THIRTEEN

SETTING THE RIGHT GDP GROWTH RATE

Paul Polman, the brilliant CEO of Unilever, made the following statement: “Our ambitions are to double our business, but to do that while reducing our environmental impact and footprint. . . . It has to be done via more responsible consumption. . . .”¹

If all companies set the goal of doubling their business, and then they succeed, sustainability will be impossible to achieve. If the less developed countries would, by some miracle, achieve middle-class living standards, then pollution, road and air traffic, and energy power outages would smother our quality of life and our planet.

Medium and large businesses, especially those with stockholders, almost always set a growth goal, and for several reasons. First, the stockholders expect annual increases in revenue and earnings, which indicate the corporation is under good management that knows how to grow stockholder income. Second, a company’s employees prefer a company that is expanding and thereby creating more opportunities for upward mobility. Third, business expansion permits spreading company fixed costs over a larger volume, bringing down unit costs that can be turned into lower prices or more profit per unit. Fourth, companies get rated by the media as well as the stock market for how well they’re growing company revenue and profit. Fifth, the CEOs of many companies often are ambitious. They want to impress their peers with their business skills, which can lead to being invited to manage an even larger company and earn more money.

Most executives believe the company that doesn’t grow will inevitably decline. The company will lose market share to more aggressive competitors. Competitors will enjoy further scale economies that will reduce their costs and increase their competitive advantage. A vicious circle will start where nongrowth-oriented firms get smaller and smaller.

Can a company grow forever? A few companies have managed to grow for one hundred years or more: DuPont, W. R. Grace, Mitsui, Sumitomo, Procter & Gamble, Siemens, Michelin, GE, GM, and Campbell Soup. But most companies go under much earlier.

There are three groups that see growth as becoming increasingly difficult and even advise businesses to downgrade company growth as a goal. One group, the Slow Growth Group, holds that many factors foretell of a permanent slowdown in the growth of most companies and countries, even if no public intervention efforts are made to slow down growth. Another group, the Sane Consumption Group, holds that government needs to introduce policies and regulations to limit the rate of growth if the planet is to remain functioning. A third group, the Steady-State Economy Group, holds that people would be better off if they stopped chasing consumption and lived with a steady economy.

Let’s take a closer look at these three schools of thought.

SLOW GROWTH GROUP

I mentioned in Chapter 4 the forecast of Northwestern University economist Robert J. Gordon that U.S. GDP growth will probably be slow and not achieve the high levels of the past.² He would consider the United States to be lucky if its growth is even one percent in the coming years. He points to several “headwinds” that will slow down our growth: (1) the aging of the American population, (2) the stagnation in educational achievement, (3) the fiscal tightening to fix our public and private debt, (4) the costs of health care and energy, (5) the pressures of globalization, and (6) growing income inequality and the debt burden. He sees the generation of Americans now in their twenties as possibly doing worse than their parents.

But won’t innovation save the national and world economy from slower growth? Past periods of stagnation were punctuated by major innovations such as the steam engine, trains, the automobile, the airplane, the telephone, radio, television, and the Internet. Can’t this happen again? On this matter, there is no data to turn to. The great economist Joseph Schumpeter said you can never know when and where a major innovation will take place. If Gordon’s slow growth view turns out to be right, then this nation and the world will have to look for other ways to generate well-being than through continuous economic expansion. Yet the lingering thought is that well-being comes from jobs, and most jobs come from company growth.

SANE CONSUMPTION GROUP

There is another group advocating that growth should be deliberately slowed down to avoid a natural calamity. Continuous growth is going to cause us to run out of certain nonrenewable resources and do terrible damage to our environment and the planet. In 1992, Donella H. Meadows, Dennis L. Meadows, and Jørgen Randers published a famous study called The Limits to Growth.³ It was commissioned by the Club of Rome and compiled by an international team of experts. It used a computer model called World3, based on system dynamics, to analyze twelve scenarios of different possible patterns of growth and environmental outcomes of world development over two centuries, 1900 to 2100. The scenarios used different rates of population growth and different natural resource requirements to show the possibility of not only running out of certain nonrenewable resources and land and food shortages, but also severe environmental damage from air and water pollution and climate change.

The computer outputs of different scenarios showed many “overshoots” of the carrying capacity of the earth to support the level of consumption and the planet’s sustainability. They showed that our one earth could not supply the resources needed by humanity and absorb the dangerous carbon footprint emissions.

The Limits to Growth study has been updated on two occasions with new features added in the way of feedback loops and new variables. Each time the findings grow more dire about the carrying capacity of the earth to sustain the consumption growth taking place without doing great harm to the planet and to people’s expectations. We need to face the growing scarcity of water, dwindling oil supplies, deforestation, overfishing, global climate change, species extinction, pollution, urban congestion, and intensifying competition for remaining resources. It seems like the public prefers to keep its head in the sand than to favor taking actions to prevent a human and planetary crisis from occurring. The authors of Limits to Growth argue that many steps could be taken to reduce the overshoot and leave humanity with a good chance to lead happy and satisfying lives.

Chandran Nair, in his book Consumptionomics: Asia’s Role in Reshaping Capitalism and Saving the Planet, takes an even more radical view on whether consumption-driven capitalism is a sound economic system for emerging nations. He warns that “in Asia, it can only deliver short-term wealth to a minority; in the long term, it can only deliver misery to all.”⁴ He estimates that the Western model of development would accelerate the harm done to our forests, water, soil, and fisheries. He would put curbs on consumption-oriented advertising and even thinks authoritarian governments on the Chinese model might be necessary to keep consumption from becoming excessive. He favors downsizing the financial industry, which has become too big and has strayed too much from its original purpose.

STEADY-STATE ECONOMY GROUP

What would be a blueprint for a nation, region, or city to live more simply and believe “Enough is enough”? The idea of a steady-state economy stands as an alternative to the idea of a growth-oriented economy. What is it? Why might it be a good idea? And how can a geographical location—city, state, region, or nation—shift its economy from growth orientation to a steady state?

Herman Daly and his “ecological economics” community have advocated that long-term sustainability requires the transition to a steady-state economy in which total GDP remains more or less constant. Daly defines a steady state as “an economy with constant stocks of people and artifacts, maintained at some desired, sufficient levels by low rates of maintenance ‘throughput,’ that is, by the lowest feasible flows of matter and energy from the first stage of production to the last stage of consumption. . . . A steady state economy, therefore, aims for stable or mildly fluctuating levels in population and consumption of energy and materials. Birth rates equal death rates, and production rates equal depreciation rates.”⁵

A steady-state economy would solve the problem of not running out of needed resources and not polluting the earth. Its advocates are deeply concerned about the limits to the earth’s carrying capacity. A steady-state economy seeks to deliver well-being to its citizens without pushing higher consumption. It not only emphasizes sane production and consumption, but also encourages more birth control and a fairer distribution of income. The poor would have enough to live on and the rich wouldn’t waste resources by acquiring private planes, swimming pools, and large mansions.

The steady-state idea is somewhat utopian. How do you get a steady-state economy without most companies being in a steady state? Are we doing away with efficiency, technology change, competition, and private capital moving around the world? How do you deal with migration across borders, which is massive today? Do you close the borders? If there is no company growth, where would the jobs come from? The government will have to accept steady-state tax revenues while facing the increasing health care costs of aging. Public debt will have to grow.

It would be a tough challenge to achieve population stabilization. China has done so by enforcing a one-child policy, although currently it is easing its policy. Thailand has promoted the use of condoms and women’s rights. The Ethiopian fertility rate dropped from 5.4 to 4.3 children after two years of people watching TV soap operas, which got them to think about how many children they wanted and the downside of having too many. Advanced economies like Japan, Italy, and Spain are already reproducing at less than a replacement rate; it’s the same for the U.S. Most population growth in advanced economies comes from immigration—legal and illegal—rather than fertility of native citizens.

HOW TO CHANGE THE CULTURE OF CONSUMERISM

To get people less interested in an endless pursuit of consumption, other lifestyles need to be promoted: The value of relationships, the joy of nature, and the pleasure of a good community need to be stressed. But how do you achieve this type of culture change? After a century of instilling a consumer culture, it may take another century to undo it. I have no idea how, what, or who would drive this change. China’s Mao Zedong made a culture change in a relatively short time by autocracy and a violent Cultural Revolution. Many steps would need to be considered and debated and may end up requiring a planned authoritarian economy. Here are some proposed measures:

• Establish limits on resource extraction.
• Set limits on total pollution.
• Put limits on advertising.
• Favor medium- and small-scale companies and nonprofit organizations.
• Increase local commons and support participative approaches in community decision making.
• Reduce working hours and facilitate volunteer work.
• Reuse empty housing and co-housing.
• Introduce a basic income guarantee and an income ceiling.
• Limit the exploitation of natural resources and preserve biodiversity and culture by regulations, taxes, and compensations.
• Transition from an automobile-based culture to one that encourages local biking and walking.

In spite of all these serious questions raised about a steady-state economy, there remains a strong “degrowth” movement that demands more than just sane consumption. It is anticapitalist and anticonsumerist. Degrowth thinkers and activists advocate downscaling of production and consumption, arguing that overconsumption lies at the root of long-term environmental issues and social inequalities. They believe that degrowth does not have to diminish the individual’s well-being. “Degrowthists” aim to maximize happiness and well-being through non-consumptive means—that is, by sharing work and consuming less while devoting more time to art, music, family, culture, and community.

It should be noted that degrowth is a prescription for advanced economies, not poor economies. Poor economies have no room for further reduction of consumption. For them, economic growth is appropriate and necessary.

Those advocating degrowth or managed decline encourage people to switch to living simpler lives in which people get their satisfaction less from consumption and more from relationships, nature, and community life. As one example, a movement in Catholic circles was started in the 1940s by a group known as the Detachers, who decided they would live more simply. The group included Senator Eugene McCarthy and his wife, the poet Robert Lowell, and Dorothy Day of the Catholic Worker movement. In Eugene McCarthy’s words: “There was an ascetic movement in the Church . . . that held ideas such as ‘Don’t have an automobile,’ ‘Don’t have a radio,’ ‘Sleep on the floor.’” Such extreme simplification is practiced by certain religious groups, such as the Amish, but the idea never took hold in the general population. There are measures far short of sleeping on the floor that people can adopt to help save the planet from catastrophe.

TWO MAJOR UNRESOLVED ISSUES

To get out of the growth-economy mindset, there are two major issues to address. The first has to do with jobs. The second has to do with corporate social responsibility for practicing sustainability.

The Question of Jobs

If we limit consumption, we reduce the number of jobs. It is bad enough that unskilled and skilled jobs are being destroyed by advancing technology. Making things worse, population continues to grow. There are too many countries where 20 percent to 30 percent of job-age youth can’t find work. If consumer and business spending falls, it can only increase unemployment. Normally, we should be creating enough jobs to keep up with population growth and to compensate for productivity improvements.

In highly industrialized economies, competition stimulates technology improvements that increase labor productivity to reduce costs. As labor productivity increases, fewer people are required to produce the same goods. If growth stops, unemployment increases, household income drops, demand drops, and the system moves toward recession or depression.

Hence we face an impossible growth dilemma. Growth in its present form is unsustainable. But degrowth under present conditions will reduce consumer demand, increase unemployment, and lead to recession.

One possibility is to redirect investments away from consumer goods. We are already observing some decline among consumer goods producers and retailers, such as Sears, J.C. Penney, Best Buy, and others. More investment needs to move toward creating energy and water solutions and rebuilding the needed physical infrastructure of bridges, roads, ports, and sewage systems.

Corporate Support for Sustainability

Today’s companies are expected to pay more attention to how their activities affect the environment. Some critics of GDP say that GDP is grossly overstated. We need to subtract the waste and pollution and other “bads” that companies have created, but not paid for. The net GDP might end up at half the officially stated size.

At the very least, a company should do no damage by way of air or water pollution. This alone might require companies to make large expenditures on pollution control devices. Beyond that, the company should choose suppliers and distributors who also conduct their business in an eco-friendly way. The company might even favor more federal regulations requiring that all companies be eco-friendly, so no competitors can take advantage by avoiding these sustainability costs. But what can be done about foreign competitors that are neglecting sustainability? There is no global authority that can universally level the playing field.

We saw earlier that Paul Polman, CEO of Unilever, aimed to double Unilever’s business, but to do it while reducing his company’s environmental impact and footprint. Is he right in thinking that the business goals of “growth” and “green” are compatible? Probably, provided that the green gains come from the company reducing waste and doing more recycling, and thereby achieving real economic savings.

So far Polman has been successful in achieving Unilever growth goals and in practicing sustainability. Unilever is reducing greenhouse gases from manufacturing, transportation, and refrigeration; reducing waste and energy consumption in manufacturing; and reducing packaging waste through recycling.

Sustainability-driven companies such as Unilever introduce clear criteria to direct their new product development programs, invest more in reuse and recycling, and convince their stakeholders—employees, channels, suppliers, and investors—to reduce waste and accept some limits to growth. Such companies may have to change their compensation package to encourage their managers to set a better balance between the goals of growth and sustainability. The CEO needs to earn a payout based on achieving the planned growth rate while reducing environmental costs by a planned percent.

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Realistically, each company has to set its own growth goal, taking into account the industry’s growth rate, the country’s growth rate, and other factors. Each company will hammer out a business plan to achieve its growth goal. But this raises a more basic question: Why must a company always plan to grow? Can’t the company be satisfied staying the same size and still manage to earn good profits?

In fact, there are many small and medium-size businesses that don’t adopt a growth goal. I dined once at an excellent small restaurant. I complimented the owner and asked whether he thought of opening a second and similar restaurant in another neighborhood. “No, I am satisfied operating one restaurant. Two would be a headache and three a disaster,” he said. This restaurant owner favors a steady-state solution, not a growth solution.

Small businesses need to be cautious about committing to an aggressive growth goal. Such businesses generally have a deep knowledge of their current local market. To expand into new markets, these businesses will need to add more personnel and bear higher marketing research and advertising costs. They will end up facing bigger competitors who have bigger budgets. It might be wiser to use the money to find better ways to serve and expand in their local markets.