The Consequences of Economic Growth - Essay Example

The Consequences of Economic Growth Economic growth is the ultimate goal of any society or nation on a macroeconomic scale that would subsequently elevate the national standard of living and alleviate throngs of the population from the scourges of poverty. Economic growth is typically measured in gross national product or the average income of the population, levels of employment and unemployment, increases in exports and imports, the increase in the number of businesses either within a given country or that conduct business with that given country, the stability of business and employment, governmental fiscal and social programs, and finally, as a whole, the overall stability and wellness of the nation’s population. How a nation, and the private sectors within that nation, aims to achieve this is subject to different methods, ideologies, and pragmatic demographical applications of a nation’s economic, social and political strengths and weaknesses. With the ever-increasing norm of a globalising and integrated economy, the prospects of economic growth, both domestically within a nation, and transnationally, have grown exponentially. However, with economic growth comes foreseen and unforeseen consequences that are both positive and pejorative of a nation’s well being. It is certainly difficult to argue against the need for economic growth or that is has led individuals, groups and even nations to greater prosperity and stability, given the rise of developed nations such as South Korea, China, India, and to a lesser extent, Eastern Europe and Slavic nations, and Latin America. With increased economic transaction between populations within and outside of national borders have led to greater economic growth throughout many parts of the planet. Employment increases, the cost of products decrease to a competitive market level, and the number of firms and the quality of firms increase. As a developing economy grows, there is a greater propensity and incentive for foreign governments to provide some form of economic aid, which is also in their benefits for their own economic expansion.1 With the spread of commerce comes the spread of newer technologies. With the breakthroughs in technologies in the telecommunications industry, the technology itself has become more accessible for lower income customers. Anyone with an internet connection can now communicate and do business with anyone else in the world. This has led to a rapid growth in traditionally lesser-developed countries, because now there is a productive work force with the means to enlarge their economic fortunes. With the greater diffusion of technologies, entrepreneurs have become more empowered and enfranchised with freedom to pursue business ventures and this had led to a growth in business. As economist John Taylor explained, “a world without obstacles to the spread of technology or to investments in new capital, growth theory predicts that poor regions will catch up to rich regions2.” The more robust the economy, the greater the standard of living is in that nation or region. Not only technological development increases, but education is also improved, thus producing a more skilled and intelligent workforce, health standards are improved, and there is greater democratisation and political stability within the nation. Nations with no economic development at all are subject to civil war, systemic poverty, famine, and political instability, as often and tragically observed in Sub-Saharan Africa or Central Asia in the present day. Economic growth, and the means of obtaining it, is not without criticism and consequence, or even misconception. One such misconception is that significant trade surpluses and deficits will cause either economic growth or economic decline. While there is great theoretical and empirical evidence to support the claim that economic growth does increase the overall international trade of a nation, the notion that trade surpluses and deficits in of themselves are reasons behind further economic growth or decline. Instead, the terms of a nation’s international trade are more pertinent to projecting economic growth. Nations that now run large trade deficits, such like the United States and now China, will not face any significant economic decline solely because of the trade deficit. The U.S.’s and China’s economies are stratified and diversified where its gains off of interest rates alone can compensate for any trade deficit. David Gould and Roy Ruffin of the Federal Reserve of Dallas, Texas and Dr. M. D. Anderson analyzed studies that critiqued the impact of trade deficits has on economic growth. They concluded that, “far too often, the common wisdom is that large trade deficits signal a fundamentally weak economy, when the empirical evidence suggests that there is no long-run relationship between the two. Trade deficits…are part of the efficient allocation of economic resources and international risk-sharing that is critical to the long-run health of the world economy3.” Economic misconceptions notwithstanding, there are also pejorative and harmful consequences that may ensue from economic growth, particularly undisciplined and forced growth. Often economic development in developing countries takes the form of comprehensive deregulation of industries and robust capital market liberalisation in order to spur foreign investment and aid, to maximize GNP in the short term, or through caveats imposed by international financial institutions4. The problem arises with this form of economic growth when developing nations either elect or are forced by external actors to be concerned with GNP and be unconcerned with capital outflows5. Resources and wealth could easily leave the nation, as well as a labour flight, since capital and wealth may not be invested back into that country, and long-term growth becomes more difficult. There is a severe problem that may arise in these developing countries that seek rapid economic growth in this undisciplined manner. Post Soviet Russia paints a compelling portrait of the consequences of the wrong type of economic growth. Economic growth has to provide positive returns and profits for the developing economy itself, and wealth has to find a way back into that economy. With the case of Russia, newly established oligarchs and entrepreneurs produced Russian wealth and then invested such wealth into outside markets, therefore Russia as a whole did not reap the rewards of its newly liberated economy. There is also an environmental concern with undisciplined economic development. Over development while it may increase huge short-term windfalls for an economy, it could ultimately lead to environmental degradation, which would have system and profound implications not only in economic terms, but also in social and general health and biological terms as well. Over mining, over fishing and undisciplined reliance on non-renewable resourced would ultimately deplete the very source of such economic growth, whether it be a fossil fuel, timber in the forests, or over fishing. In addition to the economic woes that may ensue from such environmental conditions, the general health of the public is endangered with the increase of pollution and toxins in the environment, and any social and health ills could lead to political turmoil. Prime Minister Blair warned of such problems and the need for the economy to adjust to better accommodate its own needs while safeguarding natural resources. In a 2006 summit in Finland, Prime Minister Blair warned fellow European states that “we only have a 10 to 15 year window to take steps to avoid crossing catastrophic tipping points6” in regards to continued consumption of fossil fuels for energy needs. The consequences of economic growth can both reap huge short-term and long-term goals or severe economic and social instability years in the future, pending on how it is done. Economic growth is not without risks, especially in a globally connected economy where the actions of one economy or sector now influence the progress and hindrance of other economies and sectors. Such growth must be done right with long-term considerations and the proper mechanisms for growth and stability applied. Akin to an old car being fitted with a race car’s engine, there might very well be an increase in velocity but the driver of the car or the other parts of the car, such as the tires, brakes, etc. are not prepared or constructed in a way to handle the race car’s engine, and a risk of an accident or damage to the car is inherently increased. Economic growth must also be considered in such a light, with proper investment, discipline and structure for stable growth. References: “Blair Urges Climate Change.” BBC World News. 20 October 2006. < http://news.bbc.co.uk/2/hi/uk_news/politics/6068226.stm>. Gould David, Roy J, Ruffin and M. D. Anderson. “Trade Deficits: Causes and Consequences.” The Economic Review, (Issue IV, 1996) p. 1-18. Stiglitz, Joseph. Capital Market Liberalization Economic Growth and Instability. (Stanford: Stanford University Press: 2002). Joseph Stiglitz. Globalization and its Discontents. (New York/London: W.W. Norton and Company, 2003). Taylor, John B. The Principles of Macroeconomics. (New York: Houghton Mifflin Co., 2004). Read More