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Economical growth or economical development.

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Dominique Strauss-Kahn, director of the IMF

At the opening of the International Forum for Human Development in Agadir (Morocco), Dominique Strauss Kahn, the director of the International Monetary Fund, said that the financial and economical crisis destroyed around 30 millions jobs around the world. He said that in a perspective of a new globalization, the first priority should be the employment.

By reading these figures about employment, could we say that the economical and financial crisis is over, beside the fact that the company results are better than in 2009, and that the stock exchange markets recovered more or less their level from before the crisis? It should be premature to take such conclusions.

I was reading an article about the crisis effects in the United States of America, where there are now the mid-term elections, and where the consequences of the crisis on job market are a real issue for Barack Obama re-election. The particularity of the United States, and also of the United Kingdom, is that people are deeply indebted, and the level of unemployment remains high. People are facing real problem to reimburse their loans and credit card invoices. The risk of personal bankruptcy remains high, and as consequences, the financial system remains fragile. Within these two conditions, it is difficult to re-start the sustainable economical growth. And we have not to forget that main countries are facing to a high public debt, after their monetary intervention to save banks from bankruptcy. To try to restart the economical growth on a sustainable way, by allowing people to contract new debts should not be a good idea. Such strategy would be a risk to weaken the financial system, with the risk that the states could not intervene a second time to rescue the banks.

It does not surprise anybody to see that millions of jobs were lost in these particular exceptional economical circumstances. Companies were obliged to take restructuring measures in order to preserve their profitability. We heard at that time, companies which did not want to take the risk and were unable to make some forecasts in such misty circumstances. But since many years, we can see companies cutting jobs in order to maximize their profits and to give more return to the investors. Is it a sustainable logic?

If you want to create economical growth, it implies that people needs to have revenues in order to contract produced goods and services. Main of the people earn revenues from their work. A company hiring people to produce goods or services, is paying a salary to the employees, and so, is creating a wealth re-distribution mechanism. A company can only be profitable, if people can pay the price of the produced goods or services. This equation is easy to understand. These last years, the maximization of short-term financial profits was the main objective of investors and not a sustainable economical development. The financial and economical crisis induced significant value impairments, and in some case, a negative return on investments.

Here, we can see the major difference between economical growth and economical development. It is not forbidden to think that if companies were more focused on human capital and know-how than on financial profits, they would have probably lost a few percent of profit, but they would have contributed to maintain a purchasing power level for the people, and by consequences, ensure future revenues. They could also preserve the know-how of the company. With the development of the new technologies, each people is playing a key role in the companies, and the replacement of such profiles represents a cost for the company. But this logic is not followed by some investors, more focused on personal interests than common interests. And these speculative logical is a break for the business development. Today, companies are facing difficulties to develop their business, because they can not find credits to finance their development.

In a sustainable economical development model, you are not only focused on profitability, but you are focused on a range of key factors: business development, finance management, marketing, human capital management. As in many projects, it is fundamental to determine what is the real goal. In a sustainable economical model, the goal should be the wellness of the people and the business sustainability, which implies a long term view.

Written by Eric Saint-Guillain

November 1, 2010 at 22:14

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