Part 2 – The Prosperity Formula and Three Pools of Demand*
When Bill Knudsen jumped into the leadership position that led to our victory in World War II, he knew that business leaders could both serve our country and do what was right for the shareholders at businesses like General Motors.
Knudsen saw great opportunity when three forces were aligned: demand, capital, and assets. Specifically, he knew that if he and his fellow industrialists transformed supply chains and product lines to meet the new demand for arms, munitions, ships, planes, and trucks that there were actual orders to be filled, and profits to be made filling them.
With the mind of an opportunistic business leader, Knudsen also saw a path to adequate funding resources as well as a set of assets others missed that together would provide the building blocks of his audacious strategy.
In The New Grand Strategy, authors Mykleby, Doherty, and Makower crystalize Knudsen’s “prosperity formula,” as Demand + Capital – Stranded Assets = New Growth Scenario. They assert that today, as in 1940, the equation starts with demand.
Further, they see a similarly massive market opportunity currently being missed by American businesses, specifically in three pools of demand—walkable communities, regenerative agriculture, and resource productivity.
Walkable communities are the hottest properties in real estate. American tastes have changed, from the splendid isolation of the suburbs to what authors call the “half-mile lifestyle”—work, school, transit, doctors, restaurants, playgrounds, and entertainment all with a short walk from the front door. Between now and 2030, baby boomers and millennials will unite in their demand for a broader range of housing types (single-family, townhouse, live-work, condo, apartment) in “new urban” communities. The financial impact of this shift is estimated at approximately $225 billion annually in residential sales alone, before including another $23 billion in annual savings for avoided public-service expenditures like roads, sanitation, water, and other infrastructure. More broadly, walkable communities simultaneously address several other big issues including decarbonization, social fabric, and health and wellness. Meeting this demand is a winner on every level.
Regenerative agriculture describes our opportunity to meet the growing global demand for food. To meet rising population and income levels, according the Organization for Economic Cooperation and Development, the world needs to increase global food production by 60 percent by 2050, and 100 percent of that will need to use farming techniques that restore soils and cleanse waterways. For American farmers, the increase in demand for food is already translating to record prices, but meeting this demand could translate to approximately $190 billion annually in additional revenue to farm operators, and end hunger worldwide.
Finally, resource productivity describes the incredible market opportunity to meet the energy and material needs of bringing three billion new middle-class aspirants into the global economy. The required revolution in resource allocation will power innovation in material sciences, engineering, advanced manufacturing, and energy production, distribution, and consumption. Embracing and hosting the resource productivity revolution would deliver a boost of more than $850 billion annually, or five percent of US GDP. America would be capturing the savings from reducing and eliminating waste, and producing a new era of innovative materials, goods, and services for domestic and global markets. America will also get back to making things again, as it dramatically reduces the potential for worldwide conflict based on scarcity.
Taken together, these three pools of demand alone generate an annual revenue opportunity of $1.3 trillion and create opportunities for true full-spectrum sustainability.
The book outlines current success stories in which alignment of business, social, and environmental priorities is generating triple bottom-line returns (for people, profit, planet) today. Companies ranging from Dupont and GM to PepsiCo, GE, and Whole Foods are demonstrating the path forward. Many more examples are offered.
Bill Knudsen knew that businesses with real orders for real things with real specifications offered a real start to long-lasting economic growth—a start more effective than any law Washington could pass or policy they could adopt. Yet, two more critical components of the prosperity formula needed to be addressed.
The next blog will review those elements while the final piece will make the case that the world needs the next set of Bill Knudsens to step up, and will offer a specific recommendation as to how.
- Part 1 – Introduction
- Part 3 – Finding the Money and Optimizing Assets
- Part 4 – A Business Plan for America
In summary, this blog series is intended to prompt readers to fully explore The New Grand Strategy as what I believe is one of the most important books of our time.
*All content in this blog series is adapted from The New Grand Strategy: Restoring America’s Prosperity, Security, and Sustainability in the 21st Century with permission from authors Mark Mykleby, Patrick Doherty, and Joel Makower. Mr. Mykleby and Mr. Doherty currently serve as co-directors at the Strategic Innovation Lab (SIL) at Case Western Reserve University, as part of The Fowler Center for Business as an Agent of World Benefit. Full disclosure: I proudly serve as a strategic advisor to the SIL.