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.