Myths, Rackets and Distortions Posted at: March 5, 2019 Posted in: All Myths, Rackets and Distortions The circular economy and its challenges is a topic I return to regularly – indeed I’ve made a resolution to do my bit in 2019 to overcome them. The circle is never perfect because it is distorted by attempts to internalise the external costs – on people or the planet’s resources. Market distortions usually occur when there is an intervention in a particular market by a governing body. The most obvious example from 20th century history being Prohibition in the US – which gave rise to a black economy run by racketeers like Al Capone. Rackets and Racketeers Racketeers offer a deceitful service to fix a problem that otherwise wouldn’t exist. This definition brings thought of criminal activities – protection rackets or numbers rackets (illegal gambling). Given my recent brush with the Peaky Blinders, it would be remiss not to use them to illustrate. The Shelby’s operated both an illegal gambling racket (an opportunity created by the market distortion caused by betting on horse racing being restricted to race-courses) and a protection racket. In their book “The Three Laws of Performance”, Steve Zaffron and Dave Logan also show that rackets can exist based on myths. Their particular focus is on organisations but their thinking can also be applied to whole sectors. Their argument is that a racket has four elements; first – a complaint that has persisted for some time, second – a pattern of behaviour that goes along with the complaint, third – a payoff for having this complaint continue and lastly – a cost to the behaviour. Myths Provide a Safe Environment for Rackets Myths perpetuate persistent complaints. Back to my initial point about market distortions; the challenge for ethical and sustainable procurement is one of making people aware of the true external/environmental costs of raw materials and pricing that into the cost. There is also a myth that sustainable and ethical products always carry a premium price. This creates a compound challenge. The ‘premium price’ myth is justified on the basis that producers of ethical and sustainable products need an incentive. The measurement / provenance challenge creates a cost. So in an environment where business needs to make rational choices, based (at least partly, often wholly) on cost these products are perceived as less attractive. In Zaffron and Logan’s definition we have a persistent complaint – ethical and sustainable purchasing costs more. So the business will continue to follow commercial interest (an accompanying pattern of behaviour). There’s a payoff for having this continue – it’s a rational excuse backed up by economics. But there’s undoubtedly a cost – we continue to create a negative impact on people and resources. It’s a racket. How many “free” plastic bags did people use until a financial cost was put on using that bag. The myth is unsound. Sustainable and ethical products can be sourced at commercially viable prices. It just requires greater effort and creativity to identify them and strike the right deals. It also needs people to acknowledge that businesses shouldn’t (and won’t) pay an environmental premium. Rising to the Challenge The difficulty in delivering ‘Provenance’ or proof that a product is what it claims to be also places a burden on the buyer and supplier. This can often fall into the ‘too difficult to do’ box. This is a myth – measures do exist and again it just requires a bit of effort to manage them. The challenge of auditing these measures creates a cost – but emerging technologies like blockchain present us with the opportunity to remove this. We have a choice. We can continue to tolerate the racket or we can break it. Breaking it requires procurement to smash through the myth that sustainable and ethical products must always cost more. In December I resolved to ‘Get Lit’ in 2019. I’m going to do my bit to highlight excellent examples where sustainable and ethical purchasing has delivered good business. I’d like your help and will be launching an initiative shortly – watch this space.