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Chase of Short-term Growth

What is the problem anyway?

If you have watched or read anything business related these days, you probably have heard the buzz word growth. Economy grows by this much, corporate earnings grow by that much etc. It looks like anyone in business is fanatically obsessed with growth. The problem is that the growth that they talk about is short term and not long term and this is very destructive.

Being myopic is a standard these days. The average attention span of an investor is 1-2 quarters away. I feel that we will start splitting financial years into months and not quarters pretty soon. Of course that push from investors, has led to big pressure to business people and officials. In a world of capitalism, the investor is on top of the food chain and sets the pace.

Focusing on the numbers quarter by quarter is harmful and always has bad consequences in the long term. This pressure sometimes makes you even break the law.

Show me the evidence

I recently came across the case where Fiat Chrysler forfeit sales in USA. They pumped sales through the dealers by making them “buy” vehicles in this quarter and return them the next one. They did it because investors wanted…growth. And while Fiat is only one case, the other example shows the big picture in markets. We have witnessed record stock buybacks this year. Corporations are faced with flat earnings but the stock price must go up. So they borrow cheap money and buyback their own stock, while demand/supply dynamics start to kick in and stocks start to go up. This is one of the most devastating deployments of capital. Instead of spending on R&D, human development, technology, ecology, corporations borrow money only to buyback their own stocks. I hope you find this absurd.

The picture is no different in the public sector. Central banks have been on a printing money spree to boost growth. Officials do society wide changes to boost economic growth for the next quarter. With economy in sight, they disregard all other aspects of public life – culture, education, ecology, health care etc. Nothing gets that much energy and attention as the growth of economy.

Is there a solution?

The truth is that i don’t know, but am rather pessimistic. Greed has always been on the surface of most peoples’ actions. In the past we didn’t have the means to self destruct so fast but now we do. We have global markets where capital flows with stunning speed, we have the technology to destruct nature and extract resources in a matter of few years. You can study the case of Nauru (and not only) to see where my pessimism lyes. In order to prevent that, we need: new economic system which no one knows what to be, we need new ethics, we need to remove old elites that clinch to their riches, we need a new global mindset of what is sustainably right and what is not. Even if this is possible, this would take decades at best. The other solution is to conquer new planets so that we may expand as much as we want with disregard of sustainability. That, however, might be also decades away (hope i am wrong). Not all stories have a happy end, unfortunately. This is one of those.

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