“Today’s economy is highly destructive of natural and social capital, and is characterized by large and growing gaps between rich and poor” (Elkington, 2013, pp. 10).
Vallue creation and appropriation are much-studied processes in business and management, but research and practice has focused mainly on how economic value is created and appropriated by businesses. This over-emphasis on the economic logic has created institutionalised asymmetries in the relationship between business, society and the natural environment.
In this paper, co-authored with Prof. Paavo Ritala and Dr Laura Albareda, we ask ourselves the following question: what are the main asymmetries involved in the economic, environmental and social domains for specific types of goods, and what are the most promising solutions to those asymmetries from the viewpoint of business?
We answer this question by addressing:
(1) the type of economic goods used to create value (private and club goods, public goods and common goods)
(2) value creation and appropriation domains (economic, social, and environmental)
Based on Samuelson (1954) we define the types of goods as follows:
Private and club goods such as cars (private) and cinemas (club goods) are those that are excludable from others and are therefore subject to rivalry by private consumption. While private goods are privately owned, club goods include private but shared systems, such as cinemas and sport clubs.
Public goods such as public defence and education, are those of which the use of them does not exclude others; in other words, they cause no rivalry as their individual use does not typically reduce the availability to others
Common goods like forests and the ocean are those typically available to everyone and are defined as non-excludable because while it is impossible to exclude a person from their consumption, they do involve rivalry as their (mis)use precludes their future use by others.
The main domains are:
Economic domain: market-based activities, such as production, distribution and consumption of goods and services.
Social domain: human activities, including issues around social equity and justice, health, education, culture etc.
Environmental domain: the natural environment and its longterm sustainability.
Building on the framework that brings the types of goods and domains together, we argue that there are several institutionalised asymmetries, between the goods used to create value and the domains in which the value is eventually appropriated. The table below shows an overview of the problems or assymetries and potential solutions.
Table. Overview of problems or asymmetries across the domains and examples of solutions
|Economic domain||Social domain||Environmental domain|
|Private & club goods||Problems: Overproduction, planned obsolescence, overconsumption, bargaining power and information asymmetry|
Solutions: Business creating private goods that individuals desire or need and capturing financial value by sales
Example: long-lasting functional products, classic design
|Problems: Business fostering the regeneration and maintenance of common goods, improving the environmental outcomes |
Solutions: Business creating private goods that contribute positively to society
Example: business providing language services
|Problems: Negative environmental externalities promoted by the production of private goods or services |
Solutions: Business creating private goods that do not contribute negatively, or contribute positively, to natural environment
Example: frugal innovations
|Public goods||Problems: Abuse and overexploitation of a public good for private self-interest; Teamwork and free-riding problem |
Solutions: Business contributing their knowledge and capabilities to the generation of improved
Example: companies supporting health, former initiative Google Health
|Problems: Corruption; Privatisation of public goods |
Solutions: Business contributing and partnering and using their knowledge and capabilities to build improved public goods and social welfare
Example: public-private partnerships; B corporations in education and health systems
|Problems: Negative environmental externalities promoted by the production of public goods|
Solutions: Business contributing to the positive environmental impacts of public goods
Example: Net positive initiatives
|Common goods||Problems: Tragedy of the commons |
Solutions: Business participating in the management of common goods, improving collective economic outcomes
Example: soil remediation services, sustainable forestry initiatives
|Problems: Collective action and policy failures |
Solutions: Business adopting collective action to manage common goods, improving social outcomes
Example: businesses involving underprivileged members ofsociety in value chain
|Problems: The (mostly hypothetical) case of overprotection of natural resources |
Solutions: Business fostering the regeneration and maintenance of common goods, improving the environmental outcomes
Example: Sustainable agriculture; regenerative agriculture
The full paper can be read here.
Ritala, P., Albareda, L., & Bocken, N. (2021). Value creation and appropriation in economic, social, and environmental domains: Recognizing and resolving the institutionalized asymmetries. Journal of Cleaner Production, 290, 125796.