All too often there is dissonance between our roles as workers, family members and owners of capital on the one hand, and our responsibilities as global citizens on the other. This tension comes to a head around the issue of economic growth. Continuous growth maintains employment levels and creates jobs for new entrants into the work force. Growth is the rising tide that can lift all boats, avoiding painful tradeoffs. Growth puts money in investors’ pockets and raises the overall standard of living.
Yet it is obvious to many of those that depend on growth for employment, wages, and investment income that the status quo is unsustainable. As China and India take baby steps toward a Western standard of living, energy prices are going through the roof and greenhouse gas emissions are rising every year. Beyond environmental risks, the constant drumbeat of economic growth crowds out other goods such as leisure, civic participation, personal development, health, sleep, hobbies and time with friends and family.
Some of the problems with growth are definitional. We manage what we measure, and GDP skews perceptions and policies by lumping together both good and bad growth. In order to isolate the positive side of growth, the non-profit group Redefining Progress estimates a “Genuine Progress Indicator,” or GPI. This measure adjusts personal consumption expenditures for income inequality, and then adds or subtracts categories of spending based on their impact on the nation’s well being, broadly defined. “Defensive household expenditures” in response to a declining quality of life are subtracted, such as money spent on pollution abatement and security systems, and adjustments are made for the depreciation of environmental assets. Time spent on parenting and volunteer work is added back in, as are the services provided by cars, refrigerators and other consumer durables previously manufactured. Not surprisingly, the GPI is rising much more slowly than the “all growth is good growth” GDP. We can only meaningfully accelerate sustainable growth if we develop widely accepted metrics that accurately track social and economic progress.
No doubt, many people in developing nations need to consume more and their economies must grow. All the more reason for us to rapidly change our measures of social success — to develop indicators that reward good growth while inhibiting harmful growth. Rather than accepting unhealthy growth as a necessary evil, investors can choose to put their money toward products and providers that support genuine progress and avoid those that generate high social costs. Since sustainable efficiency makes practical business sense, good growth can underwrite the double bottom line of financial and social return. A recent study evaluated the investment returns of companies based on their “eco-efficiency,” defined as the ratio of the value a company adds with their products and services to the waste they generate. While industries with heavy environmental impact such as oil, gas, chemicals and utilities scored badly in general, the authors identified the best-of-sector performers in each part of the economy. The “eco-efficient” portfolio created substantially better investment returns than the companies with less eco-efficiency.1
Growth can be sustainable, healthy and profitable, or it can be dangerous, destructive and self-defeating. Getting the right kind of growth requires good metrics, as well as purposeful consistency in our varied roles as consumers, workers, employers, citizens and investors.
1 Jeroen Derwall, et al., “The Eco-Efficiency Premium Puzzle,” Financial Analysts Journal, March/April 2005, pp. 51-63.