5.4 The costs of economic growth
· Social costs
The technical efficiency which makes possible high rates of economic growth can impose some heavy social costs on the community:
-Large industrial installations such as steel works, chemical plants, power stations and major airports often destroy rural amenities and create problems with pollution and noise.
- The concentration of industry leads to the growth of large sprawling urban areas. Congestion and overcrowding in these areas creates a variety of social problems.
- High rates of economic growth mean a speeding-up in the rate of technical change. Workers have to be far more mobile. More and more of them will have to change their jobs, their place of work, and the way in which they do their work. Frequent changes of this kind can be unpleasant and unsetting experiences.
· Opportunity cost
Economic growth requires more investment – the production of more capital goods. This means that fewer resources can be used to produce consumer goods. The opportunity cost of increasing the rate of economic growth is a reduced output of consumer goods while more capital goods are being produced.
· Non-replaceable resources
Many people are worried by the fact that our present standard of living depends very much on the use of resources which cannot be replaced. There are fixed amounts of coal, oil, iron ore and other valuable minerals in the earth’s surface. The faster these resources are used up, the sooner the supplied will be exhausted.
5.5 The trade cycle
Economic growth does not proceed along a smooth upward path. It takes the form of a series of boom and slumps. In some years, total output rises very quickly; in other, it grows very slowly or might actually fall. On average, it takes very roughly five years to move from one slump to the next or from one boom to the next.
These fluctuations are described as the trade cycle. Figure 5.1 illustrated the general shape of the trade cycle, showing how an economy moves from boom to slump, and from slump to boom.
5.6 Economic growth in the UK
Since the Second World War, the UK economy has average, by about 2.5% per annum. This compares unfavorably with some other industrialized countries. Even so, it still compares favorably with the average growth rates achieved by the UK in earlier periods. Remember that the 2.5% is an average figure. In some years the growth was as high as 8%; in others it was negative.
During the present century, its relatively slow rate of growth has caused the UK to slip down the ‘league table’ which ranks countries according to their real GNP per head. When the Second World War ended, the UK’s GNP per head was second only to that of America, and was well ahead of the GNPs per head of Germany, France and Japan. By the 1980s, however, Britain had dropped to eighteenth in the world rankings. Figure 5.2 shows the average annual growth rates, since 1960, for the UK and some other major industrialized countries.
In the 1980s Britain’s growth rate compared quite favorably with rates achieved by other industrialized countries. Some reasons why it tended to lag behind several other countries for much of the post-war period are set out below.
Britain’s rate of investment in new capital equipment has tended to be less than that of several other industrialized countries. Just as important, however, is the fact that much of this investment has been devoted to propping up declining industries. Several of Britain’s competitors have put more investment into high technology industries producing advanced products of high quality.
· Productivity and labour costs
Until the 1980s, wages in the UK tended to rise faster than in similar countries, but its productivity rose more slowly. The result was that Britain’s labour costs tended to rise more rapidly than those of countries with which it had to compete. For example, between 1974 and 1984 wage costs per unit of output in British manufacturing industry rose by about 200%, compared with 25% in Germany and 50% in the USA.
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