Economic growth

The costs and benefits of economic growth, summarised.

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Economic growth

Advantages

  • Increases standards of living and welfare.
  • Leads to communities being more civilised and taking action to protect the environment.
  • Produces increasingly more environmentally-friendly alternatives (e.g. recycling, hybrid cars).
  • Increases length of people's lives, provides means to eradicate or reduce disease.
  • Provides route of poverty for much of world's population.
  • Produces a fiscal dividend, namely in the tax revenues generated by growth. These can be used to correct market failures, provide infrastructure etc. which again increases economic welfare.
  • Can create a virtuous circle of greater business confidence, increased investment in technology, greater int'l competitiveness, higher profits and further growth.

Disadvantages

  • Growth uses up finite resources like oil and minerals, which cannot be replaced.
  • Leads to pollution and other forms of environmental degradation; earth may reach a tipping point from which it cannot recover.
  • Some attempts to be environmentally friendly do not have a large enough impact to be useful (e.g. not everyone has hybrid cars).
  • Growth can destroy local cultures and communities and widen inequalities in the distribution of income and wealth.
  • Leads to urbanisation and the spread of huge cities which swallow up good agricultural land.
  • In the early phases, growth leads to a rapid rise in population, more mouths to feed and more people actually poor.
  • All these gains in infrastructure may actually have very high negative externalities for some people.
  • Produces losers as well as winners. Countries with low growth may enter vicious circle of low confidence, low profits, low investment and zero growth.

Evaluation

Economic growth is necessary and has been beneficial in transforming the future of some countries. Emerging markets such as the BRIC nations (Brazil, Russia, India, China) have all been examples of how economic growth can increase international competitiveness and boost a country's standard of living. However, even in countries with astronomical rates of growth, e.g. China, there are large inequalities in income and wealth, and poverty hasn't been completely eradicated. It may be that the benefits exceed the costs, but the costs cannot be ignored. Growth is also subject to slowing down, as has been seen with post-industrial nations like the U.K., at some point growth ceases or becomes negative. It may be that growth must be carefully managed and attained at a reasonable rate for it to be sustainable and beneficial to a majority of the population.

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