Post No.: 0832
Doing business inevitably involves taking risks. But it’s not about taking risks – it’s about reducing them, whilst achieving the same aims, where possible. Above all – never risk what you’re not willing and able to lose, in money or relationships!
And whenever we set a hard quantifiable ‘measure of success’, we’ll tend to aim for this at the expense of others that may be what we really want or need. We may also game the system (i.e. use unethical or questionable methods) to maximise this quantity.
Growth is often regarded as the perpetual objective of a business or economy. But constant growth is an inherently unsustainable goal. If growth, as measured by year-over-year revenue or GDP, continues to be the de facto measure of success then environmental concerns will always play second fiddle. These economic booms and busts may also persist.
Growth is also usually funded by leveraging (borrowing) to some degree. Even if a company could fund a project entirely with retained earnings – because interest expenses are tax deductible, companies can get a better overall return on investment by borrowing to fund growth. This is one contributing reason why multi-million-dollar-profit companies can suddenly be multi-millions in spiralling debt when they cannot pay off their loans.
It should be acceptable for firms to simply be steady – in equilibrium – which is by nature more sustainable. Expecting or seeking a 10% growth in turnover year-on-year is unrealistic because the 10% target compounds (thus a 10% growth in 12 months when something is small is far easier than a 10% growth in 12 months when something is already sizeable). Countries as a whole seek constant economic growth according to their gross domestic products. Contractions and recessions are considered unwelcome; yet so are slowdowns in growth, even though growth is still happening.
This is a result of competition however – if you don’t grow but your competitors do then you’re going to get out-muscled in the markets. But environmental resources and the future health of the planet becomes a casualty. The ever-growing military sophistication between ideologically-opposed nations also threatens us all. Competition is vital for a vibrant economy, yet there must be limits to it. Individually winning shouldn’t come at the cost of collectively losing.
In the drive for growth, trust can also erode because there’ll be firms that’ll seek growth whatever it takes, including via fraud, exploitation and other criminal or unethical practices, or via taking overly high risks. Those especially in positions who feel they can get away with it (which typically means those who are already quite wealthy and powerful) will try to get away with it, like through aggressive tax avoidance or corruption.
For a manufacturing company, if next year’s production targets are always based on last year’s results, and if we only expect growth and never a decline – then managers will actually be incentivised to under-perform otherwise it’ll make next year’s target more difficult! Thus we need to watch out for such side-effects too.
Many firms believe in the mantra ‘innovate or die’ – as in coming up with more stuff for the purpose of expansion. But Charles Darwin never said that an organism innovates or dies, or needs to fight to become on top, like on top of the food chain, to survive – he rightly said that an organism adapts or dies. Adaptation is different to innovation because it’s indifferent to the direction a firm may take in order to survive within a changing environment. Downsizing might therefore be the optimal response in tough times. But most firms would think that gradually shrinking its expectations constitutes a failure. A firm in trouble tends to think that it must grow to get out of trouble, which usually means taking greater risks and internally revolutionising the way it works. Few in that situation will think that it’s time to consolidate on their core strengths (i.e. do what they know and do best).
Firms that don’t grow don’t necessarily die. They may lose market share and profitability, but if they exist within their means, they’ll survive for a chance to compete another day because their running costs and failing operations will be reduced or ceased and they won’t be investing money they can’t really afford on gambles like on that one new product that’ll hopefully turn their fortunes around.
It’s not to say downsizing is always the right route – sometimes a new project is what’s required. Downsizing can mean axing some staff. It’s prudent to concentrate on one’s core competencies but what about diversification in order to reduce a firm’s own idiosyncratic risk? Therefore don’t have a ‘one perspective’ mindset to survival. (Some stock market investors dislike firms that internally diversify though – they dislike distracted CEOs and prefer businesses and businesspeople to each only concentrate on doing what they do best, then they’ll invest in several different companies whom they think will each perform best in their respective own industries in order to diversify their investment portfolios.)
So growth can be the right goal but it’s not the only possible one – give your business the widest latitude of options to survive. Businesses, like plenty of local businesses, can tick along at a sustainable size and profitability and not be greedy. Growth is inherently greedy and the largest entities need the most resources to merely survive, and those that need the most resources will suffer the quickest when those resources run scarce. Nature punishes insatiable greed by eventually decimating unsustainably greedy species. However the problem is they might take several other innocent species down with them too, or cause market-wide crashes in this case.
All desirable products will theoretically become commoditised eventually as competition saturates the market and virtually every consumer who wants a product has it (e.g. mobile phones, cars, TVs, microwaves) – history repeats thus you’d be short-sighted to think that your product or market is unique. The very exclusive end is the last market to commoditise but even this often eventually does. It’s therefore naïve to expect profit margins and market share to always be high for a product even if you were a first-mover. New products (innovation) may therefore be the answer. But the rate of real (as in truly game-changing) innovation will slow down, and brands will start to compete primarily by price.
So question your own beliefs, such as about where you now stand in the marketplace in the eyes of your customers, because this can change (perhaps from being the coolest and most unique brand, to being the most ubiquitous and boring for now being used by everyone including their grandparents!)
Not all problems are endogenous (internally caused) – some are natural and exogenous in competitive markets and require a strategy that recognises this. If your fundamental corporate strategy is inappropriate then no amount of restructuring will help. Your management toolkit needs to permit strategies that don’t just see growth and responding to short-term pressures – like from shareholders – as the only way to survive, because growth is unsustainable, particularly in competitive and naturally evolving markets, partly because products in a mature product category will eventually become ever more commoditised. This is difficult however for publicly traded companies when shareholders demand decent rates of growth every quarter otherwise they’ll invest their money in some other company that’ll take on a little more risk. We’ve therefore got to question if this very economic model is sustainable for the planet?!
Capitalism (in its present form at least) is irrational because it’s predicated upon the desire for infinite economic growth in a finite resource world, especially if we keep relying on consuming non-renewable resources. As Post No.: 0438 points out, recycling is vital yet we must also reduce – the total amount of energy/matter on this planet does not decrease unless it’s lost to space, but rising entropy means there’s less useful energy from this matter every time we use it, and it’d take the Sun’s energy, and the activity of life, millions of years to replenish this lost ‘order’ from the ‘disorder’ (or energy dispersal) we’re creating. It’s like we cannot expect life expectancies to grow forever at the rates it has either.
Profit maximisation isn’t the normative behaviour in nature – not that capitalism is natural itself(!) Wild predators don’t seek to eat every single prey they can find! Animals don’t try to multiply as if aiming for global domination! Humans didn’t even evolve to constantly churn out babies (even with modern medicine and if one could afford to raise 30 kids), even though you’d think this would’ve benefited each individual’s ‘selfish genes’. In fact we despise the deadly microorganisms that most closely try(!) They bring misery to others.
If nature maximised, we’d probably all have wings, (kept our) gills and possessed super senses. Instead, a stable and sustainable ecosystem settles on an equilibrium, not constant growth – on sufficiency, not maximisation. (You can go too far with absolutely anything, including having so much grrrit and determination that you die from heat stroke or exhaustion.)
Capitalism is hardly ‘so successfully tried-and-tested by nature that it evolved to be a common survival strategy for all life’. Hence those who think that nature inspires or justifies our capitalistic ambitions are incorrect. Nature seeks an overall ecological balance and harmony – one species dominating too much has negative effects on biodiversity and life overall, just like one company monopolising has negative effects on a market overall.
Even if another animal in the wild does something anyway, it doesn’t mean humans should too – whether it supposedly means being selfish and greedy, or sacrificing one’s own babies to escape predators(!)
Everyone alive today has been born and bred after the Industrial Revolution by parents who were themselves born and bred after it, and so – especially those of us who’ve been raised in the ‘Global North’ – we might not know any differently, even though the Industrial Revolution only began ~200 years ago, which is virtually nothing in geological terms. We think our lifestyles are sustainable because it seems like that to us with our limited personal perspectives and experiences.
Despite the recent heat waves and forest fires, the worst feedback effects from our over-consumptive lifestyles are yet to manifest, or they’re mainly affecting those in the poorer parts of the world in coastal or arid regions, hence we’re not sufficiently learning from our own experiences. We cannot always trust our own experiences. We can fail to attribute the right causes to effects (e.g. war isn’t the sole reason for the present high food prices). So it can be hard to intuitively connect our lifestyles with long-term climate change. Instead, we experience the immediate benefits of excessive consumption and so we think unrestrained capitalism deserves a pat on the back. But we’re one of the fortunate generations who’ve been ‘spending more than we’ve been earning’ or ‘taking more out than we’ve been returning’. This is now catching up to us – albeit it’s mainly for future generations to bear, and therefore it’ll mainly be them who’ll be learning from, and paying for, our mistakes.
We’ve been compensating each other as buyers and sellers but have been assuming that everything from nature comes for free and is unlimited, like the oil, gas, trees, fish, fresh water, fresh air, etc..
It’s not about being anti-capitalist – it’s about prioritising sustainability over growth. Capitalism does plenty of good, but we need to adapt it and discourage buying things out of impulse or for a small upgrade rather than genuine necessity, or disposing things that can be repaired, for example.
If there are hesitations like ‘even if I do my bit, it’s going to be futile if not enough others also do their bit, so why should I bother?’ then laws and regulations can incentivise us to cooperate. Citing personal freedom as to why we shouldn’t morally stop people from harming future generations is like citing personal freedom as to why we shouldn’t morally stop people from freely stabbing each other!