Economic growth is understood as a process characterized by an increase in the mass of goods and services created in accordance with the volume and structure of emerging social needs.
The root causes of the progressive development of the economy lie in the complex and contradictory links between social production and its ultimate purpose – to satisfy human needs, to serve consumption. The very economic needs of man are generated by production. By creating a new product and arousing the need for it, production forms the conditions for satisfying these needs.
In turn, the satisfied need and the emergence of new ones dictates the need to repeat production, increase and improve it to saturate new needs. The growing needs of society give rise to “means of production” that are able to satisfy these needs.
Consequently, the essence of real economic growth consists in the resolution and reproduction at a new level of the main contradiction of the economy: between the limited production resources and the limitlessness of social needs. This contradiction can be resolved in two main ways: first, by increasing production capabilities, and secondly, by making the most effective use of available production opportunities and developing social needs. However, the process does not end there: at each new stage of development, with the expansion of production capabilities, again not all social needs are satisfied. Social needs are always primary in relation to productive resources, although they arise only when the production of products that meet these needs has already been mastered either by the producers of a given country or by suppliers of imported products. This is explained by the fact that the resulting need gradually turns into a mass one, which implies the continuous development of production.
The development of production capabilities is determined not only by the quantitative growth of social needs, but also by a change in their structure, an increase in the share of some needs in the structure of consumer preferences and a decrease in the share of others.
The needs of society are growing primarily because the population of the Earth from one era to another increases almost in an “exponential progression”. So, if in the V – XV centuries. (agrarian era) the average annual population growth rate was 0.1%, then in the developed agrarian era (XV – XVII centuries) the average annual population growth rate was already 0.2%, respectively, “commercial capitalism” (XVIII century) and “industrial capitalism” (XIX century) are characterized by indicators of 0.4% and 0.9%.
In our time, thanks to the successes of medicine and health care, which have defeated many serious diseases, in many countries the average life expectancy is growing and the birth rate remains high. As a result, the world’s population is increasing every year: only in the last 40 years it has doubled, over the past decade the annual increase has amounted to about 75 million people. This is equal to the number of inhabitants of Germany, which is equivalent to the annual appearance on the world map of a new large state.
At the same time, people’s needs are growing and becoming more diverse. For modern man, it is no longer enough just to eat, drink, dress, have a home, although the requirements for such goods themselves are increasing. Today, a person needs modern means of transportation, communication, services for maintaining and strengthening health, education and training, a full and meaningful rest, etc.
As the number of people grows and their needs increase, the economy must provide a continuous increase in the benefits necessary to meet these needs. It follows that the desire of the main subjects of the economy for economic growth always exists regardless of what level of development is achieved in society. However, the real conditions of production do not always allow the growth potential to be realized. Under these conditions, a depression or economic recession occurs, which can be caused by both internal economic factors and external to the national economy (for example, wars, changes in domestic or international politics, etc.). History therefore shows that the viability of an economic system is determined by the extent to which it can meet the challenge of economic growth.
Economic growth, which means a real increase in the volume of goods and services created, testifies to the progressive movement of the economy, its progress and development. |
So how do you measure economic growth?
Economic growth on the scale of all social production is represented by an increase in the annual volume of production of goods and services. Therefore, the measure by which economic growth is measured is usually gross national product (GNP) or gross domestic product (GDP). An increase in GNP or GDP due to higher prices of the current period, i.e. a change in nominal (in price terms) GNP, cannot be considered as economic growth.
Economic growth is usually measured both in absolute terms and in relative terms (as a percentage of the value of the previous period). For example, if in a given year the real GNP amounted to 210 million rubles, and in the previous year – 200, then in absolute terms it increased by 10 million rubles. (or by 5%).
Real GNP may increase, but it may also decrease (negative economic growth). Zero value of comparable GNP values means no economic growth.
The indicator of GNP per capita (and its growth rate) is also widely used to measure economic growth, especially when comparing at the international level. These indicators are usually used to characterize the standard of living and the dynamics of the well-being of the population of a particular country. At the same time, it should be borne in mind some conditionality of these indicators as indicators of the standard of living, their averageness. After all, between the production of final goods and their consumption, namely the latter characterizes the standard of living, lies their distribution. What proportion of GNP the poor and the poor will consume depends on the distribution system that exists in a given society, and even more specifically on the level of income differentiation in it. It is possible that as a result of the distribution of GNP, the poor will become poorer, and the rich will become richer.
With the same amount of real national product, its value per capita will depend on the population of the country in question. Thus, India’s GNP is almost 70% higher than Switzerland’s, but in terms of its share per capita, India lags behind Switzerland by more than 60 times! An increase in the average standard of living will only cause an increase in output (GNP) that exceeds population growth.
Economic growth is also measured by annual growth rates. In order to determine the annual growth rate of GNP, from the value of the real GNP of a given year, it is necessary to subtract the value of the real GNP of the previous year (i.e. the compared) and correlate the difference with the value of the real GNP for the previous year, expressing the result as a percentage. By constructing indicators characterizing the growth rate of GNP over a number of years, it is possible to identify a trend, i.e. the direction of economic development. In combination with other economic indicators, such information serves as the basis for economic analysis necessary for the formulation and adoption of decisions at the state level, as well as for checking and monitoring the effectiveness of the government’s economic policy.
The result of different rates will depend on the “weight” of each percent of growth, i.e. on the volume of the initial and compared levels (for example, with a real GNP of 4 trillion rubles, the difference between the growth rate of 1% will be expressed in the amount of 40 billion rubles). Over the years, even small differences in growth rates can become crucial. According to economists’ calculations, if two countries have the same amount of GNP at the start, but different growth rates (say, country A-4% per year, and country B – 2%), then the consequences will be significant (the first country will double its GNP in just 17.5 years, while the other will take 35 years).
What is economic growth for? What are its goals?
The main ultimate goals of economic growth are to increase the material well-being of the population and maintain national security. Improving material well-being as the main goal of economic growth is specified in the following main components:
1. Increase in per capita incomes of the population. The achievement of this goal is reflected in the growth rate of national income (ND) per capita.
2. Increase free time. Leisure is one of the benefits of life, but is not reflected in the indicators of the real GNP or ND of the country. Therefore, when assessing the degree of achievement of this goal, it is necessary to take into account whether or not during the period under review there was a reduction in the working week and the working year, the total duration of the labor activity of workers and employees.
3. Improvement of the distribution of ND among various segments of the population. If a simple increase in real ND were accompanied by a significant deterioration in its distribution, then most of the population would not consider economic growth to be an improvement at all, since their well-being could remain the same or even decrease. Therefore, it is important that the process of economic development supports the principles of social protection in relation to the disabled and unemployed.
4. Improving the quality and growth of the variety of goods and services produced. This component is not directly reflected in the indicator of real ND. At the same time, it is quite acceptable to assume that higher quality and differentiation of goods contribute to increased consumer satisfaction and, therefore, are reflected in the increase in the cost of purchasing goods and services, the aggregate size of which characterizes the volume of ND produced.
It should be borne in mind that the formulation of the question of the goals of economic growth is constructive, that is, it contains guidelines for what would be desirable for a developing society.
A positive approach to the question of the goals of economic growth involves an analysis of the motives of the behavior of producers and consumers. The main motivation for firms to make investment expenditures is to make economic profits in the long term. The goal of households is to increase their wealth. In order to achieve this goal, they, firstly, save part of their income, and secondly, invest part of the income in improving the quality of the factors of production at their disposal. Such a motive is characteristic, in particular, of workers, employees and entrepreneurs who invest privately in human capital. The theory of motives and needs closely links reproduction with the efficiency of economic growth.
The efficiency of economic growth is understood as the improvement of all components of the multifaceted concept of “production efficiency”. This should include:
improving the quality of goods and services, increasing their competitiveness in the domestic and world markets; mastering the production of new products that meet previously unmet needs or make it possible to meet them in the best possible way; deepening the specialization and cooperation of production, taking into account the territorial advantages of the country in the system of international division of labor; overcoming X-inefficiency by increasing managerial skills and using effective motivations to stimulate the growth of labor productivity within firms; improving the allocation of production resources by sectors and regions of the country; development of new technologies that minimize the cost of limited production resources for the production of this volume of production.
The concept of “quality of economic growth” in economic theory is associated with the strengthening of its social orientation. The main components of the quality of economic growth are:
improving the material well-being of the population; increase of free time as the basis for the harmonious development of the individual; increasing the level of development of social infrastructure sectors; increased investment in human capital; ensuring the safety of working and living conditions of people; social protection of the unemployed and disabled; maintaining full employment in the face of growing supply in the labour market.
It should be noted that there is a certain contradiction between the rate of economic growth, on the one hand, and the improvement of quality, on the other. High rates can be achieved at the expense of a deterioration in the quality of growth. For example, an increase in the length of the working day or an increase in the intensity of work, which leads to an increase in labor costs and thereby contributes to an increase in economic growth, will be adversely affected by a decrease in free time. On the contrary, low and even negative growth rates can be accompanied by an increase in consumer satisfaction as a result of the production of better products. Therefore, many economists believe that the most preferable are low (2-3% per year), but stable rates of economic growth.
At the same time, in the conditions of a deep economic downturn, high X-inefficiency, expressed in low labor productivity and widespread non-maximizing behavior of firms, maximum economic growth may be most preferable to ensure the effective development of the country.