Good growth – does the world need it or get it?

PwC’s Malcolm Preston asks if western governments are pursuing the right sort of growth

Returning from an overseas business trip last month I read a report of Obama’s climate action plan. It described it as adding-up to “one of the most extensive reorganisations of the US economy since the 1930s”. A few paragraphs later, the same article went on to warn how many jobs and businesses Obama’s proposals could cost America.

It underlined the gap in our definitions of growth and recovery – we like to prioritise GDP and jobs ahead of our environment, society and the economy. Irrespective of your views on the definition of green government, international competitiveness and growth are increasingly driven by energy (both efficiency and security), climate resilience and infrastructure.

But what struck me when travelling between locations as diverse as Jakarta and Silicon Valley over the past three weeks is that while we all talk about growth, developing and developed nations are talking about two different types of growth.

The first question I always pose in these trips is “what’s the first thing on the mind of CEOs and government here?”

Different countries, different economies, different states of development, but one unanimous answer – “growth”.

Whether we like it or not, in the society we’ve developed, growth is a proxy for success, and the overriding driver of our decisions. People need growth to sustain their livelihoods. Businesses need growth to satisfy their shareholders. Governments need it to maintain employment and promote well-being. The world as a whole needs growth to support a rapidly increasing global population and bring billions of struggling citizens out of poverty. But what citizens, businesses and governments understand by “growth” and what it’s there to achieve may differ and will demand trade-offs to alleviate potential conflicts.

What was self evident from my recent trip is that the developing world is not as worried about creating growth – they’ve already got it. What they want is the more inclusive elements of growth – jobs, social outcomes and using their natural resources more sustainably. In the developed world, where growth has stagnated, there’s still a large drive towards reinvigorating growth, with a hope that it will be reflected in the next quarter’s reports. So, paradoxically, it seems that developing economies are more focussed on longer term goals, with many in the developed world more focussed on the short.

One of the toughest questions for today’s governments is how to achieve balanced growth that is financially, socially and environmentally sound. Britain’s road out of recession is understandably causing policy makers and commentators to focus attention on quarterly GDP figures as the key indicator of our economic health. But, our own analysis of a citizen’s perspective tells us that growth isn’t just about money: it comes in lots of shapes and forms – jobs and income are important, but so too are affordable education, health, housing, transport, infrastructure, the environment and work life balance.

PwC’s Good Growth in UK Cities report shows Aberdeen, Bristol, Oxford, Preston, Portsmouth, Southampton and Stoke on Trent (not the usual big city suspects) as the highest ranking because they do relatively well on jobs, income and health, as well as providing for the future and the environment. If we’re surprised by what we see in the UK, we can’t be surprised when we see something similar happening on the world stage too.

One manufacturer I spoke to in Indonesia described how he wanted to double his business’s size over the next three years (… so far, the familiar language of the City). But he wants to do it by doubling the productivity of his small holder providers rather than increasing the number of suppliers he has. He believes improving the productivity of his suppliers gives him a loyal and productive supply base, as well as good outcomes in terms of jobs and income for those involved. This is a different way of thinking about growth and a new language for business. Contrast this with the UK’s “productivity paradox” which shows that since 2010 the private sector created 1.3 million new jobs in the UK, but the country’s productivity is now lower than pre-recession levels.

The key question is how to bring all businesses on board and harness their support for this “good growth”. First, we need to make sure impact measures are sufficiently consistent to provide meaningful comparisons across business. Secondly, we need a combination of carrots, sticks and enablers to encourage more businesses to take up their use. First movers have already come to the fore in many areas of impact measurement. Observers in the US last week will have rightly noted that many businesses and State Governors were ahead of the Climate Action Plan. Some fast followers are now joining them as they see the potential upside benefits and understand the potential risks of falling behind. But what about the rest?

Moves like Obama’s can only be a positive thing, but where it goes from here is less certain. There is a clear downside risk if businesses fail to take their broader impacts into account. If no one wants to be the Energy Minister when the lights go out, then who’d be the CEO whose industrial plant has to close because of a lack of available water or sufficient skilled people locally?

But what I worry is that there is, in our view of recovery and growth, a hidden and untapped upside that is being missed in strategic decisions because of how returns are measured. The manufacturer in Indonesia who wants to work with his suppliers to double productivity has recognised the much wider social benefits in terms of skills, jobs etc, but we haven’t yet come up with a way to quantify or value those benefits.

Significantly, from both a policy and business viewpoint, last month’s announcement on the Post 2015 Development Agenda shows how there will be increased government focus on rethinking how growth can be measured more holistically and the role the private sector should have in the agenda.
What’s clear from the initial conversations we’re having with businesses is that the focus on growth won’t change, but what will change are the measures, language and rewards that are used to define it. There are strong commercial imperatives for businesses to manage their activities on a wider social, environmental and developmental agenda, alongside traditional financial performance measures – a good growth debate.

Business Green