Globalization presumes sustained economic growth. Otherwise, the process loses its economic benefits and political support.
Long-Run Growth
(Part E)
by
Charles Lamson
The Pros and Cons of Growth
There are those who believe growth should be the primary objective of any society and those who believe the costs of growth are too great. The Progrowth Argument Advocates of growth believe growth is progress. Resources in a market economy are used to reduce what people want; if you produce something people do not want, you are out of business. Even in a centrally planned economy, resources are targeted to fulfill needs and wants. If a society is able to produce those things more efficiently and at less cost, how can that be bad? By applying new technologies and better production methods, resources are freed to produce new and better products. For Colleen and Bill (from the preceding posts), accumulation of capital---a house, a water system, and so forth---and advancing knowledge were necessary to improve life on a formerly uninhabited Island. In a modern industrial society, capital accumulation and new technology improve the quality of life. One way to think about the benefits of growth is to compare two periods, for instance, 1950 and 1995. In 1995, real GDP per capita was more than twice what it was in 1950 (Case & Fair, 2004). This means incomes grew twice as fast as prices so that we can buy that much more. (Remember, no one is telling anyone what to buy, and most people can spend much more now than they could then.)  Although things available in both periods are not exactly the same, growth has given us more choice, not less. Consider transportation. In the 1950s, the interstate highway system (social capital) had not been built. Driving from Chicago to New York took several days. We had automobiles, but the highway system did not compare with what we have today. Greater advances also have been made in air travel. Flying between the two cities was possible, but more costly, less comfortable, and slower in 1950 than it is today. Do these changes improve the quality of life? Yes, they do, because they give us more freedom. We can travel more frequently. I can see my mother more often. I spend less time getting where I want to go so I can spend more time there. People are able to get to more places for less money. What about consumer durables---dishwashers, microwave ovens, power lawn mowers, and so forth? Do they enhance the quality of life? If not, why do we buy them? About 3 percent of all homes had dishwashers (Case & Fair, 2004); according to the survey by the U.S. Energy Information Administration, today about 68 percent have them (wspa.com). In 1950, fewer than 2 percent of all homes had air conditioners (Case & Fair, 2004); again, according to the Energy Information Association, today 87 percent of U.S. homes do (paylesspower.com). What makes a dishwasher worthwhile? It saves the most valuable commodity---time. Many consumer durables have no intrinsic value---they do not provide satisfaction directly. They free us from tasks and chores that are not fun. If a product allows us to perform these tasks more easily and quickly, it gives us more time for other things.  Growth also makes it possible to improve conditions for the less fortunate. The logic is simple when there is more to go around, the sacrifice required to help the needy is smaller. With higher incomes, we can better afford the sacrifices needed to help the poor. Growth also produces jobs. When population growth is not accompanied by growth in output, unemployment and poverty increase. Those in advanced societies can be complacent about growth, or critical of it, but leaders of developing countries understand its benefits. When 75 percent of a country's population is poor, redistributing existing incomes does not do much. The only hope for improvement in the long run is economic growth. We turn our attention to the antigrowth argument in the next post.  *CASE & FAIR, PRINCIPLES OF ECONOMICS, 7TH ED., PP. 643-644* end |
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