Unbalanced balance sheet – M Zeb Khan


The traditional balance sheet, with its main emphasis on capital as the primary concern of managers, is skewed in favour of the shareholders and has failed us as society in terms of equitable distribution of wealth and sustainable economic growth.

It conceals more than it reveals about the true story behind business operations. With so much at stake now, it needs a complete overhaul if not replacement with a different model to meet the gravest challenge to our existence.

Look at its three components; owners’ equity and debt on the one side and assets on the other with no mention of the planet or people anywhere in its underlying equation. The managers, as agents of the capitalist class, make decisions exclusively on the basis of ROI (return on investment) and SOI (safety of investment). They are least bothered by how their strategic choices might affect the environment and society. Although environmental regulations and labour laws have, to some extent, forced companies to behave responsibly, there is still much to be desired.

The economic model – capitalism or free-market economy – which is in vogue today poses an existential threat to humanity and other living organisms. It thrives on the exploitation of nature at both ends. On the one hand, natural resources are extracted at a scale that cannot be sustained for long. Water, forests, and minerals are used as if they are infinite and are out there to fulfill our insatiable greed for more. More taxing is the dumping of waste and emission of CO2 in the air. Industrialization has caused tremendous damage to both water and air – the two fundamental life-sustaining resources.

Climate change, which some idiots dubbed as a grand myth and a conspiracy against economic development of the rising economies a few years back, is now an undeniable reality. Global warming and its adverse impact on the entire ecosystem is everywhere for all to experience firsthand.

The Davos gathering this year has warned of dire consequences if something radical and meaningful is not done “now”. One initiative that caught everyone’s attention was the WEF’s one trillion trees project with its focus on growing, restoring, and conserving forests to restore biodiversity and help fight climate change. The project promises to unite governments, NGOs, businesses, and individuals for the mass-scale nature restoration. It is undoubtedly a welcome development but it is only one part of the story.

Besides climate change, the capitalist model has widened the gulf between the rich and the poor so much so that the top one percent of the usual income distribution holds over $25 trillion in wealth which exceeds the entire wealth of the bottom 80 percent. In a future in which business as usual continues, global inequality will further increase causing millions of people the pain of unemployment, indignity, hunger, and homelessness. Both climate change and income inequality are even more catastrophic for populous but poorly managed countries like Pakistan.

In the 60s, Pakistan witnessed rapid industrial progress. It was then called the ‘development decade’ as many industrial units were set up (especially in West Pakistan) besides construction of major dams for electricity generation and irrigation. All the reforms were undertaken with the promise of trickle-down effect. However, it actually became the decade of exploitation and deliberate promotion of inequality between classes and regions with a few families building industrial empires with generous support of the government.

This treacherous trajectory of development was to be fought with yet another parochial strategy of nationalization under the banner of socialism which, in effect, caused more damage to the economy and the civil service than it was supposed to cure. Inefficiency and corruption, nurtured at that time, characterize the public sector to date. Now the structural inertia, coupled with political expediencies, prevents any substantial reforms to make the state-owned enterprises (SOEs) engine of growth and public welfare.

Equitable distribution of wealth and sustainable development, when all is said and done, would require a paradigm shift at both the operational as well as strategic levels of organizations and mass awareness about the risks associated with the status-quo.

The lifestyle we have adopted since the industrial revolution needs rethinking and change. Whether or not capitalism survives, which Marx had warned would perish under its own growing weight, the entire ecosystem and social fabric of the world is, however, in real danger. The balance sheet designed for shareholders has to take into account the two Ps – planet and people – to restore its true balance.

The writer teaches at SZABIST,Islamabad.

Email: dr.zeb@szabist-isb.edu.pk