Malek's Moorish Tales

Meanderings about life and technology

Should growth be a business value ?

One concept I didn’t think much about before joining Microsoft years back, although I had managed businesses for over a decade, was growth as a business imperative.

During my years in Microsoft, I realized how much of an obsession growth can be.

To be clear, I do understand that any business should grow its net benefit at least to much inflation, so as to keep its appeal and inflation adjusted value (to be worth the same buying power). What I don’t really understand is why a business should eternally grow.

To put it macro-economic terms, it is obvious that a developing country should develop, i.e. grow its economy beyond purchasing power adjustments. That is the only way it can, over time, bring its people to a standard of living that matches that of developed nations, and to make its people achieve the currently achievable level of well being. However, why would a developed nation need growth? off course people always want better than what they have, but is it worth it to have more if that means you have to work so much harder? Doesn’t that hardship annul completely any benefits?

It is the same in micro-economics, or if you prefer at a single business’s level. As someone who has for most of his life owned shares in businesses (if you are wondering, nothing big I should say), I am quite satisfied if the money I have put in can bring me a steady return (in purchasing value) while maintaining the value I put in. My main concern with any shares I have is whether the return is good when compared to the risk, not if it is getting better over time. I am only looking at whether it is getting better when it is not quite satisfactory to begin with. More often than not, that happens when the business is in its beginnings (which can take various amount of time depending on the nature, and the potential for returns of said business), i.e. in its growing phase.

It only starts to make sense when you add two factors:

  • Most businesses today don’t want to distribute their benefits (it is normal to withhold part of benefit, especially when you have an important R&D component). Many global businesses today simply think of benefit as automatic reinvestment, and because they do, they go looking for growth potential and reinvest the benefit in pursuing that potential. I think that is way too convenient, and way off mark. When I, as an investor invest in something, I want to know exactly what I am betting on. I don’t want CEOs and their team making those decisions for me (Actually, Even when I am the one managing the business, I wouldn’t want me in that capacity making that decision for me as an investor). The problem is not an investment, an economic, or a commercial one. It is simply because those that manage the business, not those that own it, have the most to gain when they do it the way they do now (any contract I signed as an investor would fire with no compensation any one that would act against the interests of the owners).
  • Most businesses that are in any stock market, or more generally, that have large tradable ownership, have a balance of decision power in favor of a few that own a plurality of shares (often at ridiculously low proportion of the total) and those they put in charge (because they are the only ones that own enough to have influence). That means you can own 5% of a big company, and have everyone else forcefully invest their benefits into what you want to invest in. The only constraint in that model is that the value of company, should you ever want to dispose of that 5%, is based on the trade value of the shares, which in turn is based on how people perceive the risk you are taking and the benefit redistribution you will be making. The easiest way out of redistributing anything or giving any control over what you will be investing next is obviously growth. Show enough growth and everyone will be reassured that, regardless of investment decisions, and regardless of benefit redistribution, the real value of the company is growing, and therefore their shares are bringing value.

Why have I bothered you with all these macro and micro-economics stuff? simply because growth of business, and even growth of economies, has become such an enormous factor of stress that it accounts for most of the degradation of how people live. I have been on both sides, and I think I an talk about both (not accounting for any side effects of megalomania and other similar diseases that I know so little about). But when I see how business growth drives an increasing need for growth in productivity, and an increasing drive for off-shoring, to the level where humans can no longer cope, I start asking questions. Is it worth it? Is the next million worth all the suffering it will cause?

The picture gets blurred somewhat when you sit, like me, in a place where people depend so much on that million being made in this part of the world where we need the proportion of it that will stay here so much, as local investment has dried up.

The only point I want to make is that growth is the way the powerful will maximize their return. Not really something that benefits the mass of workers or investors. I can even more confidently say that for every penny of growth, much suffering is generated. Shouldn’t humanity be more concerned about some more meaningful value for all of us ? Shouldn’t we be more concerned about the growth of the general well being ?

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