Thursday, February 5, 2009

Managing Without Growth

In the latest issue of Advisor’s Edge magazine, Philip Porado ponders the implications of the paradox of thrift. As people lose their jobs, or confront that possibility, they spend less and save more, thereby reducing demand and slowing the economy further. Decreased demand for goods and services leads to lower corporate earnings, which in turn cannot support higher stock prices and people worry about their future retirement savings as much as what’s going to happen to them next month.
For those of us concerned with social responsibility this new desire to reduce and reuse, and the scaling back of the ‘spend spend spend’ mentality is a positive development. The idea of consumption being a function of necessity and not one of status is integral to a world where 7 billion humans can live within the Earth’s capacity.
However, as investors we want growth and lots of it; in fact, the markets and stock prices are predicated on never ending growth. Peter Victor is an ecological economist and a professor (and former Dean) of Environmental Studies at York University. His new book, Managing Without Growth, has a radical economic prescription - he suggests gasp! a world where growth is not the overarching objective.
In a careful analysis he takes us through the traditional economic model and identifies how it fails us. He states “…we ought to take the biophysical limits to economic growth more seriously than we do. The limits are apparent in all the ways we rely on nature to support our economies: sources are becoming costly, financially and even more so, environmentally; sinks are overflowing; services are in decline, and all are interrelated. We are confronting these limits because of the growth agenda and we are not responding to them adequately.”
For those of us involved in the capital markets, the challenge is to come up with new ways of valuing companies, and more broadly, economic activity. Where replenishing existing housing stocks has more value than building new housing units, where repairing and reusing have more value than trashing and creating anew, where more is not always better. It’s a huge challenge, and Prof. Victor’s book shows us we are running out of time to meet it.

3 comments:

  1. I will look up Prof. Victor's book. It sounds excellent. As I noted in the editorial, the economic adjustments we're currently facing are sure to spark a re-evaluation of the way products are made, moved and sold. This really is the time for some serious economic soul searching, and it would be wonderful to see companies that strive to develop clean technologies, and reduce environmental impact, be a significant component of the recovery.

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  2. Brian E. Jackson, OttawaFebruary 6, 2009 at 8:10 AM

    In order to have an environmentally sound economy, the consumers need to be the drivers to take us in that direction. Creative entrepreneurs can only do so much to offer us ESG product lines because consumers make the ultimate buying decision. Two factors for consumers are cost and convenience and the producers & service providers are moving quickly in that direction. When I talk to people about the power of their buying habits to change the world someone always asks me "What about the 20% of the population who can't afford to consume in a sustainable way?" My answer to that is that if the rest of us consume responsibly then the costs will come down so everyone can chose to do so, too. So, none of our goals will be completely achieved until these things happen from the street up not from Parliament HIll down. I beleive that some day after enough education, promotion & experience that consumers, like my clients who choose SRI, will grow to be the driving force of an environmental, sustainable economy.

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  3. Regarding this post, I feel understanding the role and development of the 'voluntary simplicity' lifestyle, which is gaining considerable momentum, will be useful.

    I have just written a blog post going more deeply into that subject. It might just interest you. It's at http://enlightenedeconomics.wordpress.com

    Incidentally, Sucheta and Doug, congratulations on your blog!!!

    Best wishes, Ron

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