Growth - the real elephant in the room?
EXCLUSIVE Is the pursuit of continuous growth the single biggest issue for our businesses and our economies? Will the circular economy provide the silver bullet, or do we need to go further? Michael Townsend investigates.
Growth is returning to the UK economy. After seven painful years, we are nearly back to where we were in 2007 and it's time to ride the next wave of growth. But is this expectation realistic?
If we lift the lid on the growth challenge, we might find some dangerous assumptions lurking in virtually all of our business plans. On a planet with finite resources, are we confident that our radical resource-productivity efforts will more than offset the impact of our continued expansion? Or should we be more scientific in our consideration of this business-critical issue; mindful of the risks and opportunities as we set our future course?
The desire for growth drives everything. Not just the engine for our economies and our notions of business success, growth also drives our insatiable desire for natural resources. We know there are physical limits, but we seem almost blinded or paralysed by the true scale and impact of the challenge.
We are extracting 50% more natural resources than was the case only 30 years ago, amounting to around 60 billion tonnes of raw materials each year. Meanwhile, global greenhouse gas emissions have grown nearly twice as fast over the past decade, compared with the previous thirty years - despite the economic slowdown. Based on our current trajectory, reports estimate that we would need two planets by the year 2030.
This all has a massive impact on our businesses. For those concerned with price risk - and we all should be - commodity price increases over the past 10 years have already wiped out the considerable gains made throughout the whole of the previous century.
We are clearly entering a very risky time, so how do we manage growth in a resource-constrained world?
In his book Prosperity Without Growth, Tim Jackson signposts two basic choices in dealing with the growth dilemma: we can make growth sustainable, or we can make de-growth stable. The preferred option for business is clearly how to make growth sustainable.
Matt Rogers, co-author of Resource Revolution, shares on optimistic view on how we might integrate information, industrial and biological technologies with the use of new materials and nanoscale science; to deliver radical productivity improvements and enable growth to outstrip our demand for new resources.
Facing the dilemma
Following this line, we see companies like Unilever, Cisco, Phillips and other members of Ellen MacArthur Foundation's (EMF) Circular Economy 100 exploring how the circular economy offers the way forward.
There are some great examples, like Renault's remanufacturing plant near Paris. Its operations use 80% less energy and almost 90% less water, as well as generating about 70% less oil and detergent waste than comparable new production does. The plant also delivers higher operating margins than Renault as a whole can achieve. This looks like a very impressive model.
Individual examples of excellence are great - they inspire us to be more - but we need to ensure we are getting enough traction, to the required depth and pace, across all of our businesses.
We also need to look beyond the big corporations if we are to deliver a truly meaningful impact; we need widespread adoption across SMEs, too - collectively they represent around 50% of economic activity.
EMF is certainly grappling with the 'scaling up' challenge to reduce leakage and accelerate change. But the circular economy alone may not be sufficient. Yes, we need to lower demand for virgin materials through a circular system, but can this singular approach improve resource productivity at greater rates than our aspirations for growth? As Jackson states, the historical evidence for efficiency outrunning growth is not convincing - we are a long way from reaching the happy state of decoupling resource utilisation from economic growth.
In each of our businesses, we do need to be more scientific, working through some serious questions when developing business plans. How can we reach that ultimate goal of 100% 'closed-loop' and how long will it take us? At what point will we experience diminishing returns? And what is our impact on the available pool of resources?
We also have to be mindful of unintended consequences such as the 'rebound effect', whereby resource depletion can still increase despite, and actually because of, our increased efficiency. This goes back to our insatiable desire for growth. The more efficient we become, the more we tend to exploit this. And, there are no real feedback loops for capital to know when to apply the brakes - if we are making money, we keep on growing.
We need to bring all of this work together and synthesise how our improvement trajectory coincides with and offsets our expected growth curve. For each specific business, we can then answer the question on whether eco-efficiency and the circular economy will be enough, or whether we need to go further and explore how we can make de-growth work.
The challenge goes deeper, as virtually all of our business models are founded on the notion of 'continuous growth'. As businesses, we are drawn into encouraging consumption for its own sake. We may wish to be sustainable and net positive, but just so long as we can keep on growing. After all, we have to keep the shareholders and the banks happy.
The fundamental problem is that our debt-based system of capitalism relies purely on continued economic expansion. Without continuous growth, capital does not meet its own expectation of more and higher returns - a huge fault in the capitalist framework, particularly when we consider the physical limits of a finite planet. It seems we are unwittingly trapped on a treadmill to oblivion. How can we hope to deal with our growth addiction?
Purpose beyond growth
Fundamentally, we need to re-think 'growth'. For a start, we need to distinguish between good and harmful growth. As we seek to expand, does our business model contribute real value by enriching people and the planet? Or are we continuing to exploit and deplete our sources of natural capital?
The key is that we will need to buy and consume less. As Umair Haque explains in his New Capitalist Manifesto, living within limits will mean a new paradigm, where growth could diminish to a level of consumption just necessary to maintain today's standard of living, rather than continually feeding narrow aspirations to increase material wealth.
We also need to think through the true implications of resource efficiency. If we manage to drastically reduce the level and cost of waste in the delivery of outputs, we should also experience a corresponding reduction in turnover or GDP. A decline in 'growth' is not necessarily a bad thing and is arguably even more desirable within a sustainable economic paradigm.
We would then progress towards a new form of prosperity, perhaps making the shift to Haque's notion of 'smart growth'; supported by business models centred on generosity, creativity and resilience - based on need rather than greed.
Of course, the transition towards this model will have huge implications for of all our businesses and the ways in which we run our economies. No longer focused on maximising growth and profit, we open the lid on a different debate: if not just for growth and profit, what is the purpose of business?
This is where the notion of the 'Purpose Economy' comes in, with a focus on real, life-enhancing and truly value-adding goods and services. There is much work to do for businesses exploring their 'purpose' to enable useful growth within the finite limits of our planet.
There are signs of companies starting to explore or re-discover purpose. Unilever has been considering shifting their aim to be 'the best at marketing in the world' towards being 'the best marketing for the world'. A small change on the surface, but the implications are huge.
It is entirely feasible for a corporation to be run this way; integrating radical resource productivity with low growth, infused with a real sense of renewed purpose.
Patagonia provides a well-trod example. Its re-use, repair and recycle business model is based on a counterintuitive approach of encouraging customers to buy less. The company seeks to optimise rather than maximise company size, in pursuit of its mission of building the best product and causing no unnecessary harm.
In some ways Patagonia is fortunate - perhaps by design - in being able to choose this enlightened path, as it is relatively free from external influences; benefitting from private ownership and holistic leadership and underpinned by strong values and principles.
Most businesses, however, are still driven by the insatiable demands of short-term capitalism. For the masses to pursue a zero or low-growth strategy, it will be necessary to shift our financial system away from the need for continuous growth. It can be done, but we need a shift in thinking - especially in our system of money and the expectations of capital.
It is time to open up the debate about growth and purpose in our boardrooms. We still need to continue integrating eco-efficiency and the circular economy, but we might also need to take seriously the de-growth challenge. It is time to get scientific in measuring how far our businesses can genuinely go to de-couple resources from growth, and what shifts might be necessary in our growth strategies and business models.
After all, it is better to have a managed transition to a new model, rather than to see your whole business model collapse.
Michael Townsend is the founder & CEO of sustainable business solutions firm Earthshine.