This article is the part three of Chapter 4 from Richard Heinberg's new book 'The End of Growth', which is set for publication by New Society Publishers in September 2011. This chapter explores the possibilities of innovation, substitution and efficiency to maintain economic growth.
Access previous chapters here.
Business Development: The Cavalry’s on the Way
A remarkable book appeared in 2004 to almost no fanfare and little critical notice. The author was Mats Larsson, a Swedish business consultant, and his book was titled The Limits of Business Development and Economic Growth.
Unlike the thousands of business books published each year that promise to help managers become more effective, or that hint at new opportunities for profit, Larsson’s conveyed a sobering message—one that the business community evidently didn’t want to hear: Our human ability to invent genuinely new activities is probably limited, and most recent inventions have consisted merely of finding ways to speed up activities that humans have been performing for a very long time—communicating, transporting themselves and their goods, trading, and manufacturing. These processes can only be taken to the limits where things can be done at almost no time and at a very low cost, and we are fast approaching those limits.
“Through centuries and millennia,” Larsson writes, “humans have struggled to simplify production and make tools and products less expensive and easier to manufacture.” Possible examples are legion from virtually every industry—from telecommunications to air travel. “Now we are finally in a situation where many things can be done in close to no time and at a very low cost.” He goes on:
[A]t close scrutiny we do not seem to have done anything except gradually automate activities that human beings have been performing for a few hundred, and sometimes thousand, years already. The development of a large number of different technologies that help us to automate these tasks has driven economic development and business proliferation in the past. Now, technological progress is at the stage where a number of these technologies and products have been developed to a point where we cannot realistically expect them to develop much further. And, despite widespread belief of the opposite, we cannot be certain that there are enough new products or technologies left to be developed for companies to be able to make use of the resources that are going to be freed from existing industries.
For the skeptical reader such sweeping statements bring to mind the reputed pronouncement by IBM former president Tom Watson in 1943, “I think there is a world market for maybe five computers.” Fortunes continue to be made from new products and business ideas like the iPad, Facebook, 3D television, Blu Ray DVD, cloud computing, biotech, and nanotech; soon we’ll have computer-controlled 3D printing. However, Larsson would argue that these are in most cases essentially extensions of existing products and processes. He explicitly cautions that he is not saying that further improvements in technology and business are no longer possible—rather that, taken together, they will tend to yield diminishing returns for the economy as a whole as compared to innovations and improvements years or decades ago.
Fundamentally new technologies, products, and trends in business (as opposed to minor tweaks in existing ones) tend to develop at a slow pace. “Many of the big, resource-consuming trends of the near past are soon coming to an end in terms of their ability to attract investment and cover the cost of resources for development, production, and implementation.”
Back in the late 1990s business was buzzing with talk of a “new economy” based on e-commerce. Internet start-up companies attracted enormous amounts of investment capital and experienced rapid growth. But while e-commerce flourished, many expectations about profit opportunities and rates of growth proved unrealistic.
Automation has reached the point where most businesses need dramatically fewer employees. “Presumably, this should make companies more profitable and increase their willingness to invest in new products and services,” writes Larsson. “It does not. Instead, there is competition between more and more equal competitors, and all are forced to reduce prices to get their goods sold. The advantages of leading companies are getting smaller and smaller and it is becoming ever more difficult to find areas where unique advantages can be developed.” Regardless of the industry, “Most companies tend to use the same standard systems and more and more companies arrive at a situation where time and cost have been reduced to a minimum.” It is bitterly ironic that so much success could lead to an ultimate failure to find further paths toward innovation and earnings.
Larsson estimated in 2004 that impediments to business development would begin to appear in the decade 2005-2015. His analysis did not take into account limits to the world’s supplies of fossil fuels, nor declines worldwide in the amount of energy returned on efforts spent in obtaining energy. Neither did he examine limits to debt or declining ore quality for minerals essential to industry. Remarkably, though, his forecast—based entirely on trends within business—points to an expiration date for global growth that coincides with forecasts based on credit and resource limits. This convergence of trends may not be merely coincidental: after all, automation is fed by cheap energy, and business growth by debt. Limits in one area tighten further the restrictions in others.
1. Mats Larsson, The Limits of Business Development and Economic Growth: Why Business Will Need to Invest Less in the Future (New York: Palgrave Macmillan, 2004).
2. Larsson, The Limits of Business, 121.
3. Larsson, The Limits of Business, 5.
4. Larsson, The Limits of Business, 5.
5. Larsson, The Limits of Business, 2.
6. However, Larsson more than made up for these omissions in his later book, Global Energy Transformation: Four Necessary Steps to Make Clean Energy the Next Success Story (New York: Palgrave Macmillan, 2009).