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In another life, I was an educator for Save the Bay in Oakland, Calif.
With the humdrum of finance, technology, and transportation whirring around and above us, we spent our days with scores of middle schoolers, teaching them to paddle canoes and absorb the natural world around them for the first time. The most difficult part was to teach them to get into, and out of, the canoes without tipping them.
"Go slow, stay low" was the mantra. It worked for most, but not for all. Inevitably there would be a few life vest-wearing, mud-covered students waist high in the waters of the bay before class was over.
Canoes, like economies, are more stable moving steadily forward than still. As firms look ahead to 2010 and finalize their strategic planning and budgeting processes, they are asking themselves. "Will the economy return to its 'normal' growth patterns? What share of the market will we retain if it does?"
This past Thursday's GDP data sent the Dow soaring. Twelve hours later it plunged on weak consumer spending figures.
Where is the economy going?
This "post-recession," still-life economy is very similar to that tippy, stationary canoe, and most companies would do well to pay heed to the advice given to 8th graders on Save the Bay trips. There are three reasons the economy will not return to its former state, especially in the U.S. The first is practical, the second behavioral, and the third theoretical. They are all sustainability related.
Practical
Firstly, there are practical reasons for a slow in growth that will have an impact on companies. It does not have to do with the crash in the housing market, although that rationale has been much discussed, and over-hyped. Taking GDP as the measure of economic growth in the United States, residential investment only accounts for 4 percent of GDP. Even at the height of pre-crash euphoria it was just 6 percent. By comparison, personal consumption, that holy grail of "consumer spending" makes up 70 percent of the U.S. GDP. That is astounding: Consumption of stuff -- goods and services -- makes up 70 percent of the U.S. economy.
That figure was previously lower -- 60 percent at the start of the 1950s. It is also lower in other countries: U.K.: 64 percent, Japan: 58 percent, Canada: 55 percent (2003 figures). In China, that figure is 36 percent (Note to reader: if your company is not looking for retail space in China, it will be). What does this mean? It means that the U.S. GDP is overly reliant on consumer spending. And now the money that was once being spent is being saved.
According to The Economist Special Report on the Economy, the household saving rate went from just 2.7 percent between 2002 and 2007 (remember the post 9-11 advice from your then-president, "Go out shopping"?) to 5 percent in the second quarter of this year.
Not a big deal you say? Each increase in savings by one percentage point reduces annual spending by $109 billion. A savings rate of 8 percent would pull $545 billion out of the economy.
Not possible you say? The U.S. savings rate was 8 percent in much of the 1960s and 1970s. Those are dollars pulled directly from Main Street, like a bad Laurel and Hardy joke where a dollar bill on a string is yanked unexpectedly before it can be picked up. This is good for the long-term sustainability of the country and future generations, but it can be a short-term challenge for thousands of companies that make superfluous stuff under a model of planned, or even unplanned, obsolescence.
A savings rate of 13 percent would leave the U.S. economy with a $1.1 trillion gap to fill. The total U.S. GDP in 2008, it should be noted, was "just" $14 trillion (World Bank, October 2009). And 13 percent is in no way outside the realm of the possible. Germany had a 10 percent savings rate in 2006, France 12 percent (OECD). China? An extraordinary 50 percent.
Scarred by the recent recession and jittery about a jobless recovery, the question is not will Americans save more, but how much more will Americans save, and how high will that savings rate reach. So for practical reasons, the economy will not return to its former state, and companies need to recognize this.
Behavioral
Secondly, "he who dies with the most toys wins" is soooooo 1990s.
Americans are beginning to come to terms with a culture of overconsumption. The prospect of more stuff is not seen as attractive as it once was, and U.S. citizens are rethinking the informal contract they have with companies. They expect more from them in terms of quality and durability and environmental safety.
"More is better" has been replaced by quality of life. It is not by accident that even Walmart's slogan has changed from "Everyday Low Prices" to "Save Money. Live Better."
The concept of America as a wasteful, over-consumptive society is not new.This was well chronicled in the documentary "Affluenza" in 1997, which described excessive consumption and its effects as almost a disease. Other magazine articles and books have also covered this ground. But the topic is now making stronger inroads into popular culture: "The Story of Stuff," "Wall-E," the shrinking size of homes, decrease in the number of cars per family, and the fact that you could fit three Priuses into one Hummer. The next generation in the bull's eye of Madison Avenue's scope -- millennials -- sees value not in what they have, but in the connections they make, in their degree of helpfulness, in the richness of their experiences.
Values are shifting -- a long time in the making, but they are shifting:
"All the legislation in the world can't fix what is wrong with America. We've learned that piling up material goods cannot fill the emptiness of lives which have no confidence or purpose."
That phrase was not uttered at a San Francisco book reading or on "This American Life." It was spoken, extraordinarily, and publicly, in the Oval Office. Not by Obama or by Bush the Second. Jimmy Carter made that statement in a 30-minute televised address he gave to the nation in July 1979, 30 years ago this past summer.
Astute readers will note that nothing much changed after Carter gave that speech 30 years ago. So if nothing changed then, why should we expect anything to change now?
Green Economy - great article
Sustainability is diametrically opposed to consumption based disposable economic model. Sustainability is self-sufficient closed systems of political neutrality. This is anathema to the current economic (and political) construct, which measures success as greater activity (ne: bureaucracy), more units, higher margins and more revenues (tax revenues).
True sustainability is a bane to corporate and political entities, for they would make less and be needed less. The very wealthy support government efforts to mandate the status quo with legislative fiat and seek to legalize their competitive advantage at the expense of wealth creation for the economy.
Big Government hurts innovation because:
1) high marginal tax rates are a disincentive for capital formation and entrepreneurial risk taking
2) Government spending crowds out private investment and reduces savings rate
3) As the government directs more and more of the economy, rent seeking is more profitable than VALUE creation.
Rent seekers are people who try to obtain income by having the government transfer benefits to themselves rather than by providing good and services to others, and the increased availability of transfers and subsidies will increase the incentive of both businesses and organized interest groups to seek gains through government largess rather than increase in productivity.
The fallacy is in believing the values that produced and led to greatest innovation in last 300 years will continue to be sustained when overlaying different social constructs and value systems. The system didn’t bring about the values the values brought about the system. If you don’t respect law (contracts, copyright etc… which other cultures have no concept of, yet try to overlay the concept of free enterprise, you end up w global capitalistic oligarchy and plutocracy…this reflects reversion to global plantation economy.
Technology has decoupled the multiplier effect benefits to most industries as corporate global entities engage in labor arbitrage, and evade various legislative measures (environmental, Labor etc…). Technology compresses product life cycles as a consumer driven society looks to the "latest and greatest", and corporate entities bury the consumer in targeted demand creation.
The majority of companies embrace sustainability as a way to legislate new consumption during an economic downturn. They have too much too lose with true sustainability. The greatest fear is an educated steward/citizen rather than a programmed consumer.
Wall Street hates a stable market it dampens activity (profits), Politicians hate solutions because they become unnecessary, Media prefers and promotes controversy (under the auspices of good ratings). Education (indoctrination)system grew out of providing labor to an industrializing mass production economy model which technology has supplanted. The base level of education required to provide value beyond that which can be supplied via tech is now amplified. Technology has inverted labor demand across many industries exponentially. Thus the overdependence on consumption economy.
We have negative leveraged societal model. The non-productive are growing at greater rate than the productive. IT IS a values issue that requires critical thinking rather than overzealous environmental scare tactics.