Is growth a must?

What is growth?

The definition of growth differs according to the nature of the business. It also depends on the criteria that are used. If you look at growth purely in quantitative terms, then it means an increase in turnover, profit or the number of employees. Qualitative growth is measured against different benchmarks. Has quality improved? Do the employees participate more and has the company become more mature as a result? Growth can therefore mean many things.

Defining growth simply as an increase in profits is definitely inadequate. Growth must improve the conditions of people; otherwise doing business has no ‘objective’. Profit increase in itself is not valuable growth, although sufficient profit is required to realise that qualitative growth. And that profit must be at least a few per cent higher than inflation; otherwise you might as well put your money into a risk-free investment.

Micro-macro

It is also important to make a distinction here between the micro and macro levels. At a micro level an entrepreneur can understand that his business must grow in order to survive. At a macro level it goes without saying that Flanders and the EU are destined to grow. A lack of growth implies a decline in prosperity. The answer to the question ‘Do we have to grow?’ at this level is always ‘Yes’.

At a company level growth is not a matter of increasing turnover, profit or workforce in themselves. In this sense there are plenty of companies that do not ‘grow’. Take the employer in the building sector who had 25 employees when he took over the business from his father and still has the same number of employees. But the company has changed a lot. It is an example of growth that cannot be expressed in quantitative terms. Of certain companies you need not ask: ‘Are you growing enough?’, but: ‘Are you developing enough?’ For SMEs that is actually the key question.

To each their own growth

If an entrepreneur has to cope with too many obstacles, it is often an indication that his company has reached its growth limits. For quite a number of sectors and businesses there is indeed a kind of best-case scenario, an optimal company size. There are no rules for determining this. Every entrepreneur has to find that best-case scenario for himself. Many feel comfortable with one or two employees and want to keep it that way. This might be the case for a roofing contractor, a plumber, a physiotherapist or a butcher and his wife who work together. They have fewer worries in terms of administration as well as staff. It depends not only on the sector but also on the personality of the entrepreneur. There are self-employed people who are good at what they do. They might enjoy managing but are not true ‘entrepreneurs’. This certainly does not make them inferior. An economy generates many tasks that can be performed by self-employed individuals, certainly as far as the domestic market is concerned. ‘Know thyself’ remains good advice. Entrepreneurs must know the extent of their competencies, especially if they have to decide whether to go for further growth of their business in a quantitative sense or otherwise. If they themselves do not possess the necessary capacities, they need to attract these.

External factors determining growth

External factors, whether temporary or structural, also determine the growth of a business.

Tight labour market 

Thus our labour market is contending with structural shortages, which restrain growth. The politicians can increase or reduce this restraint. In 2004 a political decision in Belgium influenced the tightness of the labour market. Our country at that point decided to keep the borders closed to workers from the new EU countries for another 2 years, when the European Union expanded from 15 to 25 member states.

Belgium thought that its protectionist reaction would activate the unemployed and lead to vacancies being filled. As many had predicted, that turned out to be an illusion. Protection of the market did not have the desired effect in those sectors. It is obvious: protectionism slows down the growth of prosperity. Moreover, the above-mentioned protectionist measure also had a communal edge to it. The majority in Flanders believe that ‘Belgian’ protectionism is slowing down growth. Quite a few Walloon and Brussels politicians, on the other hand, first want jobs for the Walloon and Brussels unemployed before migration should be allowed.

Because it has been shown time and again that not enough of our unemployed are filling the existing vacancies, we have to reconsider our attitude towards, for example, illegal immigrants. We must be practical and realise that we are faced with a large-scale migratory movement, which is certainly far from over. In the meantime quite a number of sectors are grappling with labour shortages. The logic then becomes simple: either you look for additional workers abroad, or you employ the foreigners who are already here - albeit illegally.

Capital

An often-cited barrier to growth is shortage of capital. The difficult economic climate presents this problem very sharply. In fact, it already existed even before the credit shortage. And it will continue to exist when the credit shortage is gone. Entrepreneurs are partly responsible for this phenomenon. There are those who hesitate to incur a lot of debt and to bear the risks that are inevitably associated with this. Often there is also the fear of losing some independence and influence over the management of the business. Accepting outside capital, after all, means accepting that someone else gets involved with your business or wants to exercise control. Outside ‘interference’ is a bogey for those who simply want to go it alone. Apart from that we also see that investors are rather cautious about pumping money into traditional sectors where many SMEs are active.

The competition

It’s logical that the strength of competition will determine growth opportunities to a significant degree. So those who manage to keep potentially strong competitors at arm’s length have already won half the battle. UNIZO has had a reputation for years of fighting against the emergence of large distribution companies. However, those who fight windmills like Don Quichote are blind to progress. Sometimes it’s better to try and turn a weakness into a strength and not fight blindly against the establishment of every wholesale business. The situation on the ground has developed, after all, just like society’s view of protectionist measures. The smaller distributors have had the opportunity to become more professional and resilient. Moreover it has often been shown that the arrival of a big player is not necessarily bad news for independent local businesses, especially if such a new establishment leads to a revival of the residential areas.

Blindly opposing large shops therefore serves no purpose. Arguing for a coordinated policy based on a well-considered vision and an overall distribution plan, however, could get somewhere. What type of establishment could fit in where, and how? It boils down to not automatically granting everything to the project developer who offers the most and not falling blindly for the most impressive promises of job and revenue creation. Decisions must be taken with due regard for the hearts of our cities and towns.

It is generally accepted by now that preserving a proper retail structure is of great importance to the quality of life in our towns. If we collectively decide to have shopping centres and these artificial shopping villages suck the life out of the town centre, we shouldn’t afterwards complain about lack of security. If politicians make the wrong choices at this level, they should be held accountable. If consumers ask for shopping centres without realising the possible consequences, it is our task to point these out to them. And those who say that extra shopping villages increase consumption should do some clear thinking: people can only spend a Euro once. Consumption does not increase, it shifts.

So should enterprises grow? Yes! But sometimes growth can imply change. From a macro-economic angle, however, growth in a quantitative sense is essential. No growth means a decline in prosperity. Finally: cannibalism isn’t growth.