How does business work in a low to no growth environment? Prof. Dr. André Reichel talks about the challenges and opportunities for companies in a postgrowth economy
Prof. Reichel, you are working on issues of postgrowth and business for many years – what changes are we about to witness in the next 10, 20 or 50 years in the economy?
Across Europe, we most likely will see receding economic growth rates in the coming decades. And although the global economy continues to grow, it does so at a significantly lower pace than in the years before the financial crisis of 2008/2009. At midpoint of the 21st century, global economic growth rates probably will be below one percent per year. That does not imply that business cannot grow in such an environment. But you will need new business models and a stronger sensitivity towards the rest of society. Regardless what you do, your business will need to become less growth-dependent and still be able to deliver a decent return. At the same time, this raises the question about the meaning and purpose of business: to increase (monetary) profits or maybe delivering better, more socially inclusive and ecologically friendly problem solutions for customers and other stakeholders.
Which industries need to react rather fast, which will probably be less impacted by such a postgrowth scenario, where do you expect more radical change?
All those industries that are CO2 and energy intensive will feel the pressure on all fronts rather sooner than later. And if you read the news about the current situation in the automotive industry – and I am not talking about Volkswagen’s Dieselgate and its spillovers to Audi, that will haunt the company for years to come – a business as usual approach will surely lead to great economic and reputational losses that will kill off opportunities for future business. Technological and regional niches might protect some companies. If your business is labor intensive and local oriented you also will be able to manage a low to no growth environment. Especially companies that are in one way or the other working on circular economy solutions like reusable and remanufactured products or provide services for lifecycle extensions and different ways of recycling can expect more opportunities than threats from a postgrowth economy. In general all companies will have to deal with an economic environment that combines low overall economic growth with pressures for becoming more CO2 and energy efficient. Low growth, low carbon and low energy constitute a magic triangle for business in the postgrowth economy.
What would you suggest for companies that have been focused on growth until now?
Adapt or die! If your company’s success is fixed on increasing revenues in combination with an increasing absolute ecological footprint, the question you have to be able to answer is this: how can you ensure the viability of your business with less – footprint, revenues, growth. What kind of business will this then be? This directly leads to questions about the product and why customers are paying money for it in the first place. In the aviation industry, the main ecological product is CO2 and the customers are paying for CO2 emissions – more of them as long as passenger mileage is increasing, despite the industries best efforts to become more efficient. Even today this is hardly sustainable but in a world where the magic triangle holds, it is downright deadly for a business. However, it is not just about the product and the question, for what kind of business a company can bill the customer. Questions about the legal and political contexts are just as important: publicly traded stockholder companies vs. going private. Is the large-scale stockholder corporation still an appropriate legal form for business activities or are foundation-based companies or cooperatives better suited in dealing with low growth, low carbon and low energy?
What strategies are more suitable for dealing with postgrowth then?
At least four generic postgrowth strategies can be identified today.
First: concentration on a technological and regional niche or a very well defined customer segment. Excellence trumps everything in such a strategy and ensures a steady, albeit not growing, revenue stream with low competition from others.
Second: an aggressive red ocean strategy of domination in one’s industry, on a certain market, in a certain product category. Risky if you lose that game but the winner takes all in a quasi-monopolist fashion. Be aware: even with this strategy you have to prepare for a finite expansion once you dominate your market.
Third: the provision of goods and services that enable sufficiency in customer lifestyles thus reducing material and ecological footprint on an absolute scale. Sharing solutions that crowd out material-heavy product ownership are one step into that directions, although with low consumer involvement.
Fourth: collaboration with customers turned active prosumers, incorporating them as an active part of the value creation. Your company might even take a more backseat position here, focusing on enabling customers to design, create and re-create individual solutions for their problems. Taken to the extreme, your company would be an enabler for consumer subsistence with easy repairable products and self-make know how transfer. Small-scale manufacturing technologies with low fixed costs, like 3D printers and other generative forms of production, are an integral part to this strategy.
How is this change towards a postgrowth economy altering our understanding of innovation?
When we here the term »innovation« this often conjures images of »new« and »more«. My colleague Niko Paech from the University of Oldenburg here in Germany argues, that novelties can also act exnovative. Exnovation is one specific form of innovation and can best be illustrated with the »Energiewende«, the transition from a fossil energy system towards one based in renewables. Exnovations crowd out overtly growth-dependent, energy and carbon intensive products and business models. Some aspects of the sharing economy actually work exnovative like e.g. carsharing.
Innovation, however, does not always require something new. Renovations are focusing on re-design, re-manufacturing and re-use of already existing products by extending their lifecycles, thus saving energy and material plus enabling companies to tap into new opportunities for creating value added in a weak or non-growing environment. Imitations are also old novelties that used to be applied in the past but, for one reason or the other, fell out of fashion. The rise of organic farming is actually an imitation as farming before the agri-chemical revolution was nothing but organic.
Exnovation, Renovation and Imitation are all elements of the option space for postgrowth innovations.
What changes can we expect on the consumer side? How will we as individuals perceive this change towards postgrowth?
Consumer capitalism as the predominant trend and economic paradigm has liberated us from social dependencies. We can organize our life the way we want it, we can buy those products and services that we wish to buy – if we have the necessary income. However, by emancipating us from social dependencies – the many social and mental cages that are traditional families, rural or suburban structure – we also severed social cohesion and social ties. This is more and more perceived as a dramatic loss, a price probably too high to pay. Consumer capitalism also diminished our abilities to provide simple services to ourselves like repairing products or taking care of children or our elders. Autonomy has been substituted by market heteronomy: we have to buy otherwise we are totally helpless.
Some of these developments will be certainly readjusted. We already see this readjustment process when people come together in urban farming initiatives or in repair cafés and makerspaces. In these experimental arenas, autonomy is re-learned and transferred from the market sphere towards the individual in interrelation with others. We surely won’t go back to growing our own food, not in its entirety and not as a mass movement. But every one of us will re-take certain aspects from the market and from capitalism and become creators and producers ourselves.
This is the great opportunity I see her: the transformation towards postgrowth can enable new forms of entrepreneurship, of doing things for yourself and for your community, a vision of freedom in interdependence with others.
Prof. Dr. André Reichel is Professor for Critical Management & Sustainable Development and Head of the study program on International Sustainability Management here at the Karlshochschule International University. His main research focus is on business and civil society in a postgrowth economy. More info about him can be found at www.andrereichel.de
This blog post was translated into English from an interview with the ZukunftsInstitut in Germany.