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Sustainability and Economic Growth

Sustainability is sometimes difficult to define, especially when you try to avoid negative perceptions and/or implications. Consequently, many quantitative and qualitative descriptions only partially cover the global reach of sustainability. In my opinion, one of the best descriptions comes from the forestry sector and is about 200 years old:

Most valuable trees across continental Europe need about 60 to 120 years to reach those sizes, which have value for construction and other industrial usage. Modern forestry uses the biological fructification of “adult” trees to obtain new young plants (saves considerable costs in planting). To yield the optimum tree size and shape from saplings, forestry needs to reduce the density of “equal” plants several times within this period of 60 to 120 years.

From this example, one clearly recognizes the balance between (re)production and harvesting of wood. The relatively long period of 120 years requires a long-term business plan, which can’t be shortened obviously due to the time needed for biological growth. Cutting trees for short term profit might lead to a strong negative impact on the fructifications (and by that on the next generation of forest).

Although this is easy understandable, it isn’t generally known.

Most definitions and descriptions of sustainability similarly illustrate the useful productivity of long-term human ecological systems. The human impact on sustainability is best described by the Brundtland Commission:

Sustainable development meets the needs of the present without comprising the ability of future generations to meet their own needs.

If we review the development of business, trade, and ecological development over the last 50 years, it’s more than evident that this globe is restricted. Therefore, we can’t export our issues, problems, and waste outside the scope of our environment. Consequently, if we fail to apply sustainable practices and methods, we will reduce and impede our production resources and the factors that support life in general. Such behaviours and attitude will undermine economic development in many ways. 

The term “economic growth” is perceived as easier to define, as this is founded on quantitative terms of investment and profit. Geographic expansion of markets leads to the simplest form of growth: linear extrapolation or scaling. Reduction of the cost/income ratio, drives performance and efficiency in production and service provisioning. Delivery on expectation, combined with short-term progress reports, drives further expectations for harvest yields by almost completely ignoring the scientifically-proven need for long-term investments. This, in itself, automatically leads to the assumption that markets in emerging economies can be developed along the same lines as those of industrially developed countries. In making this assumption, the developed world exports its business models to other third world economies, assuming similar pre-conditions. These simplistic assumptions and subsequent efforts to stimulate demand generation could create large problems, as markets can be fundamentally different.

Economic growth deals with global impacts. These impacts can be grouped geographically but can also be subjected to cross-industry alignment. Geographic constraints, known from European markets over the period of 1950s to the 1980s, don’t have such bearing in the 21st century. Markets behave on a more regional scale covering multiple countries. The development of markets is not restricted to consumption only. That implies that any market development deals with cross-industry objectives, covering healthcare, public service, and government agencies.

With this consideration, one might ask about the role of competition and the pseudo-advantage of mistakes made by other market participants/developers. Just from those considerations it becomes apparent that competition differs in its meaning and impact once sustainability becomes a key constraint of market development.

Another important constraint of market development deals with the resource “knowledge and expertise”. The utilization of products and services outside the scope of its original purpose (typically when understanding is flawed) mostly leads to frustration pointing to mismanagement and wrong investments. So, development of an educational infrastructure is one of the basic criteria of sustainable market development. This is necessary to keep these geographic areas prepared for other (successor) products and services (which provide a higher living standard and therefore require a higher level of education/abstraction). In parallel, we know that educational development interferes with local and specific, but distinctive (to western industrial countries) value perceptions.  Regional market development isn’t led by demanding considerations, but deals with intermediate aspects, biased by culture and history. A market can’t be shaped by outside factors only: the consumers, traders, and service providers differentiate the market, where it fits the local, specific needs.

Knowing market development doesn’t respond to the trivial export of industry- and country-specific market mechanisms into other regions, we have to ask about requirements from cross-industry responsibility disciplines and how it resonates on the optimism typical of short-term financial profit management. The answers to these questions will result in a strategy to develop business models appropriate for such regions, taking into account localized differences, characteristics and with respect to associated ethics.

Typical to western markets is the demand regarding flexibility and mobility. In the development of industry markets over last 50 years, the immigration of workers played an important role in shaping the size and balance of trade ecosystems in the west. Within Europe, 1,500 km distances still separate people with distinct cultures, ethical values, and heterogeneous historical roots. Within Europe, in both directions north/south and west/east there are considerable differences in employment profiles and economic stability. In this situation, sustainable market development has to include assimilation of representatives from diverse populations with different sets of values stemming from different roots: ethics, language, etc. This becomes a major educational and cultural exercise for Western European countries, as assimilation deals with both naturalized and native inhabitants.

The other consideration (of mobility and flexibility) resulting in changes of work locations has equally critical impacts. This factor refers to the relocation of production (from a holding perspective) as well as the provisioning in the supply chain (typical for engineering and construction together with other industries). The opening of the European market in the early 1990s started a hype, with regard to prospective increases in performance etc. of western companies, as they sought to expand their production and supply chain providers. At the end of 2007, Nokia announced the relocation of a production unit from Germany to Romania. This drive for optimization, fuelled by the holding and market perspectives, led to a dispute regarding a catastrophic impact on the workforce in one locality with a corresponding bonanza for another local workforce. It also opened up debates about subsidies paid by regional governments to support areas with infrastructural weaknesses.

Although the examples of workforce assimilation mentioned above are illustrations of contrasts and tensions that happen in areas less than 2000 km apart within Europe, it clearly indicates the content and magnitude of the challenges of the next level of industrialization. Resolution of these challenges needs differentiation in regional (i.e. European) and global dimensions (China, India, South-East Asia, Africa, …). Also, special consideration must be given to the size of affected populations. Additionally, we know that this sustainability is driven multilaterally and is not determined only by “wealthier” countries in the west. This can be easily recognized when you consider the demographic development of different populations across the globe over last 10 years.

When you consider the concept of sustainable, economic growth, it becomes evident that this development clearly deals with education and more specifically knowledge challenges at school and university, as well as in research at universities and within industry. Therefore, sustainable economic growth across the globe requires guidance and responsibility in the long term. We need more than mere “training on the job” methodology to spot and target performance at the lowest level of education. We also need large involvement from governments, as well as primary, secondary, and tertiary educational sectors, with dedicated input from public organizations. With this cooperation, we can establish and nurture the fundamental values required for sustainable economic business models in different, distinct, local, and country-specific flavors. This governmental support isn’t just restricted to UNO etc.

Another element of sustainable economic growth deals with the monetary impacts. What we mean here are definitions of profit on timescales as well as the provisioning of financial support and services to enable private investments. In the light of the actual crisis within the financial services industries, this might challenge society to change the procedures typical for investment, financial profit, and shareholder value, etc. These changes and adoptions are necessary, as we still basically dealing with the set of business values we perceive as common since the beginning of this century.

If we export our financial services structures directly into emerging economies, we know that sustainable development is limited and we have to manage different forms of corruptive business, biased on historical dependencies, etc. These society structures are perceived as their local translations of western capitalism.

Because market development in emerging countries can’t be performed by one industry only, the definition of benefit/profit requires a reconsideration, with respect to the joint venture setup. This requires a reallocation of benefits. Market development requires solid foundations in education and research; therefore, achieved monetary benefits should be re-invested in that market to strengthen achievement and utilization of expertise, while simultaneously supporting self-provisioning by natives. As market development deals with the upsizing of psychological responsibility, it’s not enough to export only one element of the value chain. This market development requires guidance and supervision built on expertise and best practice. That implies that business models in western countries need to be changed towards intellectual servicing to enable production in emerging countries.

As a result of this discussion, growth can’t be measured in quantitative terms only. It requires qualitative dimensions on top. Growth becomes a value in psychological achievements and a perceived indicator of global progress. And sustainability deals with education, awareness, and knowledge of specific markets. Sustainability is not determined and dictated by western countries only.

This discussion was based mainly on insights and experience from Europe. To broaden the scope and extend the analysis to other continents, we know that market sizes vary and common denominators are sparse. Ethics play an important role in determining values, while education systems and structures require more flexibility from teachers. A global study of sustainable growth is already daunting, before we even tackle and process results from one region (e.g. Europe). An early change of mindset in developed economies could conceivably be a major boon for the prospect of global sustainable growth.            

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