In Pursuit of Elusive Growth?

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Submitted by Upoma Dutta on Tue, 03/12/2013 - 23:00

“Be a part of growing businesses”. Most young professionals – like me – who have googled for career management tips must have stumbled upon this brilliant piece of advice from Warren Buffet, the legendary billionaire whose sheer shrewdness has made him the most successful investor at Wall Street and beyond. And the advice holds ground. After all, a growing business – even if it is still at its nascent stage – provides more opportunities for development since – compared to a large, sluggish company – there is more work than there are people to do them and the marginal reward from going the extra mile is higher. Not surprisingly, the very potential of growth (and the accompanying opportunity for development) has attracted so many young people to Silicon Valley – not just to become entrepreneurs but also to work for fledgling start-ups.

More than five years since the onset of the 2008 global financial meltdown, “growth” is the most sought goal and yet the most elusive one for businesses and economies alike. A business can be regarded as a microcosm for the wider macro-economy in terms of the benefits that growth can unravel for its members. A fast-growing economy is in a better shape to tackle many of its inherent problems, such as infrastructural deficiencies, unemployment and poverty, and to provide opportunities for its members to function at their highest capacity (an idea that remains at the cornerstone of capitalism). Needless to say, in the absence of growth, an economy ceases to provide adequate opportunities for its members – leading to undercapitalization of its members’ potential.

During the last financial crisis, when the prospect of de-growth loomed over developed economies, a ray of hope was brought by the emerging ones – including the elite BRICS nations with awe-inspiring growth rates. Economies, like India and Brazil, rode on double-digit growth rates while the Chinese economy – fueled by its (now speculative) investment-driven growth model – seemed well-poised to overtake the American economy in the offing. Despite bearing their share of the domino effect from the financial crisis, the emerging economies seemed to have the potential to propel the global economy in those difficult times. To the rest of the world, the emerging economies were a source of hope and renewed optimism.

Unfortunately, that very ray of hope has been extinguished. With the emerging economies themselves submerging (following the Fed’s announcement to taper its QE program), half of Europe mired in recession and new challenges brought forth by the US government shutdown, the prospect for the global economy to return to stable growth remains bleak. In no circumstances, the current pace of global growth is enough to sustain the aspirations of young people around the world. Young people represent the very segment with the greatest need to be part of growing businesses and growing economies. The most evident sign of this failure of global economy is in the form of rising youth unemployment. In Europe alone, around 15 million young people remain unemployed. In Italy, the poster boy for the doomed PIIGS economies, one out of every four young people is out of the workforce.

Youth unemployment is a far more serious issue that it appears to be on first glance. It is a reflection of eroding potential and another impending crisis. The generation – that will be at the forefront of running businesses and economies in a couple of decades – is not getting the opportunity to acquire the needed skills and experience. Worse, many young people may not be even able to make the transition to the workforce due to prolonged periods of being unemployed and inexperienced.

Indeed, times like this challenge us to ponder upon this discomforting (and disheartening) question: Is a significant portion of our generation less likely to be part of high-growth companies and economies at the onset of their careers, and thus less likely to get the opportunity to prepare themselves for the unforeseeable challenges of future? Youth unemployment in a global economy characterized by subdued growth is the defining issue confronting this generation and one that demands immediate attention from policymakers around the world.

What about the situation of young people in your country? Do you see yourself in a world of fewer opportunities and more demands? Please post your opinions below or send them through Project Firefly’s Facebook page.

Upoma Dutta's blog
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First of all, thank you for your blog post. But please allow me to make some comments on specific points. You state that a growing business provides more opportunities. But we should also highlight that a well-established company can offer a safety – network (minimizing the danger of failure) and opportunities to work for affiliated companies.
Also another thing is “growth” and “development” (economic growth is different to development economics). A fast – growing economy does not necessarily mean that eradicates poverty. See the example of Guatemala. Another one is Argentina that showed growth without development. Essentially, there was a strong presence in the rising part of the commercial cycle of the country, which is a clear indication of growth without development. In other words, the country showed rapid growth for a short period and immediately after the situation was reversed and brought to a standstill.
Lerman on his article “The youth unemployment crisis: a fix that works and pays for itself” supports the solution of apprenticeships, not only for youth, but also for business. He states that organizations (e.g. ILO and IMF) are encouraging countries to expand apprenticeship training, like the Greek case. But it’s also interesting to see that youth unemployment rates are lowest in countries where apprenticeships are highest, namely Germany and Switzerland (see more on http://newsroom.iza.org/en/2013/07/24/the-youth-unemployment-crisis-a-fi...).
As concerns Greece, according to European Restructuring Monitor quarterly there was a high unemployment rate above 26% in November 2012 and in March 2013 26.8% and especially for youth above 50% in August 2012.
But in Greece the situation is more complicated. Although Greece claims in its international pledge to be a nation friendly to business and investments, the harsh truth is that it still has a long way to go before becoming a fully-friendly country to business. The BDO Ambition Survey concluded that Greece is considered a riskier place to invest and set up business in than war - torn Syria and Libya. Greece also has many issues in terms of how easy or difficult it is for a local entrepreneur (the person who starts or organizes a commercial enterprise, especially one involving financial risk) to open and run a small to medium-size business when complying with relevant regulations. Data rank Greece 78th (from a 1 to 185 scale) on ease of “Doing Business 2013” index.

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Dear Upoma, thanks a lot for your post! It's true that the absence of growth in many economies has caused a lot of problems, including unemployment. However, in this situation it is still controversial whether it it is better to work in a growing business or in an already well-established one.

Dear Olga, in your comment you raised interesting issues - and your reflections about Greece made us think of this recent article in Harvard Business Review: http://blogs.hbr.org/2013/10/no-ones-talking-about-the-key-to-greeces-re...

It would be interesting for us to have your opinion on the economic growth in this perspective too!

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Hello to everyone!
Continuing our fruitful discussion some more points related to the Greek case.The truth is that Greece has not achieved yet its “success story”. There are signs of improvement but more steps should be taken, since there is a high unemployment rate and human suffering from high taxes and cutting of pensions and wages.
First of all Greece suffers from the following elements: mismanagement of the public money, corruption, enormous tax avoidance (especially avoidance in paying "value added tax" from business sector) and the existence of wrong people to key work places.
To reach economic growth that one of the crucial questions that needs to be addressed is which actions should be taken and by who, in order to turn the current crisis into an opportunity for the construction of a new economically sustainable development model. A model in which country's development would be seen as a multidimensional process that will meet present needs without compromising the ability of future generations to meet their own needs and goals. Such growth can be consistent with the model of integrated development, if it is to last must be sustainable. And this can only be achieved through proper Planning, Organization, Direction and Control of all operations. Something that not only the Greek state but also the private sector didn’t have in mind. In other words, the target is also the behavioral change of Greek society.
The recent article in Harvard Business Review: http://blogs.hbr.org/2013/10/no-ones-talking-about-the-key-to-greeces-re... highlights the growing culture of entrepreneurial development. But the overcrowded auditoriums are not the answer. The crucial questions to ask is how many of these individuals transform their ideas to actions/entrepreneur starts? What kind of business will be? Only hotels, cafes, tavernas and souvenir shops? And how many of these are sustainable in the long term? Money is not a problem since many EU grants from European programs (e.g. ESPA) are given. The point is to think beyond “tourism sector” and develop also the other sectors of economy.

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Dear Olga, thanks heaps for your insights! It is indeed true that economic growth - if it is not inclusive - does not necessarily translate into development. Inclusive growth - one that provides all segments of the population, including the poor, with equal access to opportunities - is the one that economies should strive for and also the one that is championed by development organizations like the World Bank. Otherwise, the fates of these economies would be similar to countries that you cited (Guatemala and Argentina). Other examples would be Brazil and India, both of which had accelerated economic - but not inclusive - growths in the past. As Brazil and India's examples would show, non-inclusive economic growth is not sustainable since, in the event of economic shocks, non-poor segments tend to reduce their consumptions and living standards by a greater margin; this has dire impacts on the entire economy's productivity. The best way to spot non-inclusive economic growth is to see if the gap between the rich and the poor has increased over time; unfortunately, in case of many developing economies, it did.
Thus, a fast-growing economy is in a better shape to eradicate poverty but it may not do that - just because the rewards from its growth journey are so unequally distributed among its population segments.
In economies of subdued growth, there will be a tendency among the youth to work for large, stable companies. And I don't blame them; after all, since the macro-economic environment is so volatile, a growing business may not be even able to sustain its growth in the long term. Low economic growth leads to greater risk aversion (even when we are just exploring our own career options); hence, we stop looking for opportunities that may appear to be risky. So, in my opinion, those young people - who are willing to take risks - should venture out of the cushion provided by stability and be part of growing businesses or even be entrepreneurs and have their own start-ups since, as it is true for all investments, the higher risks may just be a compensation for higher returns in future.

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According to the new “Doing Business 2014” index, Greece is ranked now 72nd from 78th (from a 1 to 185 scale) on ease of doing business. Also is ranked 36th on starting a business, with the number of procedures which involved is only 5.

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Ranked 36th on the ease of starting a business...that should be a sign of encouragement for young entrepreneurs in your country - even though the accompanying dismal ranking on overall ease of doing business is a deterrent! Bangladesh's ranking is pretty dismal as well..with the country being ranked 130th for the ease of doing business and 74th for the ease of starting a business. No wonder the growth of entrepreneurship has been so slow in this country.

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Sorry, I'm pretty late to be commenting on this but do you think the idea of growth itself needs to be re-fashioned? Is it possible to imagine an economy that doesn't grow yet provides for all its members?

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Hello, Sam. According to your question if the idea of growth needs to be re-fashioned. Indeed, in my first post I underline the fact that another thing is “growth” and “development” (economic growth is different to development economics). A fast – growing economy does not necessarily mean that it is developed.
However, we have to take into account that the economic challenges because of the Eurozone and global economic crisis have wiped out years of economic and social progress and exposed structural weaknesses in the economy (European Commission, 2013). All these have revealed a great need for all European economies and the relevant actors involved to go beyond the classical perception of economic growth and to focus more on the empowerment of human capital as key element for achieving and securing an inclusive growth (a new approach to economic growth) aims to improve living standards and share the benefits of increased prosperity more evenly across social groups (OECD, 2014; Ostry et al., 2014; Pickett et al., 2014).
Furthermore, inclusive growth becomes a major challenge for many countries around the world, along with sustainable development, which is a fundamental and overarching objective of the European Union, enshrine in the Article 2 of the Treaty on European Union (Eurostat, 2013).

Relationship between human capital, sustainable development and quality of life
Human Capital "a means for" -> sustainable development "an outcome" -> Better Quality of life for all.

References
- European Commission. The European Union explained: Europe 2020: Europe’s growth strategy, Publications Office of the European Union, Luxembourg, 2013
- Eurostat. Sustainable development in the European Union – 2013 monitoring report of the EU sustainable development strategy, Publications Office of the European Union, Luxembourg, 2013.
- OECD. All on Board, Making Inclusive Growth Happen, OECD Inclusive Growth Initiative with support from the Ford Foundation, OECD, Paris, 2014.
- Ostry, Jonathan D., Berg, Andrew & Tsangarides, Charalambos. Redistribution, inequality, and sustainable growth: Reconsidering the evidence. Voxeu.org, 6 March, 2014.
- Pickett, Kate, Wilkinson, Richard and de Vogli, Roberto. “Equality, Sustainability and Wellbeing”, The EU’s Fifth Project: Transitional Governance in the Service of Sustainable Societies. The Francqui International Conference 2014, Brussels, Palais des Académies, 8-9 May, 2014.