The benefits of economic growth need not be taken solely in the form of more goods and services – they can take the form of more leisure. People in the UK not only have far more goods and services available to them than their great-grandparents enjoyed, they also have a much shorter working week.
· Better social services
When real income per head is increasing, the government will be able to raise more revenue without increasing the rates of taxation. People will be paying more in taxation but still be better off. This means that the government will be able to spend more on education, health and other social services without anyone being worse off.
If these are no economic growth, the government can only improve the social services by increasing taxation. Some people will be worse off, because cause their disposable real income will have to be reduced to pay for the increased government spending.
· National prestige
‘League tables’ showing the rates of economic growth in different countries is now given a great deal of publicity in newspapers and on television. West Germany, for example, gained a great deal of prestige from the high growth rates it achieved in the 1950s and 1960s. In the modern world, a government is often judged to be successful or unsuccessful according to the country’s rate of economic growth.
6.3 The causes of economic growth
A country can increase its total output of goods and services by
- using more land, labour and capital, and
- using its land, labour and capital more efficiently.
In all the countries which have achieved high growth rates, the stock of capital has increased faster than the number of workers. For example, in the USA, during the course of this century, the supply of labor has tripled, but the stock of capital has increased eight-fold. Providing workers with more machinery, more equipment and more power is one of the main causes of the great increases in productivity achieved by many countries in recent years.
Increasing the stock of capital is described as net investment – it is one of the most important causes of economic growth.
An increase in the number of workers makes it possible to increase a country’s output. Output per head, however, is not likely to increase very much unless there are adequate supplies of land and capital to keep the additional workers fully employed.
In the richer industrialized countries, population and the labour supply are increasing very slowly. In these countries, increases in output per head depend upon improvements in the quality of labour, i.e. on raising its productivity.
In agricultural countries, land is obviously a most important resource. In these countries, investments in drainage, irrigation and fertilizers, the use of more efficient farm implements, and improvements in transport can increase both the area of cultivated land and its quality.
In industrialized countries, the supply of land is a less important source of economic growth.
In a changing world, a country’s rate of economic growth depends very much on its willingness and ability to shift its economic resources from declining and low-growth industries to industries which have better prospects of growth. Countries which have achieved high rates of growth have been able to introduce new products, new designs and new production methods much more quickly than other countries.
· Technical knowledge
A most important cause of economic growth is the increase in technical knowledge. This takes many forms, such as inventions, improvements in the design and performance of machinery, the development of new materials, and changes in the organization and methods of production. For example, suppose a machine is replaced by one which is much more advanced in design and much more productive. In this case, the increase in output is not due to any change in the capital stock but to an increase in technical knowledge.
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