NOur economic and social system is dominated by a paradigm in which value is placed in income (at the macroeconomic level) and in profit (at the corporate level). In this paradigm, households are supposed to be free to pursue their goals, balancing work and family, market and non-market activities. In reality, they are encouraged to adopt a productivist model where formal work and market consumption become the signals of social success. It is now recognized that this paradigm is seriously flawed. It causes severe disruptions to planetary well-being. It insidiously promotes precarious employment, undermines non-market social interactions and generates a large-scale mental health crisis. Furthermore, our planet suffers from the human frenzy for extractivist growth and limitless consumption, in the same way that a healthy body can be thrown out of balance by a cancerous tumor.
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Economic theory is often believed to justify this paradigm by showing that national income is a good indicator of social well-being and that profit maximization leads to efficient allocation of resources. But this is only true under unrealistic assumptions, where work is painless, inequalities insignificant, externalities ignored and information uniformly distributed among economic actors. A rigorous application of economic concepts actually leads to a harsh assessment: the current paradigm lets the most harmful actors, those who externalize their costs and abuse their market power, win the economic competition; it compromises planetary health, social cohesion and human flourishing.
“Social welfare”
An alternative paradigm exists and deserves to be promoted in the face of the old one. And it can rely on solid foundations in economic theory, unlike the GDP-profit paradigm. It is about continuing the “social well-being” at the macroeconomic level and “value for stakeholders” at the company level (including externalities). Furthermore, it is possible to define the social objectives and performance indicators of companies in a coherent manner, ensuring that the latter reflect the company’s contribution to the former. The key concept of this new paradigm is that of “equivalent income”which consists of correcting the ordinary measurement of income or wealth by the externalities generated by economic activities and by the non-market aspects of the quality of life. If all businesses pursued stakeholder value, social welfare would be directly enhanced, not undermined, by their activity.
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