Returns on Growth Pains

ROCE stands for Return On Capital Employed. It underpins economic growth and is the most important equation of our times.

All accounting students learn how to calculate and use this equation within the details of corporate finance but we are all familiar with the concept. ROCE is stated as follows:

ROCE        =             Returns

                                                       Investment

It calculates the ratio between an investment and the amount of increase the investment earns. It is better known as a percentage rate of return. For example a company investing $10 million in a new product and making $2 million profit a year enjoys a 20% ROCE. If PR can afford to invest £10 in a savings account, he might make 20 pence in a year; a 2% ROCE.

If more people are to enjoy getting returns out of investments, then our economy needs to grow. This is the theory that motivates pretty well all business people and political leaders in the West and in the East. This makes ROCE an important equation – it represents our increasing prosperity and source of additional wealth.

Populating the Steady State Economy (SSE)

The Steady State Economy (SSE) as proposed by Herman Daly is a great and essential idea. He defines a SSE as: "an economy with constant stocks of people and artifacts, maintained at some desired, sufficient levels by low rates of maintenance throughput, that is, by the lowest feasible flows of matter and energy from the first stage of production to the last stage of consumption."

The above definition is taken from the website of the Center for the Advancement of the Steady State Economy (CASSE) whose webpage may be found here.

PR encourages everyone to become familiar with the SSE because it is quite simply the only way mankind can survive! Elementary arithmetic plus a recognition of physical reality reveals that we cannot continue indefinitely taking resources from our planet. We are already witnessing this overconsumption right now and it is causing social stress and deprivation worldwide… imagine what problems there will be if we pursue economic growth for another hundred, or two hundred, or three hundred years! The kind of economics that now dominates our thinking has no future.

But what if economics thinking itself is the root cause of our present problems? If economics is a cause then presumably more economics, albeit of a different kind, is not the solution.