Economic Growth

Earlier you learned that the pursuit of growth is based on one important assumption – that having more goods and services available for sale will make our lives better. There are many people who dispute this assumption. They argue that the constant desire to make the economy bigger is actually making the lives of many people worse every year. Before we look at the factors which could result in economic growth, you should start to form an opinion about whether or not you agree with the very premise of economic growth.

When we choose to increase the size of the economy, there are costs. To create goods and services requires the use of resources, and while some of those resources are renewable, many are not. For example, there is a limited amount of crude oil in the world. Each time we drive a car, we are using some of that crude oil (in the form of petrol, which has been refined from crude oil). Eventually all of the crude oil will run out. As we move closer to the end of that productive resource, we can begin to see what will happen if we run out of other resources. For example, land is also limited, as are coal, iron ore and natural gas. In each case we can not make more; we have to work with the resources that we have available now. If we do not manage these resources properly now, then we will not have any to help us generate growth in the future.

A second cost associated with economic growth is the labour that is necessary to ensure that we are able to grow. If I am already working 40 hours each week, then there are really only two ways that I can contribute to economic growth:

I could work for more hours each week. This means that I will need to sacrifice some of the time that I spend with my friends and family. This becomes a question of priorities – which one is more important?
I could use each hour that I work more efficiently. For this to happen, I will need to increase my output in each hour that I work. And if I am already tired at the end of each day, this might not seem like a desirable option either!

Despite these costs, there are also undoubtedly some benefits associated with economic growth. The population increases each year, and if we maintain the same number of goods and services to share amongst the population, then each person will need to consumer less. This will eventually mean that our standard of living will fall.

It is also important to recognise that as new people enter the labour market, they will be happier if they are able to find work. Economic growth helps to ensure that new jobs are created; if the economy is getting bigger, then someone is needed to complete the increase in production.

It is also worth noting that recent research has shown a positive correlation between economic growth and environmental sustainability. All economies pass through a stage of using their environment to generate an income. After the citizens in that country begin to accumulate some wealth, they begin to question how they can maintain the environment in which they live. As a result, wealthier countries tend to have a better track record when it comes to environmental sustainability than developing countries.

Finally, it is worth making the point that as our economy has grown, the standard of living in this country has increased. The average wage in Australia has increased significantly since the early 1990s. We have more goods and services available for sale, and the increase in our income means that we can buy more of them. At the same time we have recorded increases in our confidence, and we have never been wealthier. All of these benefits flow from the economic growth which has occurred since 1991.

Current Page: Costs and Benefits of Economic Growth