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The Next Evolution in Economics: Rethinking Growth

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26th Aug 2009

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From the Harvard Business Review Online, contributed by Hub Culture's Stan Stalnaker:

The credit crunch has forced people across many sectors to rethink their assumptions about how they do business, the roles of the individual in the larger system, and the very future of the system itself.

These reflections are beginning to bear fruit. We've begun to see a shift from the old, linear transaction-based approach to business toward a new, circular view, in which shared resources can better benefit all in a way that adds depth (and value) to this future economy.

Economists describe this new model in many ways. One way is to use human cellular structures as a metaphor for economic growth. Call it cellular economic theory.

What do cells tell us about business? Well, consider that cells that grow continually and exponentially (like we've been taught our economies should grow) are a form of cancer. We know intuitively and logically that continuous growth can't be sustained in living things. It's likewise unsustainable (and undesirable) in business.

But that's our current model--to just keep growing. And in this model there's no alternative to growth, only stagnation which leads to death. The result of this is policy at every level (micro, macro, corporate and public) that champions growth at all costs.

Cellular economic theory suggests an alternative to linear growth: circular growth. In the body, cells grow. Cells die. New cells grow. New cells die. On and on. We sustain ourselves through regeneration. In business, a form of staged, regenerative growth could become the norm. The growth may not even change the size of the "economic body."

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Human stem cells
Here, growth is not seen as the ultimate byproduct of an economic life cycle, but just an important one. Growth becomes one of several life cycle stages that are primarily about replenishment. Instead of growing in size and scope, companies grow in capabilities, processes and offerings. New ones come along. Old ones dies. Just like cells, growth becomes regenerative--only what needs replacing is replaced, reducing waste and improving society along the way.

For example, a brewery in India is using cellular economic thinking to grow its bottom line without producing and selling more beer. Instead it's using chaff and grain detritus to create fertilizer and biofuels--regenerating resources to lower their own production costs while widening the life cycles of their inputs.

KATIKA, a Swiss wood furniture maker, is reforesting at a rate greater than their production, using profits from their sales today to ensure the availability of resources later. In the meantime, their reforestation projects create local jobs and other sustainable benefits (home for wildlife and food, CO2 reduction) while increasing the value of formerly degraded land holdings.

In a cellular economy, key metrics change. GDP growth is less important than GDP regeneration. Successful growth takes into account the sustainability of that growth.

The most profound change in a cellular economy is the devaluation of the transaction. Today, economic value is determined primarily by the value of the transaction. To grow (even just to survive), we must keep trading, keep consuming--no matter how wasteful the process becomes--because success is creating more transactions. This keeps us locked into a linear, growth oriented paradox.
Fortunately, (if not painfully), the Internet is exposing the impossibility of sustaining a transaction-based economy. As the net drives the cost of certain goods and services toward zero, it strips profit from transactions.

In publishing, for example, the cost of information is falling while sources multiply. Same for music and other creative enterprises. Same for micro-lending versus traditional banking. Fashion and retail. Oil. Anywhere there's a middle man between the natural resource and the end consumer, the Internet is obviating the need for the middle man.

And, in place of transactions and supply chains (which are, essentially, series of middle men), communities are gaining leverage and power from these shared commodities like news and gas.

A low-level web of constant relationships, circular, cellular systems where shared, collaborative contributions are the norm, is developing. Here, the value resides with relationships, not transactions. Maybe, instead of buying and selling more and more in a mad race for grabbing the most growth, the future will be about a collaborative, community-oriented regenerative growth model.

This "economy of shares" relies on crowd-sourced contributions, a free market, and a fair dose of incentives for sustainability. When it becomes bad business to waste resources in pursuit of profit, then the regenerative model takes hold and we can kiss goodbye to the things we know we don't need but can't seem to give up. Wasteful packaging. Super-sized food portions. Environmentally damaging newspapers. Gas-guzzling SUVs.

Eventually, in a regenerative economy, we learn to focus on kaizen--constant improvements, as opposed to an ever expanding volume of low-quality transactions and markets. Call it the co-op economy. It's the kind of economic system we always say we want but can't bring ourselves to build.

If the experts are right and we do indeed need to find more sustainable ways of living, and the bankers are right in saying that we have to live within our means, and the technologists are right saying that collaborative systems are the future, then it stands to reason that the next evolution in economics is to a more natural, life-like system.

We are moving to a world where transactions will happen instantly, on demand, for free. We are moving to a time when transactions can't sustain an economy. We are realizing all systems are like biological systems--even economic ones. Growth-at-all-costs business is malignant.

It's time to apply that broad realization in new ways to the situation at hand.