Success in a world without growth


NO GROWTH WORLD

Growth: The importance of a word

Growth is probably the most powerful word in the business vocabulary. Overtly, or subliminally, it drives everything we do as business leaders. ‘Growth’ is the primary measure of success and is a word that acts as a call to action for strategy, change and innovation projects initiatives everywhere.

Let’s stop for a moment and consider a world where growth does not exist. To be rather more precise, a world without economic growth.  It would be easy to dismiss such a proposition as absurd, doom-laden, negative thinking.

But in this article I am going to make the argument that you really must stop and think about a world without growth.

There are at least four reasons why we must stop and think. The first is that, at least in economic circles, this is a growing ‘hot topic’. It has steadily received increased attention over the last five years and the debate has now reached such a pitch that it needs to be considered seriously. In short, ‘chatter’ levels have risen to the point where we should listen. Moving to the second reason, the conditions for a contraction in global growth are appearing in the geo-political arena and include concerns regarding the systemic impact of the failure of a major economy[1]. The third reason arguably is even more important. Traditionally we use the prospect of growth to drive innovation efforts. That, I am afraid could be very much 20th century thinking. As we look to the third decade of the 21st century which, if new predictions are right, will be a volatile an uncertain one, then we need to consider stagnation or ‘flat-lining’ as a reason for powerful and positive innovation in our businesses. Why? Because consistency, not growth, may be the new keyword.

And for the fourth reason, well that is the ever-present need to create a corporate mind-set that thinks and behaves differently from those of our mainstream competitors.

Why a world without growth?

Worries about global growth have appeared in the headlines over the last few months notably in the forms of forecasts from leading institutions, including the IMF[2] and The World Bank[3], that warn us that growth prospects are subject to major negative downsides. Indeed, the title of the latest IMF World Economic Outlook Report – Too Slow For Too Long – says it all.  Many of these concerns emanate from issues such as slowing growth in emerging economies and lingering post Great Recession after-effects in advanced economies. But surely, you may well say, this is only a temporary state of affairs and the world’s economy will adjust itself back to normal.

The real issue is that there are a growing number of voices who are arguing, from different perspectives, that there is something deeper going on that we need to be aware of.  All these ‘deeper issues’ point us towards a long era not of growth, but of flat-lining or stagnation. Very broadly, these voices fall into the following groups:

Century’s End.  Robert Gordon is the leading voice here and his views are currently  receiving a considerable amount of attention[4], [5]. In summary, the argument is that we have just exited from a very special period in time. A century that has seen a range of innovations from railroads through to antibiotics that have both truly revolutionised the way we live and the very nature of demand itself. That century is gone. Not even the promise of the next technological revolution in the forms of big data and artificial intelligence will give us growth of the scale that the ‘special century’ provided for us.  But the challenge does not end there. The advanced economies, in varying degrees, face a number of ‘headwinds’ that will further inhibit growth.  The first is changing demographics including aging populations, followed by declining educational attainment, then inequality and finally, rising levels of national debt.  Gordon’s argument is a challenging and chilling one that focuses upon the advanced economies of the West, especially the US.  The conclusion is that there are no foreseeable innovations that can surmount the growth challenges that many advanced economies now face.

The US economist Tyler Cowen presents a similar argument[6], being that the era of frame-breaking innovation, from the perspective of widely distributed personal wealth creation, is over. True, we are living in age of technological innovation, but new technological innovations may only create wealth for a few and potentially destroy jobs for the many.

Out of Ideas.  This is a second school of thought that is gathering traction and could be summed up by the statement that we are out of ideas on how to rekindle sustainable global growth. The most notable new tool that emerged in the wake of the Great Recession, Quantitative Easing (QE), an untested experiment with unknown results when it was first introduced, has failed to deliver a return to sustainable global growth[7].  Currently a new set of experiments are on the agenda ranging from negative interest rates through to ‘helicopter money’. Many could carry potential downsides as well as upsides[8].

The most important takeaway from this ‘out of ideas’ school of thought is to link it with a more general emerging trend that sees elements of the electorate losing faith in established political institutions, some of the symptoms of which we can see in the rise of calls for fragmentation and support for new and fringe political parties.

A Question of Confidence. The ‘secular stagnation’ and ‘hysteresis’ arguments put forward by Larry Summers[9], [10] form the cornerstone of this position. Basically, we are witnessing a long-term shift in human behaviour away from spending and risk-taking investment towards saving. The argument can be summarised by thinking that a deep, unexpected and lingering recession has fundamentally shifted human behaviour. We are all becoming less confident and more cautious which slows down prospects for growth.

Some would say that we need to counter these voices with a more conventionally optimistic voice that asserts that are human beings we will always innovate and this innovation will bring growth[11], overcoming the above arguments.

From my perspective, there are grains of truth in all three perspectives, especially the ‘Out of Ideas’ and ‘A Question of Confidence’ schools of thought as these are linked to human behaviour. My own concerns however really focus on three issues:

  • The ‘lack of confidence’ argument.
  • Globalisation has got ahead of itself. We have reached a stalling point in the globalisation process as we do not yet have an agreed governance model that can coordinate, with one voice and one agreed rule book, the global economy. Some call this ‘global gridlock’[12]. Others would point to the recent G20 meeting in Shanghai as evidence of absence of one coordinated voice[13].
  • The next technological revolution. I have some sympathy with Tyler Cowen’s position that the next wave of technological innovation, most notably in the form of artificial intelligence, may be, at least in the short to medium-term, job destroying and not job creating. My worries here centre upon the advanced economies, major portions of which are still struggling in employment terms with the after effects of the 1970s and 1980s manufacturing to services revolution. I am hopeful in the longer-term that technology will create replacement jobs but my concerns focus on (a) the time gap between job destruction and full replacement job creation; (b) the satisfaction (and rewards) generated by these new occupations and (c) the impact on the middle class, traditionally seen as the cradle of democracy.

In short, lack of confidence, coordination and painful employment transitions could well result in an era of generally low, fitful growth.

So what should we do?

The usual response to challenging news such as this is to ‘batten down the hatches and sit tight until the storm passes over’. This usually involves imposing a headcount freeze and cutting back on training, marketing and sales budgets – a process that I call ‘shooting all the usual suspects’. If we are faced with a very short storm, lasting a couple of months, there might be some weight in this argument.  But we are not just talking about a couple of months, we are talking about an extended period, possibly a decade, especially in the advanced economies.

If ‘battening down the hatches’ won’t work then what will work?

This is a question that will be explored further in future briefings and discussions.  However, I would like to offer the following broad pointers:

  • Keep very very close to your customers. History tells us that in times of great upheavals, customers’ needs and behaviours can change rapidly and permanently.  Customer centricity is therefore of paramount importance in the type of world we have been discussing.
  • Many businesses will do very well in a stagnating and flat-lining environment. One of the upsides of technology is that astute businesses will be able to deliver increasing value without increasing their cost base[14].  In a world characterised by zero economic growth these organisations are poised to succeed by delivering ever-increasing value to customers with limited pockets. Identifying these businesses, if you work in a business to business environment, could be the key to your future success.
  • Rethink your value chain. As has just been noted, technology provides the opportunity to provide more value from a similar cost base.
  • This won’t be a dark and dismal world, there will be pockets of growth winners out there. A quick look, for example, at the World Economic Forum’s projections for the employment impact of new technology[15] will give some interesting clues on where the pockets of growth could be in this very different world.
  • Other existing clients may well need your assistance to transform themselves to succeed in this new environment. Identifying where the help is required could well help to develop new fruitful relationships.

The trick to surviving in a volatile and uncertain future world is not to base one’s total strategy on a single point of view of the future but to think of the future as a continuum which is the argument that I have tried to put forward here.  So rather than just rely on conventional forecasts, we should try to look of the other, more challenging, end of the continuum and build strategies and actions that will help us to succeed in two economic worlds, not just one.

 

 

References

[1]          M. Wolf, “China’s future challenge for the world economy,” Financial Times, 29-Mar-2016.

[2]          “IMF World Economic Outlook (WEO): Too Slow for Too Long,” International Monetary Fund, Apr-2016. [Online]. Available: http://www.imf.org/external/pubs/ft/weo/2016/01/index.htm. [Accessed: 19-Apr-2016].

[3]          “Global Economic Prospects 2016,” The World Bank, Jan-2016. [Online]. Available: http://www.worldbank.org/en/publication/global-economic-prospects. [Accessed: 31-Mar-2016].

[4]          R. Gordon, “Is US economic growth over? Faltering innovation confronts the six headwinds,” The National Bureau of Economic Research, Cambridge, Massachusetts, Policy Insight No. 63, Sep. 2012.

[5]          C. Matthews, “The End of Economic Growth in America,” Fortune, 02-Feb-2016. [Online]. Available: http://fortune.com/2016/02/02/end-of-growth/. [Accessed: 31-Mar-2016].

[6]          J. Piereson, “America’s Slowdown,” The American Spectator, May-2011. [Online]. Available: http://spectator.org/articles/37658/americas-slowdown. [Accessed: 26-Feb-2014].

[7]          M. Gilbert, “The Quantitative Easing Experiment Is Failing,” BloombergView, 29-Oct-2015. [Online]. Available: http://www.bloombergview.com/articles/2015-10-29/ecb-nears-zero-bound-on-effectiveness-of-quantitative-easing. [Accessed: 01-Apr-2016].

[8]          H.-W. Sinn, “Europe’s Emerging Bubbles,” Project Syndicate. [Online]. Available: https://www.project-syndicate.org/commentary/european-central-bank-fueling-asset-bubbles-by-hans-werner-sinn-2016-03. [Accessed: 31-Mar-2016].

[9]          L. Summers, “Why stagnation might prove to be the new normal,” Financial Times, 15-Dec-2013.

[10]        L. Summers, “Advanced economies are so sick we need a new way to think about them,” Financial Times, 03-Nov-2015. [Online]. Available: http://blogs.ft.com/larry-summers/2015/11/03/advanced-economies-are-so-sick-we-need-a-new-way-to-think-about-them/. [Accessed: 12-Nov-2015].

[11]        J. Kay, “Prepare for the dawn of a second special century,” Financial Times, 01-Mar-2016.

[12]        T. Hale, D. Held, and K. Young, “Gridlock: The Growing Breakdown Of Global Cooperation,” Social Europe Journal, 06-Jun-2013. [Online]. Available: http://www.social-europe.eu/2013/06/gridlock-the-growing-breakdown-of-global-cooperation/. [Accessed: 07-Jun-2013].

[13]        N. Woods, “The Global Economy’s Stealth Resilience by Ngaire Woods – Project Syndicate,” Project Syndicate. [Online]. Available: https://www.project-syndicate.org/commentary/g-20-shanghai-meeting-distributed-governance-by-ngaire-woods-2016-03. [Accessed: 31-Mar-2016].

[14]        Z. Karabell, “Learning to Love Stagnation,” Foreign Aff., vol. 95, no. 2, pp. 47–53, 2016.

[15]        “The Future of Jobs,” World Economic Forum, 18-Jan-2016. [Online]. Available: https://www.weforum.org/reports/the-future-of-jobs. [Accessed: 01-Apr-2016].

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