Economic Growth and its consequences
Everything under the Sun has an aspect that either has benefited mankind or has been the cause of a problem. Economic Growth is no exception to this reality. Civilizations and now nations have all been a function of the growth their economy has shown. Today, this article tries to understand the importance of Economic Growth and by doing so, get a better picture that would allow us to balance Growth and Environmental Protection.
Economic growth and environmental protection are not at odds. They’re opposite sides of the same coin if you’re looking at longer-term prosperity.
Henry Paulson — Former United States Secretary of the Treasury
Investopedia defines Economic growth as an “increase in the production of economic goods and services, compared from one period of time to another.” This definition allows us to understand that time is an important factor in this phenomenon. More importantly, it is the combination of both goods and services that make an economy grow. In layman’s terms, growth is a fact of life. When the fact of change or development that ‘growth’ encompasses is applied to the economy, it translates to any nation’s mantra — A Growing economy, a Successful nation.
Economic Growth is a fascinating aspect of developing nations and the world on a global stage as it provides a global organization to define or even categorize nations that show better economic growth than those that do not. Let us use some higher vocabulary by introducing another definition of what Economic growth is -
Economic Growth refers to the increase in aggregate production in an economy.
Aggregate Production is the maximum output a workflow (sequence) of industrial processes can produce given all the possible variables that might hinder the process. Marginal Productivity is another term that appears hand in hand with Aggregate Production which refers to the growing interest or disinterests a large population of customers show in a certain product or service. For instance (a very simple example), when the first iPhone appeared in the market the interest incentivized the customers to begin or choose to buy or pay for a service at a higher number leading to economic growth by supporting business and services. Economic growth is calculated, let’s say modeled based on the elements known as physical capital. Physical capital is the human resource, labor force, and technology that is involved in an economic environment.
Economic Growth is generated by the following actions; an increase in the number of physical goods, complementary technological improvement, expansion of the labor force to support higher production, and finally, an increase in capital to fund the process.
Increase in the number of physical goods
The first method that exists is the increase in the number of physical goods. With increasing capital, the economy allows for the purchase of better machinery, and labor. Growth in this scenario can be explained by the following example. A fisherman with a net will catch more fish when compared to a fisherman with a fishing rod. In this example, certain facts come to light. One of the fishermen has to engage in the activity of saving enough capital to purchase better equipment and the economy must be well equipped to provide the correct equipment as a reward for their action. In this way, production increases.
The best way to substantiate this fact is by considering the example of the invention of gasoline fuel. A second method of producing economic growth is a technological improvement. Gasoline is the better and more productive alternative to petroleum, which only gained value after its energy-generating power was discovered. This ensured better technology was available to the workers, hence boosting production. There is a small catch. For this method to be a successful cycle, there must be continuous savings, investments, and research.
Grow the size and skill of the labor force.
During the period of immigration to the United States in the 19th century, a portion of the nation’s robust economy was bolstered by the large labor force that was now at the disposal of industries. In this scenario, the workers will have to be provided with amenities and benefits for their work which in turn will increase the productivity of the industries they are part of. By introducing the workforce to better education, they will be equipped to choose and apply for the perfect jobs that they qualify for, and give meaning to. This introduces the importance of investing and planning for effective human capital. It allows better educated and prepared citizens who will be able to support the nation by being the right consumers of a service and also it provides. Simply put by having the right type of workers, a nation’s economy can unlock the true potential of its population.
The increase in production is known as Gross Domestic Product, which directly transfers to the fact that with an increase in a nation’s GDP, production increases and supports economic growth.
Land — The land is a natural resource, which is vital to establishing industrial infrastructure and also opens the avenue for the extraction of mineral resources found in the crust. Labour — Human resource is a term we all have heard since our junior years as we humans through our skills and work give resources their meaning. Capital — is the physical goods/infrastructure/equipment that any economy needs to produce/manufacture or provide. Entrepreneurship — is the most interesting factor for successful economic growth — Entrepreneurship. This factor is vital as it promotes individuals to apply innovative ideas and combine all aspects of production by conceptualizing, and creating a product and service that will more often than not benefit a nation at a grassroots level.
2 Steps Forward, 1 Step Back
The biggest concern in the 21st century is the damage the progress of human civilizations has done to the environment. Our increasing reliance on fossil fuels, minerals, and metals to power our growing economic prowess across the world to a certain disregard for the possible consequences. Greenhouse emissions, and melting polar ice caps are at the top of the list of consequences that we have created ourselves, but the increasing capabilities of technology and the fact that we as a species have understood and taken reasonability for the problem allows us to hope for a better future. The final and the biggest challenge for humankind will be to balance Economic growth on one hand and Environmental benefits on the other.
We learned that economic growth and environmental protection can and should go hand in hand.
One thought interested me the most. Some environmentalists along with a majority of individuals who feel climate change is a product of imagination share a belief that economic growth and environmental protection exist in two different halves of the equation. Something that we all have to agree on is that we can and can accomplish this at the moment.
For instance, imagine that A builds and provides the filtration, anti-air pollution equipment that industries adopt. B builds and designs the sewage treatment plants and methods which is a boon to populated regions. C innovates and manufactures solar panels and solid-state batteries which power the new development of alternative energy sources, electric cars for example. This allows for the actions of A to ensure a cleaner breathable air around industrial regions; in the case of B it allows for developing countries with large populations to provide basic amenities, which in extension fosters growth in a community; and C boosts the scientific development of alternatives that ensure environmental protection.
All these benefits allow for clean air and water, healthiest food, and hygienic living conditions which translates to better human health, in extension bolstering Economic Growth.
Yes, this article does not do justice to the sheer complex nature of economic growth, but it is meant for something else. A reminder that our progress has consequences. This article reminds us that by understanding the simple underlying laws of economic growth, we as normal people can understand and try to step up and ensure that these factors of economic growth are met without damaging our environment. Actions as simple as conforming to the 3Rs (Reduce, Reuse, Recycle) to keep our homes updated with facilities to reduce our carbon footprints. Sharing rides, and using public transportation are simple steps that go a long way in ensuring we do our part in creating a principle of environmental protection. Such a drastic change will most probably backfire on our efforts.
What modern history taught us is that Economic Growth and Environmental protection indeed go hand in hand.
The only damage that is cost is due to the lack of effective public policies to ensure that. The disparity that exists amongst regions is a product of variation in the economic growth of the nations. Such populations have the right to ask for a common way for all citizens of this global community. Economic Growth is a necessity, and cannot be in the crosshairs of our errors that have led to environmental degradation. Our crosshairs need to rest on ineffective policies and ensure that economic growth fosters strong governance; parity amongst populations. As soon as this is all achieved, environmental protection will soon follow.
The economy is an element that we humans rely on and believe in. The best chance of giving it meaning is by ensuring that the planet we call home benefits.