For sale: one economy, slightly used

In a couple of previous posts (here and here), I’ve written about the effects I expect to see social media have on the financial services industry – particularly retail banking and insurance – this year. The reason I expect to see companies in the industry explore social media is the need to re-establish themselves as being trustworthy by interacting with their customers in an open and trustworthy way – something social media can be perfect for (See Christophe Langlois’ discussion of VanCity’s “Change Everything”, for example).

However, there is a deeper question to ask concerning not just how financial organisations regain trust, or even how to regulate their behaviour to avoid a similar crisis in future:  the question is whether our current economic system is set up to achieve the right objectives at all. My previous posts contained links to some articles exploring this theme, but Umair Haque at the Harvard Business School has just posted a much more direct call for a “Smart Growth Manifesto” on his blog.

Umair’s post echoes a special issue New Scientist magazine ran back in October on the theme “the Folly of Growth”. Articles in the magazine argued that current expectations of continuous economic growth (a trend that, until now, has withstood periodic recessions) cannot reasonably continue, on the following basis:

• Each dollar of GDP value can be associated with an estimate of the resource consumed in its creation.
• Even assuming a relatively modest rate of future growth, at the current level of resource usage / $ of GDP, and at the current level of reduction in that figure, we will rapidly run out of resources.
• If the expected rate of growth is increased to reflect one of the benefits of growth often cited by free-market economists – i.e. an improvement in living standards in emerging and developing economies driven eventually by growth in developed economies), then we run of resources incredibly fast.

One of the New Scientist articles went on to calculate an answer to the following question: if we want to drive economic growth at that level, how much more efficient do we need to become at utilising natural resources to achieve it?

The answer (based on their assumptions) was frightening: 5 times better to achieve modest growth; 50-100 times better or more if our goal is to lift the entire world to an equivalent standard of living to that enjoyed in today’s United States.

There are, of course, a huge number of assumptions behind those figures, not to mention questioning the basis on which “standard of living” is measure (i.e. to what degree is the quality of life of someone in the U.S. or anywhere else determined by their consumption of economic or environmental resources?).

However, to me the message is clear, we must be driven by goals that are not entirely based on monetary growth. As individuals, of course, that’s true already (Mr. Madoff and his like excepted); what we need to see now – as Umair has pointed out – are economic systems that reflect that.