What is the economic theory behind promoting constant business growth?

Question

What economic theory is involved in promoting constant growth rather than allowing an organization to just reach a point of stability?

In: 3

Answer 1

The theory is that the demand for growth is the main driving factor that makes goods and services optimally good and cheap.

Think about it like this, I give you money to go start a restaurant. You have to pay me back, so that means you will need to make a place that serves good food with good service and at a price where people will want to come. You do well and pay me back. But then you now have an incentive, if you wanted to get even richer, you can try to grow the restaurant. How? Anything like:
1. Open more locations
2. Expand what’s on the menu to attract more guests. Maybe get some better decor, or a nice wine menu.
3. Streamline your kitchen and waitstaff so that people can get served faster and flip tables faster

You get the idea. In theory, it’s win-win. The townspeople get a damn good restaurant, and you get the opportunity to make a ton of money. You don’t have to, it’s just that there’s a reward if you try and succeed, and inevitably some amount of people will try. It’s also what makes new companies keep entering, keeps prices in check, and makes services progressively better. Curb-side pickup? That was implemented by companies seeking to grow. Compare tvs for example: In 2004, a 24 inch TV with was many pounds and had no HD or Smart features cost like $800 in today’s dollars, now a thin, light, 50 inch tv with HD and smart features is like $400. That happened as a direct result of companies innovating in an attempt to deliver growth the shareholders.

Also, there’s this kind of mythos that “the Earth can’t sustain perpetual growth.” Growth in the economic sense does not mean growth in resource consumption, it means growth of GDP, or growth in the size of the business. As resources get constrained they get expensive, and then the growth can come about as ways to use them more efficiently. Planes like the 787, 737MAX or A321neo are way more fuel efficient than planes of a few decades ago. Washing machines and dryers use less water and electricity. I’m not saying economic growth always results in less resource consumption, my point is that one doesn’t by definition lead to the other.