Now That We Know We Can Change, Harvard Economist Says, We’d Better

The coronavirus pandemic shows that companies and the economy can respond quickly and globally to natural threats, said a leading expert on organizational change, but also that we need to better prepare for climate change.

Companies that don’t prepare for climate change, said Harvard economist Rebecca Henderson, will regret it.

“I’ve been spending the last 15 years of my life trying to persuade firms to respond to the challenge of climate change and trying to persuade them that if they don’t respond, they’ll really regret it, and there’s money to be made,” Henderson said in a podcast hosted by fellow Harvard economist Robert Stavins.

Henderson has specialized in analyzing the management failure of established organizations to adapt to change, beginning in the 1980s with American carmakers failing to adopt efficiencies pioneered by their Japanese competitors.

“There’s so much inertia in the system. Climate change can seem distant; it can seem invisible. Why should I worry about it?,” she said, characterizing the outlook of businesses before covid-19.

“So the first thing that leaps out at me from the current moment is something that I’ve seen in my research—but never at this scale—which is when organizations decide they must change, they can change.”

In response to the pandemic, businesses are moving huge sections of the workforce to work from home, are speeding up supply chains, are inventing new technologies, she told Stavins. “You’re seeing profound changes in methods of operation across the economy.”

The pandemic offers some crucial lessons for the climate crisis, Henderson said (the examples are mine):

  • It shows the importance of investing in resilience. (We should have had stockpiles of masks, just as we should prepare for hurricanes, flooding, sea-level rise, drought, wildfires).
  • It shows that businesses can coordinate efforts across sectors (GE and Ford making ventilators for hospitals, Apple making face shields for doctors).
  • It shows that the stability of the entire community is crucial to the economy.
  • It shows that the entire economy can mobilize in response to a threat.

“To see the whole economy mobilized when the threat becomes very, very concrete reminds me that, as we think about climate change, we have to find a way to make that threat as concrete as possible,” Henderson said.

People have difficulty imagining a future that’s different from today, she said. The leaders of organizations become attached to the business-as-usual scenario. They may disregard threats that seem remote. They may underinvest in innovation and respond incompetently to change.

“I do think some of the fossil fuel companies that are resisting this transition are making a serious strategic mistake, and I think they’re making it for the same kinds of reasons that it took so long for General Motors to respond to Toyota. They are prisoners of old ways of thinking about the world and old expectations about ways to make money.”

Businesses that prepare for climate change, Henderson predicted, will make more money. In a paper coming out next month in American Economic Review, Henderson argues that companies have to accelerate rates of innovation and cooperation across the economy, partly through the development of ‘purpose driven’ organizations.”

“I think what the coronavirus shows us is that things can change very quickly, that the physical world is a very powerful actor and can indeed generate nonlinear effects.”

Listen to Robert Stavins’ interview with Rebecca Henderson:

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