December 8, 2010
Concerns that the U.S. and European economies are condemned to years of slow growth are worrying policymakers, publics, and economists globally. While China, India, and many African countries continue to chug along at growth rates of more than 5 percent, the U.S. and most European economies are limping along, with debt levels limiting their ability to stimulate short-term growth or long-term investments.
At the same time, the steady rise in global temperatures and the return to rising commodity costs remind us that our current economic trajectory threatens to crash because of natural resource constraints. Just as stagflation—the combination of stagnant economies and inflation—characterized the 1970s, struggling economies and environmental problems may characterize the second decade of the 21st century.
In this context, last week’s World Economic Forum Summit on the Global Agenda took up the question of whether our current measures of economic vitality are appropriate for today’s world. The question of economic growth is at the center of this debate.
The dilemma is clear: Without growth, there is little political will to make the kinds of investments needed to make the transition to a low-carbon economy. (Witness the tepid U.S. approach at Cancun as proof positive of this.) But a focus only on growth, as measured by GDP and reliant on consumption, only exacerbates the sustainability challenge.
In the consumer industry council that I chaired this past week in Dubai, this debate grew white hot. Several observers reminded us of our collective challenge: Current economic models cannot be extended to a planet of 9 billion people because the natural resources are not available to support them. One company executive dismissed this thinking, saying that growth was the only thing that motivates companies: Stasis is not an option.
In fact, both sides are right. On an individual, enterprise level, competitive economies don’t reward companies that stand still. Yet on a systemwide level, it is equally true that the aggregation of more, more, more will result in planetary overshoot.
Where does the solution lie?
Starting at the macro level, new ways to measure economic health are needed. As Joseph Stiglitz and others have argued, measures of economic vitality can be seen in elements of social capital, such as human health, education that fosters innovation, and access to technology. Repealing GDP as a measure is neither desirable nor likely, but augmenting it with additional measures of human progress is sorely needed.
At the level of individual companies, competitive standing will continue to be the ne plus ultra of success. The key is to measure this not only minute to minute, quarter to quarter, but on a longer-term basis. The emergence of integrated reporting—bringing sustainability and financial reporting together—will help, especially if it mitigates the focus on quarterly performance as measured by share price. (Note: I just joined the International Integrated Reporting Committee, which will be producing recommendations for a framework to make this a reality.)
In many ways, growth is simply an economic expression of the human aspiration to grow and thrive. But for economies as for all of us as individuals, too much of a good thing can do us in. More is not always better; better is better.
The sooner we develop economic measurements that include growth, but stop fetishizing it, the better off we will all be.
Let’s talk about how BSR can help you to transform your business and achieve your sustainability goals.