A few years ago I had the good fortune to host the legendary Australian entrepreneur, Dick Smith, at a conference I organised in New Zealand. Dick is founder of electronics store of the same name, as well as Australian Geographic Magazine and Dick Smith Foods? Over recent years Dick has been busy challenging people to think outside the square. The likes of Rupert Murdoch’s News Corporation, has received criticism by Smith in relation to unfair and biased reporting regarding public issues such as climate change and other important issues. Smith frustrated with the mainstream media released his own publication, ‘Dick Smith’s Forbidden Ideas’ which reached around 2.4 million Australians. The magazine helped shed light on issues that are important to all of us – things like the quality of food we eat, ownership of our farmlands, the widening gap between rich and poor.
Dick is one a a very few business leaders who understands the challenges and is talking about an alternative to the current economic model. While Dick readily admits his business success was built on a growth based system he has always advocated moderation in his business dealings. Below are some of the key points and observations he makes about the current system.
Perpetual Economic Growth is Unsustainable
Since the Second World War, our economic system has been completely based on economic growth. Economists never put the important word in front of it – perpetual economic growth. It is something that I have thought about over the last two or three years; no one has benefited more from economic growth than I have. Since the 1940s Australia has gone from about 7 million people to 22 million people, a growth factor of around three times.When people advocated economic growth they were really advocating ‘perpetual’ growth, which in many contexts was unsustainable. New Zealand’s population was 2 million and has since gone to 4.5 million, a 200 per cent increase.
Most people would say that our material standard of living and wealth is higher than it was in the 1950s. Except let me tell you one thing; in the early 1950s, when I was a kid, mum was a housewife and dad was a salesman. They could afford a house in the northern suburbs of Sydney, which they paid off over 30 years. You can’t do that today. If you are a young couple, you both have to work, put your kids in childcare and, very likely, buy a home unit. Were now planning on putting 60-storey home units in Sydney, because our population is going to 7 million (people in Sydney), presumably when we get to 7 million, we will then go to 14 million!
The Exponential Function
With the current growth rate of 2 per cent, which doesn’t sound much, you double the population every 30 years. One hundred million people in Australia by the end of this century, a billion 100 years later. Common sense along says that population alone is not the issue; our whole economic system is not sustainable. The economic system that I have benefited so much from since the Second World War requires perpetual economic growth in the use of resources and energy. If I tried to sell you a perpetual motion machine, most of you would not buy it. Most economists wouldn’t put their money into a perpetual motion machine, yet most economists believe in perpetual economic growth, even though they never use the word perpetual.
GDP the Holy Grail of Modern Economics – Disasters are good for the economy!
After the Second World War, we developed a measure called gross domestic product (GDP), which was a war-time output. This became the holy grail of business and growth. With this measure you can have a flood, an earthquake or a war and the GDP goes up. Isn’t that amazing? Countries like Canada and Holland are moving toward a measure called the progress indicator, which is looking at things like satisfaction. Our economic system depends on ever- increasing population that consumes more in energy and resources. That’s what’s happened since the Second World War, instead of reducing working hours to keep people employed, we’ve made more stuff, because that’s how you get economic growth of 2 or 3 per cent per year. So we’ve had and got this incredible situation where you go into a big shopping centre at the moment, about half the stuff there is not necessary, but if stop buying it we’ll have recession or economic collapse.
Reaching the Limits to Growth
It’s interesting we are now starting to reach the limits of growth, and if you are running a large business (fortunately for me, I am not; every time the business gets too large I sell it) you must always have ever increasing profit growth. What’s happening to this ever-increasing profit growth is that it is leading to extremism. Extremism in anything is bad. I’ll give you an example of extremism that is happening, as you start to get to the limits of growth. We have two big retailers in Australia, Coles and Woolworths. They have 80 per cent of the market between them. Everyone whinges and complains, but they are doing what the government and we insist they do – have never ending profit increases. The only reason that Coles and Woolworths have got to 80 per cent of the business is because they have taken over everything. Because if you want to get bigger all the time, you have a limit to the number of people that are going to buy your brussel sprouts, so you have to start buying businesses that sell pineapples. So what they do is buy every business that competes with them, they start forcing the farmers down in price. You’ve seen it here for sure. We blame them, Coles and Woolworths. Just recently, they sacked all the beetroot growers. That’s an advantage for New Zealand, because they moved to New Zealand to get Aussie beetroot (by the way, it will only be temporary, they are saving 10 per cent on the dollar and the wages here, but in a couple of years they will move to China of course).
Offshoring Production to Reduce Costs
One of the situations with huge global companies is they don’t have to work hard. If you are a typical New Zealand or Australian company, when times get tough you have to work hard with the staff you’ve got and the resources available to stay in business. If you’re a multinational, it is so easy to say flick production off to Australia, New Zealand, China Swaziland anywhere in the world. This globalisation has come about by us wanting growth in everything. In Australia, and it is probably the similar in most Western countries 85 per cent of products in a typical supermarket trolley are most probably imported from overseas-owned companies.
It is not their fault they are part of this system that has to have growth. Walmart, one of the largest companies in the world, has a gross turnover greater than the GDP of Denmark. I’ve said in Australia that we will have two retailers. They won’t be Aussie-owned, they will be Walmart and Aldi, because there will be two in the world. If you analysis it, Walmart is going to Africa, it is in Europe, hasn’t yet come to Australia, but in the end, the only way it can get growth, because all the shareholders will sell their shares and the board will be thrown out (if they don’t), is to keep buying more and more.
The System Requires Growth to Keep it Functioning
What’s causing this? It is an economic system that requires perpetual growth, and it has served us very well, without any doubt. We are selling off farmland. We have this beautiful farmland, we sell it to the Chinese, now we are told in Australia it doesn’t matter, it’s a globalised world. I don’t think it matters if we are buying the same amount of land in China; in other words there has to be a balance. I’ve always called for a fair balance. I don’t see this happening; it is very much one way. Common sense says that if you’ve owned a country property for generations, it is better to keep it than selling it off and renting it back again! We all know that owning a house is better than renting a house, if you can do that. At the present time, the reason the Australian government is selling everything off is to get the GDP up, otherwise it will be thrown out.
If there, is dare I say, a recession, is it possible to have prosperity without growth? Is it possible to have prosperity without growth? I want to read you something from Tim Jackson’s book Prosperity Without Growth: “When growth falters, as it did during the later stages of 2008, politicians panic, businesses struggle to survive, people lose their jobs and sometimes their home, a spiral of recession looms, questioning growth is deemed to be the act of lunatics, idealists or revolutionaries but question it we must”. At the present time it appears we only have two alternatives, growth or recession.
On the Future
My belief is that we can actually have a fantastic system of capitalism without the growth in the use of energy and resources and perpetual population growth. As a businessman who has made lots of money by using capitalism, I know if there is an equal playing field that you can be successful in business because the efficiency gains of human beings in a free enterprise society are quite dramatic. Imagine if we could use the efficiency gains, instead of making more stuff, say, to improve the quality of life, if somehow we could organise that. Some might say that it is better than just having more and more people. It is interesting when I say to my business friends that 100 million, oh that might be too many, what about a hundred trillion people in Sydney, they look at me like I’m stupid, but are you agreeing that we will have to stop growing by then? They have to say yes. My attitude is “let’s do it now”.
One of the reason we have had this vertical climb is because we have used fossil fuels to generate oil for large scale farming equipment and we have been able to make fertilisers from fossil fuels, all of which is unsustainable because it’s all going to run out and get very, very expensive.
Could we go to a stabilised system?
First of all, I believe we can, but the whole world is going to have to do it. I don’t think one community or one country can do it. This is how I would do it; I would bring in laws. We have laws now in relation to environmental protection; 30 years ago, capitalists would have said we will go broke (if we have environmental laws). Imagine if we brought in laws that say you can’t actually sell anything or advertise anything unless it’s produced sustainably. In other words, without growth! A little hand-held phone – you have to hand back your old phone, every year they make them with 5 per cent fewer parts, by recycling they lose 5 per cent. Image that there was a law that said you weren’t allowed to mine anymore to make any more phones. You can only use what you’re got from what exists already. Now would capitalism be able to adapt to that? Of course it would.
There would be incredible opportunities for young people, new types of businesses. What we would have to do is bring in a new measure – not growth gross domestic product, but something like the general progress indicator. We would still have growth in quality of life and we would remove waste, all of those things. What I am saying is that we can move from our current wasteful system to a new system. The good news is that we can possibly get to a new system. The bad news is that I don’t know if we are going to get there without some sort of catastrophe.
One of the books I’ve read talks about the Hitler-walking-into-Poland moment, before the Second World War. People like Churchill were saying that if we don’t ensure Hitler maintains the Treaty of Versailles condition that he was not supposed to build up arms, that there would be a catastrophe. Most people – just as now with climate change – said “we don’t really know, it might not happen, let’s not do anything”. Basically, no one did anything, and that mistake resulted in 60 million people losing their lives. I wonder if we are repeating it now with climate change and with this growth issue? We are not good at responding to threats in the future, especially threats that might not affect us. Groucho Marx said “what should I do for future generations, what have they ever done for me?” Stop and think about it: would we sacrifice now for future generations? We will if we know for sure something is going to happen.
Climate scientists say they are 90 per cent sure that we are affecting the climate. Even if they were 99 per cent sure, many of us would say “oh there is a 1 per cent chance we can go on as we are now”. My message is simple: we have benefited from growth dramatically, and there is possibly quite a lot of growth left in the world. China and India, those people have a right to have a decent standard of living, where they are warm and they have financial security. It is not endless; there is a limit to growth. We can have a fantastic system that is based on growth of another type, for that we will need to get lots more young people talking about the change. Otherwise, I think that we will end up with some terrible catastrophe that will force it upon us – and no one wants that to happen.