Sustainability and Business

I see many people talking about how we have to count on the market to save us. I also see many people talking about how the market is failed, how capitalism has failed and we cannot look to it to bring about sustainable solutions. Some go further and say that we need the government to step in and force businesses in line. There is an irony in that last part which I will address. 

Both camps have somewhat valid points but both miss the bigger picture and are wrong as a result. The bigger picture that is usually missed or ignored is that while businesses are one half of the equation, the consumer is the other half. You cannot expect a market solution without looking for a “consumer solution” as well. And you cannot blame business without also blaming the consumer.

How the market actually works

The market is a double edged sword. It is driven by consumer demand — that is, what people buy or what business people perceive people are going to buy. When it comes to perceiving what people are going to buy, it is risky to rely on anything other than strong market signals. This is why “voting with your dollar” will have a much stronger effect than simply screaming for sustainability; many people scream for sustainability while shopping in the same old unsustainable manner. 

If you wonder why markets are not changing faster, look no further than the consumer. There are too many sustainability oriented products available today, but how many people’s shopping habits remain the same? How many people blame business and demand that the government do something, but are unwilling to do anything other than vote for someone who promises to fix things — and will not spend a few more dollars to buy say, bio-friendly detergent, or products made with renewable energy?

The effect of “voting with your dollar”

Voting with your dollar has three important effects. First, purchasing sustainability oriented products has a small but direct positive impact on the environment. Second, your purchases directly help that company stay in business, expand, and become more cost effective (which will entice more people to purchase it). Thirdly, subtly, and perhaps most importantly, more purchases of sustainability oriented product sends a stronger market signal that more people are buying “sustainable”. This makes investing in a sustainability oriented venture a better prospect, which in turn helps shift the market towards sustainability. It also signals to corporations that sustainability is in demand.

Do corporations respond to consumer demand? The proof is in the pudding.

To see evidence that corporations respond to consumer demand or sentiment, look no further than the fact that virtually all milk in the United States is rBGH free despite the fact that the FDA states there is no difference. Look no further than McDonald’s transitioning to cage-free eggs (which of course prompted numerous other companies to follow suit — that is how the market works). The merits of cage-free is not the issue here — the point is that this is an example of a major change based merely on implicit demand. Imagine if 1 million people boycotted McDonald’s burgers until they made a commitment to sustainably raised food in the same vein as Chipoltle. Would McDonald’s respond? You bet your ass they (and other companies) would.

Why things don’t change

What happens in actuality? People sit around eating McDonald’s burgers for lunch (aka. continuing the demand for the status quo) while talking about how the government needs to step up and stop greedy corporations. Or blabbering about how the government needs to stop companies from polluting the water, all while shopping past the Seventh Generation (or other brand) detergent to buy some All or Tide or whatever (aka the status quo). 

The amusing irony of wanting government to stop bad business

As for the irony alluded to in the beginning — it is this: People sit around and cry for the government to stop big bad business. In order for this to happen in a major way, it would require for a large majority of people to consistently vote in a consensus of politicians. Doing this would require that they unify and take action. However, if those majority of people — all wanting change — were to simply make a commitment to purchase sustainably oriented brands, the market would change overnight.

Thus, the people crying to government are themselves the solution. If there were enough of them to change government through voting, there would be enough of them to change the market. If there were not enough of them to change the market, then well, their talk of changing the government would be moot (at least in a democracy).

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