An economy that works for people and planet needs a new kind of business model. This cannot be today’s dominant mode of profit maximisation, where too often the environment is left unprotected. Nor can it be a model that is fixated only on delivering financial returns to the few. The new economy will not be created by businesses that wear this self-destructive straight-jacket.
Luckily, there is another way: Fair Trade. The Fair Trade model is based around two big ideas. The first is commodity certification, so that any business, regardless of its broader purpose, can buy raw materials like cocoa, cotton and coffee on Fairtrade terms, thus making sure their supply chains are socially responsible and environmentally sustainable.
The second big idea is the social enterprise model at the heart of the WFTO community: the idea of building an entire business around a social & environmental mission. Apart from practicing Fair Trade, all WFTO members also use the majority of their profits to benefit workers, farmers and artisans, and their legal structure makes sure that their social mission comes first. This liberates businesses to pursue goals that benefit their communities – not just their owners – and busts the myth that business must always maximise profits.
From Christchurch to Kathmandu, Cape Town to Quito, across 76 countries around the world, Fair Trade Enterprises are serving their societies, rather than always putting finance first. One manager of a Fair Trade enterprise told us: “We must remain committed to our communities through thick and thin. This means we can’t simply switch suppliers based on cost, even if this cuts our margins.” Within today’s model of shareholder capitalism, most businesses aren’t designed to make such choices.
The business of choice
A business is defined by the choices it makes, particularly where there are trade-offs and tensions between social and commercial goals. Many of these choices come down to short-term profit maximisation versus long-term increases in social wellbeing. Examples of these choices might include either delivering a larger dividend cheque to shareholders, or instead investing those profits to reduce environmental impacts, helping the broader economy and society can avoid ecological collapse.
What helps determine these choices are the structural features of a business: how it is managed and regulated, its ownership model, its profit strategy, relationship with stakeholders and, ultimately, the core purpose of the business itself. This DNA of a company will determine how it will respond when its self-interest (short- or long-term) is pitted against benefiting people and planet.
Businesses that are locked within the straight-jacket of profit maximisation have their hands tied when it comes to making these choices. Shareholders, investors, and corporate boards put huge pressure on business leaders to produce as much profit as possible – even when this is manifestly damaging to society, the environment, or even the long-term viability of the business itself.