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To grow or not to grow?

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One of the debates that seems to be threatening to ignite right now is the one about economic growth and how it fits with sustainability.

Is it possible to have an economy that grows, and be sustainable at the same time? Some say yes, some say no, some say maybe.

The issue to me seems to be partly one of definition. Wikipedia defines GDP as “the total market value of all final goods and services produced”. The article also suggests that GDP represents a measure of “the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time”.

There’s a well-known saying in business: “Turnover is vanity, profit is sanity”.

What I take this to mean is that any fool (more or less) can increase turnover, by for example, selling more products and services. The path to sanity is to focus not on turnover but on profit – because profit is a better measure of the value that an individual or an organisation adds to other people. It’s a measure of what we give, and, crucially, how well we do it.

If we accurately meet really important needs, and we do it really efficiently, the more profit we’ll earn.

I am not an economist, and so am probably making a idiot of myself here. But from my reading, GDP seems to be measuring something analogous to a country’s turnover, not profit.

Plants and animals (and people) grow – so I can’t see anything inherently wrong with growth. Small businesses seem to understand that growth and development isn’t just about size and scale. Profit seems to me to be an excellent way of measuring what we give to other people, and measuring our progress at getting better at that.

By the way, Wikipedia also lists 14 or 15 separate criticisms of GDP. It lists five alternatives to GDP and I heard about another one the other day: Gross Peaceful Product.

Perhaps as the sustainability/economic growth debate develops, we’ll agree some more useful measures of growth?

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Author: Pete Burden

Strategy, Leadership and Organisational Coach I am an experienced strategy, leadership and organisational coach. I work with the MDs of purpose-led businesses - people using the freedom, flexibility, and practicality of business to disrupt the world in positive ways.

2 thoughts on “To grow or not to grow?

  1. The climate briefing on the ‘save the world fast’ page of http://www.blindspot.org.uk is a good intro to Gross Peaceful Product. Then see http://www.grosspeacefulproduct.org.uk or email me from either site for a paper about GPP which is being published by the NATO Science Programme.

    The tricky thing about profit and GDP is the boundary issues. Neither measures the cost of problems outside the boundary (overseas or in the future) – which are called externalities. So when either indicator is used to inform decisions we end up with unsustainable outcomes. One problem with GDP is the way it counts spending on unsustainable investments and recovery from damage as positives. However the usual approach of trying to deduct these items is a bit academic since it still doesn’t provide decision-makers throughout the economy with the right signals. (GPP is the exception since it is the macro-level weapons-buying political decision-makers who are targetted). Profit in businesses has a similar problem; externalities are left out and unsustainable decisions follow.

    So my preferred answer is to correct prices to account for externalities. This would make both profit and GDP (or better, GPP) much more accurate indicators of success. The climate briefing mentioned above shows how this can be done efficiently (it without lorry loads of government bureaucracy). Such a correction would amount to redesigning the economy to be sustainable (rather than as now – the opposite). It would also make continuing business and economic growth possible.

  2. Pingback: Enough is enough « Conscious Business

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