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Make the cake better… not bigger

James Vaccaro unpacks the language of growth

James Vaccaro unpacks the language of growth

Unpacking the language of growth is difficult and, at times, counter-intuitive. The notion of growth that we grew up with seems fairly simple – things grow in the natural world, taking the place of the things that die off.

‘Economic Growth’, however, is a very blunt averaging tool which is based upon the increase in GDP.

James-Portrait 320

Several things, like wars – for example, can contribute to GDP growth although clearly they’re not something most people want to see more of! A lot of GDP growth is caused by the manufacture of more ‘stuff’. It all counts as ‘growth’ whether it really benefits us or not and generally it does not take into account what is removed from the planet in order to produce it. If you analyse the contribution of different business sectors in the UK economy then Financial Services contributes far more to ‘economic growth’ than agriculture.

This picture sits uncomfortably with how most people actually value these business sectors in relation to one another. The public have a more grounded recognition of what is valuable to the economy and this is often not correlated to what contributes to GDP. So we have a conflict of definition for what growth means. Some economists and politicians using the narrower lens of GDP growth compared to what growth means to most people. People generally want to see more of what they value – which can often lead to a growth in quality rather than quantity. Yet when we hit difficult economic times, politicians tend to talk about needing to boost growth above all else and ask “how can we make the cake bigger ?”. For many people, the question is how can we make the cake better – in terms of taste and nutrition.

“When we hit difficult economic times, politicians tend to talk about needing to boost growth above all else and ask “how can we make the cake bigger?”

James Vaccaro, Head of Market & Corporate Development, Triodos Bank

Old-mainstream thinking

The common riposte from old-mainstream thinking is that GDP growth is necessary for jobs and for funding the public sector. When you analyse the political language around this you often find that people merge that statement into an argument that GDP growth is sufficient for creating jobs and for funding the public sector. Unfortunately for both theories, the data shows too many counter-examples for this to be a valid theory.

However, equally untrue is that no GDP-growth (or GDP decline) is sufficient for a successful economy either. It turns out that GDP growth is just not the most useful instrument for determining the success of an economy or other social outcomes since it is not composed of an evenly weighted balance of what people really value. There are many groups working on developing new measures – including the Happy Planet Index and Gross National Happiness. They are likely to be refined and implemented over time. However these measures are all proxies for things which we already fundamentally experience and understand within ourselves – they are the answer to the question “how much do I value this?”

Influencing positive growth

We all have the potential to influence what grows and what doesn’t in our everyday lives. As customers, savers, investors and citizens we are faced with a constant stream of decisions to make, all of which have their own ripple effects on how an economy evolves. Many people who are conscious of environmental issues such as climate change and energy security are very motivated to help grow the low-carbon business sector. Let me address something else at this point since using the word “grow” again presents a challenge for those wanting to support the growth of something positive (like low carbon businesses) but feeling uncomfortable about the concept of growth. This is generated by difficulties of the language around the definitions of growth.

“We all have the potential to influence what grows and what doesn’t in our everyday lives. As customers, savers, investors and citizens we are faced with a constant stream of decisions to make, all of which have their own ripple effects on how an economy evolves.”

James Vaccaro

If we unpack what we are talking about here, many people want to see the growth of a low-carbon industry that will replace (or accelerate the decline of) the fossil-fuel economy. This is an infrastructure transition project. It requires a lot of growth by low carbon businesses including utilities, manufacturers, installers, contractors, consultants, professional service providers, financiers, and others. They all need to be well-run, efficient enterprises which are commercially successful in order to grow. However their growth will stimulate the necessary decline of the high-carbon resource-extractive infrastructure that we have in place at the moment: one which continues to borrow from our collective future at a rate that we cannot repay.

The net effect of this growth and decline is not likely to be GDP growth – it will create transfer of jobs and skills into something that we recognise as building sustainable value even if it isn’t reflected in national economic statistics. It will help make our economy more resilient and sustainable – decreasing our reliance on imported fuels, helping to curb the generation of damaging greenhouse gases and reducing the costs of energy and future climate change adaptation.

A more sustainable and fairer economy

Triodos Bank has been working hard to help many hundreds of these new enterprises to grow. Our vision is that our finance, provided by our customers, will help accelerate the transition to a more sustainable and fairer economy. We work with entrepreneurs whose motivation is to create these transitions and to inject a new sense of care and respect for the world and for society. They want to create businesses that are valued by people and which positively transform our planet.

Social enterprise has become a sector burgeoning with entrepreneurialism – but not one based on personal enrichment, but one of serving society’s needs. This is incredibly motivating for the stakeholders who interact with these new-economy businesses – customers, co-workers and partners tend to talk about how much they value their connections to the mission and culture of the organisation.

These organisations are looking to combine the efficiency of good business practices with goals that are genuinely motivating. This releases them from the trap of having to rely upon incentives to motivate. A huge part of the financial sector spiralled down the vortex of incentives – stripping bankers of any sense of social purpose and replacing their motivation by financial incentives which became seen as the only reason to perform in their jobs. But banking and investment can fulfil a hugely motivating social purpose. Arranging the finance for a new entrepreneurial vision to come into being can be the most inspiring experience. Seeing for yourself that the skills applied in managing financial and contractual risks can result in energy and inspiration being released to create and develop valuable organisations and projects is incredibly satisfying. I would liken it to the satisfaction of a teacher seeing a pupil develop a new skill and flourishing in their studies.

This is the experience that we are trying to foster at Triodos Bank – to inspire a new generation of bankers who are lead by motivation to do a job well to the extent that it serves our wider purpose, to grow a new fair and sustainable economy. That doesn’t need financial incentives – we don’t work with the bonuses used in other financial institutions – because they aren’t needed. And since all of the bonuses in the financial system contribute towards a part of GDP growth many feel we could do without, we begin to see how prosperity without growth could be successfully attained.

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