Businesses distrust expansion – so should economists

Developed economies (‘mature economies’, I call them) should focus less on top-line (consumption) growth and more on the process improvement which is a much more reliable way of increasing GDP. This is the same recipe followed by management in successful businesses.

Some of my environmentalist acquaintances were at first incredulous when I showed them my paper explaining that successful industries and businesses do not try to expand forever. They seemed to believe that continuous expansion is the only way to increase profits and is the root cause of unsustainable economic growth. But all leading management consultancies now use the ‘industry maturity’ concept to advise against inappropriate growth, as explained in When Businessmen Fear Growth (download on right).

I worked for strategic management consulting firms Arthur D. Little and then A. T. Kearney for the last two decades of my career in industry. Early in that period I found myself battling the primitive ‘grow or die’ mentality of the larger companies among my clients. It was a mentality which has now practically disappeared from competitive industries, but I couldn’t help wondering if it still affects politicians, academic economists, and executives in newly-deregulated industries like banking.

The suggested recipes in my cookbook are grouped into topics shown on the right. Clicking on a category will show blog posts. The menu includes:

False GDP. The way GDP is (mis-) counted encourages policies that consume more raw materials rather than increasing financial prosperity.

Austerity. Cuts. Eliminating the deficit. Does this have any positive impact on economic growth?

Council Tax Reform. Local Authorities now have the power (and the software) to change Council Tax bands. Devolution would put economic strategy into the hands of those who understand better than national party politicians and economists how to create and fairly distribute wealth.

Europe. The whole idea should be to equalise basic entitlements across the region, otherwise it doesn’t make sense.

Industry-specific regulation. It’s not an alternative to competition, it’s a means of making markets competitive.

Adam Smith. My hero – the real Adam Smith that is, not the one falsely blamed for coining the phrase ‘invisible hand of the market’ which was invented 100 years after his death.