Sunday, November 16, 2008

Growth vs. Sustainability

The G20 Summit was held over this weekend. In their declaration the leaders state: "We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems."

I have been thinking lately about this granted assumption that "growth" is the ultimate objective for wealth and prosperity. What is wrong with a year-after-year steady reasonable profit instead of this fixation on ever higher sales, higher profits, higher GDP, even higher growth rate?

It seems to me that the core equation is really very simple: we live on a finite globe with finite resources. If you take into consideration the increasing population, you have to accept dwindling average resources per capita. Defining progress as "growth" can only lead to
faster depletion of the resources and more extreme unbalance in wealth distribution.

How we got into this messy economic system is history. The important thing now is how to start changing the fundamental assumptions of the current model without wrecking the boat. I am not talking about the current financial crisis and "bail out" measures. The fundamental issues were there long before the current crisis. I am talking about using people's mass intelligence to find new ways to reward sustainable economic behavior pattern.

The widely used concept of "wholesale" for example is just rewarding more consumption by reducing unit cost. From volume discounts on commodity pricing to "two for one" retail promotions, the same principle applies. What if we reversed that, say by charging an increasing unit price for higher volumes; considered the total volumes purchased over the last 12 months when determining the unit price, and applied higher tax rates with increased unit consumption?

The repercussions of applying such new fundamental principles to all aspects of economic activities would be huge and the resulting structural changes would be deep and painful for almost all layers of the current economic system
particularly those that benefit most from the "economies of scale". I wish there was a better alternative; I can think only of much worse ones because history shows that the emergence of new structures is usually extremely violent and destructive of previous structures! Like a jet fighter in a spin fall we'll need to accept high-G exposure to get out of it.

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