The link between growth and capitalism: Why does it matter?
Capitalism in essence means ‘growth’ and ‘growth’ is a very dangerous side to capitalism. To start to unpick why capitalism is not a good route to a flourishing future, we need to understand growth and what is means.
Growth to a level is great. A child growing to an adult is great. Endless, unstoppable growth is more like the behavior of a parasite. And this ‘parasite’ is feeding off society to create it’s growth.
I’m Daniela. I’m creating this community as I go of people who just want to understand more about the world and engage with life more consciously. Here we go for this post:
What does growth mean in our real lifes?
Companies are under great pressure to keep growing– not just to keep making a profit but for the size of their profit to keep growing. Investors invest in companies. This means that they own a part of a company and as the company grows the value of their portion grows.
If the company isn’t increasing its profits every year, it makes no sense for the investor to stick around, they will move their money elsewhere. So for companies with big investors, there is a lot of pressure! They need to keep getting better and better at their game, making their processes more efficient, selling more and sourcing things cheaper so that their profit can keep growing more on more each year.
Capitalism incentivises not just profit each year, but growth of profit. This is exponential growth. Its like a fast moving train of growth that can never stop (unless the business stops).
What’s the problem with growing profit?
Profit is good for a business. On an individual level any business that is profiting is succeeding. But our economy/society is set up so that profit is most valuable when it’s reinvested for growth. And growth is the problem. When companies are operated for growth, not for profit, the types of direction businesses take can often lead them to unsustainable and unethical practices. Not every business. But if the system is set up that way, it becomes that path many will slowly end up taking.
This structure is a fundamental problem in our societies. This post is about that structure, what pressures it puts on businesses, and therefore what decision paths CEO’s might head down.
We’ll look at the logical path a CEO of a company might follow to keep growing in this capitalist system. The point isn’t how an individual CEO might behave. Individuals can behave in any way for any number of reasons (religious beliefs/ moral purpose/ etc.). Instead, the point is how within the structure of our society, all CEOs are operating in the same environment with the same incentives; to produce the biggest profits and ‘dominate’ the field they operate in.
Why is growth bad for society?
What are the risks?
For a business to make profits, it can do two things, reduce expenses and increase income (for example by making more sales). In this section we’ll look at the risks in reducing expenses, and the risks of increasing income (firstly wrt increasing sales and secondly wrt creating false demand).
Up until a point, this can make the business operation super efficient. A business might reduce expenses by finding a more efficient packing technique so that it takes up less of precious staff time. They might realise their distribution service isn’t working and improve the process. This is the good side of growth- these things are great! But since profits must increase exponentially, these efficiency actions will only take the business so far.
You’ll make good savings by getting things efficient, but the savings for that won’t be exponential in the way the business needs to grow exponentially. (Actually the opposite, they’ll be big at first and get smaller and smaller as you just shave off tiny bits of waste here and there). To keep the massive growth, you’ll have to keep pushing and pushing.
Problems with ‘lowering expenses’ to achieve ‘growth’
To reduce expenses you can pay workers less money, or put them on contracts that means they only work the exact hours you need them. You can source cheaper materials and cheaper supply chains which gives companies the opportunity to turn a blind eye to what happened within that supply chain. If you don’t run your own Bangladeshi factories but find another company to do it for you- you can hand off the responsibility for things like fires safety, working hours and safety standards in these factories. You could find materials that cost less, or are cheaper because they are a lower quality. So the drive for growth can reduce worker conditions, ethical responsibility of employed workers, product quality and possible environmental standards of supply chains.
Rather than training employees in a factory about how factories work and run to give them skills for their own futures, it’s more cost effective to put them on a single job on a production line (which doesn’t give them the broad production experience that will be valuable in their future careers). Companies might also reduce ‘extras’ for example- they may have operated a creche (childcare) so that parents could continue working. Things like this can be the first to go when expenses are squeezed for profits….it’s like handing off the responsibility of childcare to the parents to pay for. Drive for growth leads to de-skilling of workers and less responsibility for their health/life/affluence.
Why is this bad?
These practises aren’t the most efficient for the long term running of a company. They’re also not the most ethical. But when companies are under such pressure to keep growing- they will often have little choice. The pressure they’re under from stakeholders ‘now’ is the most important thing. If the stakeholders pull out or stop investing there will be no future to be sustainable for.
Problems with pushing sales to increase ‘growth’
To increase sales, you can create a greater demand for your products either by creating more ‘need’ or by reducing the competition. Big companies buy out smaller ones operating in their industry to get their product if it’s good- while simultaneously reducing the competition.
One method to reduce competition: buying up competitors
You know Siri (the apple voice recognition woman)? Siri was a product that came from an international research group in artificial intelligence voice recognition (called SRI) and was bought by Apple in 2010. Google maps work on technology by 3 companies (Where2, Keyhole and ZipDash) bought by google in 2004 to develop maps. Apple operations functions forMacOS iOS WatchOS all come from a company called NeXT which was bought in 1997. Other companies bought out by bigger ones; Instagram by facebook in 2012, linked in by microsoft 2016, youtube and android by google in 2005/6, Marvel by disney, wholefoods by amazon and so many more! On this note, have you ever seen this image of the few companies that own practically all commercial brands we’re familiar with? It’s from Oxfam- for the web page, click here.
Here is a link to a site called which corporations control the world which includes oil/tech and other industries not included in the graphic above. It’s well worth a browse! (if you scroll down to the bottom there is a proper list which to me is easier to read than the graphic)
Why is this bad?
One companies will all the skills money and power can firstly, set the prices and the standards however high they like. They also have way more political lobbying power, as I’ll discuss later on.
Problems when companies create more ‘need’ by advertising
To create greater demand, you can increase advertising to make people think they need something. This can be helpful (for example marketing genuinely healthy products) or detrimental (marketing sugary/highly processed foods as necessary for your health). Have you heard the saying ‘breakfast is the most important meal of the day?’ That’s a marketing slogan from Kellogg. It’s not a scientific fact. Weetabix and special k have advertised the high fiber content of their products. The thing is cereals are fiber in the same way that meat is protein. It’s not particularly special to those companies but since they’ve marketed themselves like that they are filling the ‘healthy’, regardless of the amounts of sugar and preservatives.
Why is this bad?
We’re being lied to! we’re being told we need things and pressured into spending money on thing we either don’t want or that we are misinformed about. It’s expensive and it just means the companies with more money have more money to advertise and grow faster, leaving behind any number of smaller run, more ethical companies.
Problems when companies create more ‘need’ by dodgy propaganda marketing
Nestle used to run education interventions where they taught women that their baby formula was healthier than breast-milk. They gave mothers free samples ‘out of charity’ for just long enough for their milk supplies to dry up. After that, they had no choice but to keep buying. Some companies create products that are designed to last only 2 years rather than 2 and a half to increase (overall) the amount product people need to buy. Some phone companies bring out constant software changes that slow the operation of older phones, making new ones more attractive. Again it is what it is, but it’s not ideal.
Why is this bad?
Having to consume more is more expensive to buyers and creates so much more product and waste. This strains natural resources and the environment and creates more of all the damage like water use, electricity use and pollution along the way. It’s also not fair- we should be able to buy a product to use and be done with it- not get tricked or forced into buying more!
LAWs and REGULATION: another way businesses can squeeze their profits:
One other factor standing in the way of profit is law and regulation. It would be cheaper if you used slaves rather than paid staff- but this is illegal. It would be great to not pay taxes- but you have to pay some taxes. And so while law and government regulation are technically out of the companies control, they’re not entirely out of control. Money buys power and political influence. As you can see in this little picture, this influence is a very important part of big business and this creates some very dangerous dynamics.
Why is this bad?
The government should act in the best interest of the people. If they are receiving large amounts of money from a company, they will be expected to act slightly in favour of that company. That could be the opposite to what is goof for the rest of society. For example, society might benefit from no false advertising, less advertising of junk food, companies paying taxes, good workers rights. Logically, these are the sorts of things that companies would lobby against.
So, we’ve seen that even though any individual company can run in whatever way it likes, the high pressure for profit and growth leads to operations that might be fine at first, but can often stray to the wrong side of ethics. These are the risks of companies driven purely for growth. And ultimately it’s a really illogical, destructive side of our capitalist systems.
What can we do about it?
Ultimately it’s a matter of incentives. If growth incentivises reduced ethical practice, what if that could be flipped so that companies received tax refunds for super high ethical standards? We know consumers don’t just shop for price, if there was an ethical score for a companies behavior, would over market shift towards them? Imagine there is a Tesco, a Sainsburys and an ASDA on your street. If one had a really high ethical score and one had a negative ethical score- would you take that into consideration in your purchase decision. If you even thing you might, chances are many people definitely would.
There are so many ways the system would work better for the people, if we could change the incentives under which the business operates.
Thanks for reading this post on the risks and dangers of growth!
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