Tradeoffs: avoid, weaken or accept

Analysis

There is broad dialogue among both alternative and conventional economists to shake the foundations of the central importance of economic growth. This questions the validity of GDP as a proxy measure for desirable social outcomes and asks whether resources and political focus should continue to be directed towards GDP growth or be shifted to other outcomes more meaningful to communities: to environment and maintenance of local places, a healthy climate, fair income and wealth distribution, strong communities, good and fair work, and civic voice. These topics are necessarily filtering down into common discourse so that communities are given the opportunity to pinpoint the outcomes based on held values and what sort of future we are to strive towards.

In his book “Growth: A Reckoning,” economist Daniel Susskind raises three approaches to the harms and benefits of striving towards GDP growth and manage its trade-offs; “growth’s promise and its price.”

The Possibility Frontier Figure: From A to B, anywhere within the area bounded by the dotted line, is an improvement in one or both outcomes. Movement from C to D along the Possibility Frontier will incur tradeoffs.

The first is that leadership dodges discussion or acknowledgement of trade-offs (and accepts or alternatively covers up or denies the harms). They seek growth as the main priority and tool of political and social goals.
Although economic growth has been the lever to bring many benefits to the wellbeing of societies over the last 70 years, at some point we are unable to weaken or avoid the tradeoffs, as we have seen with the harm done to our natural environment and growing wealth inequalities. Here, we hit the ‘possibility frontier’ where an increase in growth means we lose out in other areas we care about (see figure): suffice to say, there are opportunity costs to growth. The question is a moral one: once current resource utilization and technologies have taken us to the possibility frontier, how much are we prepared to forego what we value in pursuit of material growth?

The degrowth, or negative growth, approach suggests that to prioritise the outcomes we seek such as health, safe and secure housing and meaningful jobs, we wind back the size of the economy, using fewer resources and thus doing less harm to local communities and the planet.

Then, there is the approach taken by Kate Raworth and Tim Jackson which suggests we should be less concerned with growth as long as what we seek to achieve is a thriving community and planet: sometimes called growth agnosticism. This approach says the outcomes we seek should not depend upon economic growth, epitomized in Raworth’s “We need to move from economies that need to grow, whether or not it makes us thrive, towards economies that make us thrive, whether or not they grow.”

Regardless of the approach taken, all three serve to highlight that tradeoffs are part and parcel of any system of economic activity and particularly so when the fundamentals of any economic system change, even if the main tradeoff is the high mental discomfort and grief from having beliefs in the current economic orthodoxy disrupted.

As in decisions all over the world to prioritize GDP, in the goal of GBA integration, we see relatively little leader-directed public discourse in the mainstream media about the tradeoffs for local communities.

Over the last year or so, descriptions have been published in the media of Hong Kong’s and Macau’s retail and hospitality sectors being stifled by the institutional, technological, legal and logistical changes which have given ready access to the mainland market for Hong Kong and Macau citizens. A feature report by Luo Weiteng in the China Daily and republished in the Times last week, speak not just of the GBA integration and market accessibility by consumers from the SARs but also of the drawcard of innovation and new ideas in a hyper-competitive mainland market that have caught the traditional SARs outlets off-guard and undermined enthusiasm for the offerings south of the border for local and mainland customers alike.

If a company’s position as first in its class is threatened, it must innovate to escape the competition effect, but, says French economist, Prof Philippe Aghion, this is only if the business is towards the leading edge anyway. If an enterprise is struggling already without the knowhow, resources and experience to reinvent its business, the situation can seem hopeless unless there is someone out there batting for them. As in Susskind’s discussion on global GDP tradeoffs, how the difficulties in the local SARs retail and hospitality sectors are to be approached is what is missing from the discussions.

Reported are descriptions of sector downturns (reported in SCMP were closures of Tom Lee, Garrett Popcorn, Paul & Joe, Dah Chong Hong, CR Care) and the perfect storm of elements which include cost-hikes and labour shortages, some due to welfare disincentives. As reported, some workers do not wish to work more than part-time hours in HK’s hospitality industry because they might lose their housing subsidies (as an aside, a well-known moral hazard of welfare support is the creation of poverty traps). Although some fixes are being applied and/or considered such as the importation of labour under the Enhanced Supplementary Labour Scheme in Hong Kong, and lifting restrictions on Shenzhen residents visiting Hong Kong, we are not hearing about strategies to alleviate the underlying systemic causes of the softening of the sector. An alternative explanation is that the demise of some sectors of the small-business hospitality and retail industry is actually recognised as a necessary and acceptable tradeoff of GBA integration.

Should the latter be the case, businesses in the sector could be assisted through open and meaningful dialogue with and direction from the state to understand both the vision for the sector locally and likelihood of assistance either in transformation and re-invention or for winding down, or indeed whether the transformation is to be left to market forces in the midst of pressures from centralized reform. 

Being uninformed of the likely external opportunities and threats upon a business will ultimately undermine profitability and longevity, and waste corporate, individual and community resources. The most valuable business plan is that which recommends the investor cut their losses and move on, rather than persist and sink further resources into wishful thinking. By Leanda Lee, MDT