Friday, June 3, 2011

Economic Growth Definition

Finding the best economic growth definition is not necessarily an easy matter. In this day and age it would seem that there are a multitude of indices designed to track and calculate how an economy is performing.

Historically economical growth has been achieved in different ways. In earlier societies, national economical growth was based largely in terms of acquisition of resources and goods, hence the succession of wars across the world in places such as Europe and China as completing nations drove each other backwards and forwards across the map in order to achieve new territory. In addition basic trade ensured that goods moved around the world, although generally on a small scale of production. In modern times, however, following the industrial revolution, production of goods rose to enormous volumes. The 19th century saw large scale colonization as European nations in particular took control of Africa and used its raw materials to drive the industrialization of their economies.

Mechanization of the means of production and the transport of those goods enabled those countries at the forefront of the industrial age to gain a leading place in the world economy, and so it was that before the First World War in Europe that Britain had managed to create an empire covering vast expanses of the globe. However, as other nations caught up with Britain, her power waned and she was replaced as the leading economic power by the US, which has retained this position ever since. Mass production allowed for cheaper goods, shorter hours and generally better working conditions although with some notable exceptions, such as the mining industry. This in turn then generated a consumer boom, the first of which was in the US in the 1920s as the economy recovered from the effects of the war. This then lead to over-production and the Great Depression of the 1930s.

The theory of economical advancement is that a nation could over a period of time produce and retain more capital than it needed to outlay for the basic requirements of running the society. This in turn then meant that there was a surplus, which could be used by that nation to fund some of the basic services of the state such as healthcare, defense, education, etc. This realization was at odds with the previous belief that a nation could only develop through the extension of taxation (either on the static population or by accommodating additional population within the state).

With this knowledge in hand economic theorists then tried to build models that would predict economic growth patterns and allow nations to manage their resources and budgets properly to enable longer term economic management. The more recent theories have suggested that growth is now increasingly driven by technological advances, which play a similar role to mass production in terms of driving down costs. This economic growth definition has been further enhanced to reflect the fact that economies are at heart designed around human capital, such as education and job skills, adding weight to the argument that the more a society invests in its people, the more likely it is to grow economically.

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