We recently had the opportunity to attend the annual BCorp festival in Oxford. There were many interesting talks to listen to and thought-provoking debates held in venues all over the city. One of these examined the subject of ‘de-growth’ which is an interesting, if poorly titled, concept. The facilitator had read widely around the subject and in particular the work of a key French economist in this field.
The starting point of this proposition is that current Western economies are already too big for the world, they are outside of their planetary boundaries. Simply put, if we keep consuming at the current rate, we will run out of resources. This doesn’t even allow for the excess consumption generated as less developed nations become wealthier.
The work of Kate Raworth in her book Doughnut Economics shows most clearly what we need to do if we are to keep our economies within planetary boundaries but above a level where everyone has ‘enough’.
Humans have naturally come to a solution around this, in that as economies become wealthier the birth rate drops sharply. In the developed world we are now below replacement rate, with an average in this country of 1.5 children born per woman. Left at these levels, the maths would suggest that the UK population will reach zero at some future date.
Counter to this is the stated position of all political parties in the UK that they want economic growth. Regardless of what they have said in public, they have all relied on economic immigration to sustain this growth whilst the birth rate has been so low. Of course those of us who are in the world of finance know how powerful compound growth is, as it powers the investments that we use. Compound economic growth of course leads very quickly to a doubling of an economy that is arguably already too large.
So the concept behind the de-growth movement is that instead of constantly banging the growth drum, we find ourselves some politicians that are willing to admit that shrinking the economy might be the only way to survive and we change the conversation to, how we manage it.
Shrinking an economy is nothing to be feared in the long-term but it does have some short-term issues that need addressing. If you accept that the world and its resources are finite, then shrinking will be forced upon you if you don’t plan for it in advance.
Firstly our current population is aging and we are heading from 4 workers per retiree to 3 workers per retiree by 2047. This means either that the workers will need to pay a lot more tax to support the retired, the retired will have to pay a lot more tax to support themselves, the retired will receive less state support or a combination of all three.
Already by 2020 the state was spending on average £20,000 per annum on each retiree, £14,000 pa on each child and £10,000 per annum on each worker. A population shrinks from the bottom up and so there are several transition generations of workers who will need to fund even more expensive retirees and get less themselves in retirement.
The second problem is that our investment sector already prices company value based on eternal growth. The UK stockmarket was always a good place to invest your capital because it paid good levels of dividend, which is simply a share in the profits of the firm that you have helped to fund with your capital. Global stockmarkets have been traditionally more growth oriented, with smaller dividends but better growth in the share price. The issue with growth companies though, is the price that you pay for a share is based on the assumption that profits and income will continue to grow forever. They pay on average much less in the way of dividends and so you are paying a price based on several future years’ worth of estimating profits.
If the economy is to shrink, then companies will also shrink and that can have a dramatic effect on share prices. It won’t be an even result though. Some companies will shrink and some will grow.
One attendee at the Oxford de-growth debate asked whether the concept meant that their company had to shrink. They ran a fast growing company that repaired clothing to stop it being thrown away to landfill. Of course clothing repair companies and clothing rental companies, can grow by eating up the market share and current demand enjoyed by the big clothing manufacturers. The result will be growth for the new companies, decline for the old companies and a hugely reduced environmental impact into the bargain.
The question is going to be what choice we as a world make and how we live through the consequences.
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