With depopulation and degrowth looking inevitable a few decades from now, how can an individual corporation plan for it, and prosper?
Here’s a hypothetical: smart phones become so good (and have actual longevity) that people increasingly decide to keep using the one they have, instead of replacing it every few years. And there are no new emerging markets.
What would Apple do? On average, every year, if they retain the same pricing and market share, they will sell less, and their profits will be lower.
- Increase market share via product. That means ramping up innovation or quality to be better than the competitors.
- Increase market share via price. Can work if a 10% price drop means a 20% increase in products sold. This would become a price war and a race to the bottom…
- Increase price. Test if the market is willing to pay more for the same thing. Unlikely to work outside of luxury brands.
- Decrease cost of production. This is already certainly been done to death, short of lessening the quality of the parts.
- Decrease other costs. Start with marketing. Or take risks around reducing support staff, or lawyers.
- Stop R&D. If the market has less appetite for new phones, stop developing them.
As you can see, while short-term measures could maintain profitability, long-term it is nearly impossible unless you have exceptional product development, you are luxury, or you have a eureka moment for cost-savings.
If profitability declines, share prices drop, and investors leave. A company like Apple, if they don’t do anything crazy to maintain profits (like developing a metaverse), could actually be OK. They have a lot of cash in the bank, profit declines will be gradual, and they effectively have no debt. Share price does not affect their ability to continue trading and passing on profits to their shareholders.
Most other companies are too leveraged to afford a continually dropping market capitalisation due to actual and expected reduced profits. So they collapse. Apple – in that environment – can do well in the carnage. But that’s an exception. Although a mega-corp of the last remaining solvent businesses could rule the world?
THE SOLUTION IS TO CHANGE THE MODEL
Remove debt. Starting now, actively strive to remove all of your corporation’s debt obligations, so that in 20 years from now there are no debts.
Take profits out of the mix. Have the long-term ambition to become a non-profit. State this now so that shareholders cannot sue you 20 years from now.
Become worker-owned or customer-owned. This models are available to anyone who thinks outside of the box.
Plan for reduced sales. Incorporate such expectations into business models, starting today, even though it is decades away.
Plan for reduced staff. This the hardest part. Even if society adopts a UBI (universal basic income), it is in our nature to want to work. How do you decide who to fire each year as needs for staff declines? Last in, first out, and voluntary redundancies would be the obvious choices.
OR… SOCIALISM
Rather than socialism by design, we could end up with socialism by necessity.
Smart-phones, for example. Say nothing above works, and all phone companies go broke, people are out of work, and factories are empty. The government moves in, and nationalises one of the companies, to ensure that this much-loved (needed?) product continues to exist.
We will end up with a hybrid model (kinda like China), where state-owned enterprises emerge due to capitalism falling apart, but many private businesses will still continue, especially small + local businesses.