In Ecological Economics, the idea of a Steady State Economy, an economy with no growth or recession, is central to its field. The Center for Advancement of the Steady State Economy’s (CASSE) website explains its importance by stating,
“Perpetual economic growth is neither possible nor desirable. Growth, especially in wealthy nations, is already causing more problems than it solves.”
Perhaps the Genuine Progress Indicator (GPI) is our best visual description of why perpetual growth is not desirable. The GPI is an alternative to Gross Domestic Product (GDP) that accounts for negative impacts like pollution, expenses on unwanted things (like natural disasters, divorce and car crashes), and resource depletion. The simple graph at Redefining Progress shows that at some point in the late 1970’s, the GPI stopped following GDP and leveled off while GDP continued to rise. This suggests that despite our increased spending as shown in GDP, we are not necessarily in a better situation. I often wonder how this philosophy applies to business. At what point does it no longer make sense to focus on business growth? Is there an exact tipping point at which a business’ growth is no longer beneficial to its stakeholders and the larger community?
A business’ success is often measured by its ability to grow each year, particularly if its goals are bound by public shareholders. The traditional management style is to make decisions that will grow the business at all costs, but this neglects the possibility of economic downturns and the fact that there is a physical limit to growth. Jay Forrester, a professor emeritus at MIT’s Sloan School of Management, said it best when discussing noteworthy opportunities for business managers,
“I think… the [noteworthy] opportunities [are] to begin to operate at the no-growth, no-population rise, no increase-in-industrialization areas — but those are more noteworthy intellectually… They aren’t probably the sort of thing that represents great economic return to the stock-holders, if you are meaning that kind of noteworthy.”
Forrester continued to explain that determining how to operate a successful non-growing company will be one of the bigger management problems of the future. This problem is exacerbated by our current system for publicly-traded companies. The goal of a publicly traded company is to increase profits for its shareholders, which can be done by creating efficiencies and holding revenues constant, but at some point requires growth in sales. If most management students are going into publicly traded companies, we have a feedback loop of maintaining the status quo. Furthermore, without perpetual growth, multinational corporations and publicly traded companies will fail.
What Forrester did not address is that many small, local businesses already operate on a no growth basis. Think of your local plumber (the one with one truck, not a large company). She/he may decide to work 40-50 hours/week and that is their maximum. Once they are able to grow their business to get enough clients and fill those hours, they’re done. They may raise their prices to account for inflation and learn new techniques to remain competitive, but otherwise their business will remain steady. The same can be said for an independently owned restaurant, grocery store, or bank. Once they have enough customers, there is no need for growth (unless they are overwhelmed with customers). More growth than is necessary to pay for expenses, employees, and the owner’s compensation could lead to unwanted impact.
There is, however, an argument for having growth in a positive impact businesses. A permaculture-based businesses or a grass farmer may be able to grow and have a greater positive impact. Grass farmers, for example, could take over more land, add the right amount of animals that will maintain their system, and as a result add more organic matter to the soil. In some cases the same could be said for social entrepreneurs. The more their business grows, the greater the positive impact from an increased use of their goods or services. For the typical business, however, growth is not always positive. We often hear stories of larger companies neglecting workers’ rights or creating a negative environmental impact. The solution? To figure out your ideal no-growth comfort zone. Set a comfortable salary, stick to it, and manage your business at that sustainable level.
Resources:
Center for Advancement of a Steady State Economy (CASSE)
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