The Relentless Pursuit of Growth and Low Prices; For How Long Can it Go On?

There has been an impressive growth during the last seventy years in the Western world.

This growth was initially fuelled by rebuilding post – war Europe and catering for the needs of an increasing population in the US. We produced more and we consumed more. Companies were rewarded with capital investments and higher stock prices.

When the growth at home slowed down, the leaders of these companies tried to find ways to compensate for it. They moved some of the production in countries where wages were lower and sourced components in countries where they cost less. The products became cheaper and as a result they were affordable to more people both at home and abroad.

Again the companies were rewarded with more capital investments and even higher stock prices. The leaders of these companies proudly talked about the value they created in terms of billion of dollars. They also talked about the high number of jobs they created at home and the millions of people who moved above the poverty line in the countries they invested (which are positive developments). Pension funds and governments also enjoyed the benefits of this success since their investments increased in value.

This relentless pursuit of growth and low prices had many unintended consequences too.

First, for the model to work, people need to consume. The more, the better. Lower prices entice people to do so. To achieve these lower prices, manufacturing and supply chains (and many jobs with it) moved to lower cost countries. When a few companies did this at the beginning, it was revolutionary and they were rewarded for this innovation. Now most of them have to do it to stay competitive.

At the same time, people got used to buy low cost stuff that don’t last long. This false sense of prosperity encourage us to consume more (it is difficult to resist to the sophisticated marketing to which we are constantly exposed to both online and offline) with detrimental implications to the environment.

As jobs move to other countries to reduce costs, the senior managers of these companies are very well remunerated. Their annual salary is many times higher than the average salary in the companies they lead. So, they are further incentivised to go aggressively for more growth without considering the negative impact to the society.

Hindsight is a wonderful gift. Now it is possible to see both the positive and the negative sides of the system. The lower prices of goods we all enjoy don’t include either the price for the jobs that migrated to lower wage countries or price for the polluted environment – which we will all have to pay in the end.

Although we cannot change what happened in the past, we have the opportunity to change what will happen in the future.

The system cannot focus only on efficiencies. We need to find metrics that track the wider impact on the society and reward companies that do good. (What gets measured, gets managed). We don’t only have a responsibility but also a collective interest to do so.

On a personal basis, we need to be aware that our consumer behaviours matter (a lot). If we change from a cost-minimisation mindset to a value optimisation one (in other words buy fewer but better quality products which might cost a bit more but will also last longer), change in the way the companies operate will also follow.

Why you need to care: The relentless pursuit of growth happens by continuously reducing costs in order to achieve lower prices. This model has significant implications on societal structure and climate change which sooner or later will affect all of us. As consumers, we can be part of the solution by changing our behaviours. Companies will eventually have to adjust to our new habits.

I started the b4iapply blog because I passionately believe in empowering people to make informed decisions about their career, their finances and other societal topics that affect all of us directly or indirectly. I only share my views and I aim to be balanced and constructive.

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