Welcome to the mature economy

This website introduces the concept of the ‘mature economy’ – a way of categorising ‘advanced’ or ‘developed’ economies which implies a need for behavioural change. The concept is taken from the ‘industry life cycle’ model used by business strategists. Mature economies, like businesses in a mature industry sector, need to focus less on top-line growth and more on process improvement as a profit (or ‘value added’) maximisation strategy.

I’m Hugh Small, and I worked for two international management consulting firms as a business strategy consultant for 16 years. During the 1980s 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 business, but I couldn’t help wondering if it has affected the thinking of inexperienced politicians. I wrote a paper called When businessmen fear growth which suggests that the dangers of a perpetual focus on expansion are as serious for developed economies as they are for large businesses. You can download the paper by following the link on the home page, and if the contents interest you then come back here to read follow-up articles and comments. You can subscribe by email or RSS to be notified when new material is added.

4 comments to Welcome to the mature economy

  • Bob Curtice

    Very thoughtful article as usual from Hugh Small. When I think of business growth I think of two factors: population and innovation. Population growth can increase demand or limit it in mature industries. Innovation can shift markets or create entirely new ones. One element influencing these traditional factors is globalization: local markets may be mature, but exporting or investment in growth markets can shift that. Not quite sure what that translates to if at all in the case of GDP and national economies (it can work both ways e.g. outsourcing to lower labor regions). Rather than GDP growth, better measures for mature economies might be low unemployment and balanced budgets (which would look pretty good right now!)

  • Bob, your suggestion that low unemployment and balanced budget should be used instead of or in addition to GDP to measure wealth creation in a mature economy fits with my feeling that politicians need to do what businesses started to do in the 1980s: stop trying to use financial accounting data (e.g. GDP) to manage the business from day to day and develop more meaningful management data.
    On balanced budgets: this seems to imply no borrowing, but business experience tells me that debt is the optimum way to create wealth. In business the banks won’t lend unless you have equity shareholders with skin in the game who can be relied on to fire the CEO at short notice if he/she loses the plot. Our democratic system doesn’t provide this reassurance. I struggle to understand why anyone would buy UK bonds when both main parties are committed to throwing the money onto the roulette wheel in a high-risk search for growth instead of putting it into nice safe profitable efficency upgrades to the infrastructure. I suppose it’s because bond buyers are using ‘somebody else’s money’ and the electorate have a naive belief that top-line growth, i.e. increased sales, always equals wealth creation.
    The ‘globalisation’ aspect that you mention may be measured (in my limited understanding) by GNP or GNI (Gross NATIONAL Product or Income) but since nobody obsesses about them like they do about ‘growth’ they don’t seem to be part of the problem.
    Edited 13 January 2013

  • Mike S

    Do we want growth or not? If you improve the infrastructure is it to make the country more efficient or to promote growth?
    Can you really equate the UK economy to a mature business – surely it is a mixture.

  • Mike
    Three very informed questions. Taking the last one first: yes, it is a mixture, the economy consists of sectors and businesses in all stages of the life cycle, and the growth businesses compensate for the aging ones which are shedding manpower. A ‘mature economy’ in this context is one which has a significant proportion of mature sectors. Everyone has a solid home, electricity, a phone, a car, a paved road, a train station and airport nearby, etc and these industries are big enough to absorb significant manpower to maintain rather than expand them. Therefore (first question) we do want growth – within the economy but not across the economy. And (second question) the reason to upgrade the infrastructure in a mature economy is to reduce costs and resource usage. This creates wealth (it increases GDP, which is a measure of value-added not of simple growth), puts money in your pocket, and further absorbs manpower laid off in aging sectors. What we don’t want is more airports on the ‘build it and they will come’ principle that tries to create growth everywhere and anywhere. Especially when the argument is ‘they’re doing it in every other country in Europe so we have to do it’. That is ‘suicide by competition’ in a mature industry.