Economic Growth
The economic growth of a country is often compared to raw and bland ingredients in the kitchen that were combined, mixed, and processed to be able to come up with a more delicious and more pleasurable final product. In this sense, economic growth occurs whenever people rearrange existing and available resources to be able to produce something that is more valuable (Romer, 2008). In this paper, we are going to examine how people rearrange these resources and what factors contribute to the quality and efficiency of these new products. Later on, we are going to re-evaluate and re-assess economic growth and discover its benefits and costs. We are also going to ask the basic question if economic growth is really a good thing. Finally, we are going to relate all of our insights and theory to practical application to real country.
Determinants of Economic Growth
Robert J. Barro (1996 70-71) of Harvard University and National Bureau of Economic Research concludes in their report entitled Determinants of Economic Growth A Cross-Country Empirical Study that the economic growth of the modern world today is determined by different factors with varying degree. The said study is an attempt to provide an empirical study of 100 countries from 1960 to 1990 to gather relevant facts and data that will be useful in the cross-country study. Among these factors that influence economic growth are (1) government policies (2) level of politic rights and (3) level of education. Other minor factors include life expectancy, terms of trade, and regional influence (Barro 1996 70-71). However, in this paper we are only going to examine the top three determinants of economic growth namely government policies, level of political rights, and level of education.
Government Policies
According to Barro (1996 20), policies of the government or the degree of the rule of law comprises a wide array of categories that include the quality of bureaucracy, level of political corruption, likelihood of government repudiation of contracts, risk of government expropriation, and overall maintenance of the rule of law. By improving the said categories, it is expected that attractiveness of a country in foreign investments will improve. Summing it up, the perception and the interpretation of a greater maintenance of the rule of law is favourable to economic growth.
Political Rights
Although there is a wide consensus today among scholars that the relationship between political democracy and economic growth is inconclusive, some studies both in the past and today are showing some interesting variation. Fundamentally interpreted as the rights to participate meaningfully in the political process including the rights to vote and to hold a public office, the study reveals that increase in political rights in countries that experienced the worst dictatorship had shown enhanced and increased growth and investment. However, in countries that had increased political rights when they were already experiencing moderate amount of democracy, the result and effect was reversed due to the worry in the distribution of income and resources. Countries like Malaysia and Mexico for example will not benefit in further democratisation as much as countries like China (Barro 1996 37-38).
Doucouliagos and Ulubasoglu (2008 78) in their article entitled Democracy and Economic Growth A Meta Analysis conclude that though democratic growth has a zero direct effect on economic growth, there are some indirect effects between democracy and economic growth. This is because democracy has a favourable impact on human capital formation, level of economic freedom, inflation, and political stability that have a very important role in the growth of the economy.
Level of Education
According to the report of Barro (1996), male secondary education has a significant relationship in economic growth. In fact, an extra year of male upper-level schooling was estimated to increase the growth rate. Countries like United States, Canada and Sweden which have a high level of education had posed a high value of GDP.
On the other hand, female secondary education has no direct relationship on the economic growth. However, some studies show that female education has an indirect effect on economic growth since it will help in lowering fertility and improving political freedom that will in turn result in economic growth (Barro 1996 15).
Costs and Benefits of Economic Growth
Before 1965, development economists generally believed that political development and equal distribution of wealth and income will follow as soon as there is a considerable level of economic growth in a country. As stated by Adelman and Morris (1972 1-2) in their book entitled Economic growth and social equity in developing countries, increase in the rate of growth of such components of economic development as industrialization, agricultural production, investment and per capita GNP were closely associated with the increase in the extent of political and economic participation. However, after 1965, it was observed by development economists that this kind of expectation does not happen in the real world. The case of Brazil in 1960 for instance has shown that despite the average annual growth rate of 2.5, the share of the poorest 40 in the national income continuously declined. Also, there is no evidence that will suggest a development in political participation (Adelman and Morris 1972 1).
In addition to inequity in income distribution, economic growth has also been alleged to be a primary reason in the spoiling and destruction of the environment. According to scientists like Meadows et al. (1972 45) in their book The Limits to Growth, a growing economy requires large inputs of energy and materials that equate to a larger quantity of waste by-products. The increased rate of the extraction of natural resources and accumulation of waste will also undermine the capability of the biological sphere that will result in the degradation of the environment. In turn, it is expected that this degradation of the environment will undermine whatever development and improvement that we attain in terms of economic growth due to the high cost it may entail.
Sustainable Development
With these issues and criticisms against the economic growth, it is becoming difficult for anyone to maintain the same approach as we had before. From here, a new approach is necessary and that is the approach of sustainable economic growth. It is becoming clearer for different agencies and governments today that economic development should only be attained with the perspective of a sustainable economic growth.
Sustainable development is basically a new approach in determining the economic and political polices without undermining the environment. According to Department of Environment Food and Rural Affairs (DEFRA 2010), the major goal of sustainable development is to enable people throughout the world to satisfy their basic needs and enjoy a better quality of life without compromising the quality of life of future generations. With this in mind, we would like to argue that development and innovation should only be considered if and only if it has no negative effects on the environment. Economic growth is possible despite the consideration of the environments in policy and decision making. According to Ian Golding (2010 as cited in Centre for Economic Policy Research CEPR 2010), nations of the globe should move towards global cooperation and environmental management. For him, environmental management is a vital step to ensure economic growth.
United Kingdom and its Economic Growth
The United Kingdoms economy is one of the largest economies in the world with an annual GDP volume over US1 trillion. It has a mature and industrialised market economy with a declining manufacturing sector and a thriving service sector that includes bank and technological companies. United Kingdom is also a major producer of oil and natural gas with its North Sea reserves. Prior to the recent financial crisis, the United Kingdom has maintained a strong performance in its macro economy. With a strong and steady monetary as well as fiscal, financial, and structural policy, the GDP averaged to 2.7. (Country Watch, 2010 89)
Today, with the acknowledgement of the need of a new approach in economic development, the United Kingdom is currently having a significant industrial pollution that includes water, air, and even radiation pollution in addition to its energy producing sector. As a result, the United Kingdom is now adopting policies that will help them in erasing these environmental problems while at the same time maintaining their economic growth (Country Watch, 2010 156).
The United Kingdom headed by the Department for Environment Food and Rural Affairs (2010) uses sustainable development indicators in assessing their performance in shifting its economic framework towards a sustainable approach.
Conclusion
History has taught us that the earlier model of economic growth that focuses on monetary and production alone is a running time bomb waiting to explode. The world has already acknowledged that a shift is necessary in our perspective and priorities to be able to achieve economic growth while maintaining the capability of the world to sustain future life. To focus only on ourselves and to disregard the future generation can be considered as a huge crime that is even worse to the cases of genocides and crimes against humanity. To live for ourselves alone today is to destroy the future generations without biases on age, race, or gender. As present settlers and occupants of earth, we have this innate duty to develop ourselves and at the same time maintain a world that can sustain our future children.