The Aged Old Discourse On Economic growth and Economic Development


Paul Andrew Bourne



In contemporary as well as in traditional societies, economic growth continues to be a topical issue. Macroeconomists and developmental economists (for example Hanson 1986; Todaro 2000) have further sought to distinguish between development and economic growth. The latter is oftentimes expressed with plethora of mathematical notations, whereas the former requires the latter. To some scholars, growth is product of the expansion of an economy other a previous period (which is usual a 12-month period). This paper is not concern with a distinction between micro and macroeconomics, but will contrast economic growth from development in order to give a clearer understanding of growth.
Bourne (2006) cites that:
Many persons inadvertently and incorrectly interchange economic growth with economic development as though they are synonyms but these are two distinct phenomena. Economists posit that ‘economic growth’ is an increase in the Gross Domestic Product (GDP) of a nation. GDP is the aggregate of all goods that are produced, distributed and consumed in an economy in a given year. As such, an increase entails the employment of more factors of production (land, labour, capital and entrepreneurship). Equally, G.D.P is the aggregate of the factor incomes. Apart from the definitional properties of G.D.P, the reader must understand a thorough understanding of this measurement of production in order that s/he is able to grasp the issues that will be critically presented in this paper (Bourne 2006, 13)

From Bourne’s monograph, growth is ergo a prerequisite for development, but that economic growth is an increase in the total production of goods and services of the economy over a previous 12-month period. Embedded in Bourne’s perspective is the creation of more commodities, which is derived from more utilization of the factors of production. Other scholars provide a similar theorizing like Bourne, but offer a wider premise upon which we may conclude on the precision of the phenomenon.
Papell (1997), writing in "Study Guide: Hall and Taylor’s Macro economics" cites that economic growth is in the long-run is a factor of population growth and technological progress. This perspective marks a clear distinction of growth over time periods, and further adds that growth is not only a function of natural resources but may occur owing to technical changes and more people with a certain topographical space. What both scholars (Bourne and Papell) failed to mention that an increase in GDP may arise primarily because of changes in purchasing power. Hence, economic growth is accomplished and measured by increases in real GDP.
Papell provides a transparent conceptualization of real GDP, when he offers the argument that real GDP "is the most comprehensive measure of total production…It adjusts the dollar value of goods produced for changes in prices (Nominal GDP). This would be the rate of inflation. One academia provides us with a construct of inflation, when he says that:

Inflation is a monetary phenomenon (Mishkin 2003: 11; Wikipedia 2006; Thomas 1994), which is created when ‘more money is chasing too few goods’. In a situation where goods and services are scarce, an increase in money supply will only fuel a higher valuation of the same commodities without a corresponding change in the production function (i.e. capital formation- materials, stocks, work-in-progress, finished goods). With this reality, businesses and government are forced to pay higher prices for products; and so, this further amplifies cost increases throughout the general economy. Economists refer to this phenomenon as the multiplier effect of changes throughout the economy. This project seeks to examine price index in Jamaica between 1987 and 2004 in order to evaluate the inflation rates, changes and its effect on other macroeconomic indicators (Bourne 2005)


Hence, from Bourne’s (2005) and Papell’s (1997) monographs, in our search to grapple with an operational definition of economic growth, we must remember to account for inflation by clear stating that growth is measure by real GDP, which excludes price changes. One may argue that this paper is taken over by extension quotation, but this is the case in order to provide the reader with an in-depth understand of the phenomenon from scholarship perspective. Interestingly, however, I believe that such an approach provides a better knowledge base of the theory of economic growth as against from a reasoned position.

Once more from Papell’s book, using the long-run growth model, any growth in the economy arises because of rising employment, increases in stocks of plant and equipment (i.e. capital goods), other improvements in technology. With this said, growth is a function of internal changes in certain factors in the economy, and cannot be aided by imported goods, imported infrastructural changes in the economy.

Thus, there is a need to make a distinction between growth and development. Another scholarship placed this squarely on the table for discussion. Morris (1998) cites that:

Fifty years ago the term "development" was used largely in the context of economic change. Economic growth may be defined as the increase in production or consumption of a nation or a region, while economic development is the increase of such production or consumption by each person, putting growth on a per capita basis. Economic growth may increase the weight of a nation in world affairs, but it may fail to make life any easier for its inhabitants. Economic development provides this increase in goods and services which may be felt by the population (Morris 1998, 1)

Morris’s writing, on the other hand, offers a rationale for a thrust to understand development instead of growth. As improvements in real GDP (i.e economic growth) does not necessarily transfer into standard of living changes for the people of the same geographic space. He notes that this is possible because it does not transcend into a change in the capacity of the economy as against development. In that it may be short lived and so is not able to influence any quality of life changes. But development, on the other hand, is attained by fundamentally changing the economic base. Thus, it is accomplished by persistent growth over a long period, and not only for the short-run. This denominates itself into substantial changes in the productive capacity of the space.

Bourne (2006), once more, adds a wealth of knowledge to this discourse when he says that:

The political, economic, cultural, and legal systems of a country all have a significant impact on the level of economic development; and therefore, on the attractiveness of a country for firms, domestic and international. These systems are interdependent; it is important to realize that the interplay between the political, economic, legal, and cultural structures of a country greatly affect the level of economic well-being. In addition to these systems, it is important for a country to work toward the globalization of its economy (Bourne 2006, 15).

Morris argues that development is a better measure of economic progress of a people, but Bourne summarizes this adequately. In that, whereas, economic growth is the changes in real GDP over a period of 12-month but that expansion in the economy must encompass the entire multidimensional aspect to man – the political, the economic, cultural, the milieu and the legal system. Hence, development is fundamentally a better measure of economic advancement is development but that growth allows for an understanding of either more production or consumption in an economy.

The political system shapes the economic and legal systems of a country. There are two key dimensions of a beneficial political system that advocates free market economics: a philosophy based on individualism and a representative democratic government. Individualism urges that the individual economic and political freedoms are the foundation on which a society is built. Some scholars opine that economic growth is a needed ingredient for development.

It is easy to mislead that economic growth is the principal factor in development and perhaps a condition of economic development itself, but that development is more than simply increasing economic output i.e. GDP per capita. It (development) is a wider concept than economic growth. A country's economy may experience real expansion of GDP with no economic development taking place. Nevertheless, wider more meaningful indicators of development are often correlated with GDP per capita, such as The Physical Quality of Life Index, Human Development Index, Human Poverty Index and the Human Suffering Index, which help us include the non-monetary factors of development.

Sen defines economic development in terms of individual liberty, and independence to choose from a range of options, which concurs with what Bourne forwarded previously. While economic growth may lead to an increase in the purchasing power of people, if the country has a repressed economy, there is lack of choice and hence personal autonomy in restricted. Thus, once again, there is growth without any form of development. Economic growth, ergo, is good but its coverage is narrow, and so may not translate into widespread modification of people’s standard of living in the society. While economic growth may result in an improvement in the standard of living of a relatively small proportion of the population, the majority of the populace may remain poor. Hence, it is how the economic growth is distributed amongst the people that determine the level of development.

Lewis, who is the only Caribbean Nobel Laureate to have been given the honour for economics, adds a clear passage to understanding the function of growth and its limitation. Based on Lewis’ trickle-down theory of economics, if the growth in the economy is not adequate to satisfy the desires and requirements of the upper sections, naught or very little shall filter downward to the lower sections in the hierarchy of society. Thus, the gap between the wealthy and underprivileged widens and though economic growth has impacted a certain section of society, this cannot be considered development.

Economic growth is not enough in itself to measure economic development as even if there has been a leap in the income of people in a particular nation, but the inflation rate is very high, then economic development cannot be claimed as having taken place. Undoubtedly economic growth and economic development are complementary.
Economic development may be considered our short term goal towards the achievement of utopia in the long run, and economic growth is one of the myriad essential factors necessary for bringing about economic development, a much broader term concerned with a lot more than just the monetary aspect of development.

Hence it may be said that ‘Economic growth is a necessary but not sufficient condition of economic development.’

Therefore in the calculation of standard of living, why is economic growth the primate method? It should be noted that ‘standard of living’ refers to the level of material comfort as calculated by the merchandise, services, and luxuries available to an individual, group, or nation. Hence, the term ‘standard of living’ also encompasses the quality of life, which takes into account not only the material standard of living, but also other more subjective factors that contribute to human life, such as leisure, safety, cultural resources, social life, mental health et cetera.

Economic development, on the other hand, does not always lead to an improvement in living standards. While the economic condition of the people may be boosted, with an increase in purchasing power and the variety of choices available to them; in no way does it ensure a happier life in more subjective terms. It does not do away with the worries of a person, social evils or in any way reflect upon a better form of government, an efficient legal and judicial system, et cetera.

The issue of economic development like its predecessor suffers from some negative issues. The matter of economic development usually takes place along with modernization and industrialization, which leads to an increase in pollution in the environment which takes its toll on the quality of life of citizens. And despite its positive may aid in the deterioration of peoples’ quality of life through ailments and high cost of health-care.




CONCLUSION


Economic growth unlike development is replaced by phenomenon as sustainable development. But it is still an economic matter of importance and so is of value to all economists. I have sought to provide an understanding of economic growth from a discourse perspective of that term and its limitation and how development may be a better measure of quality of live (or standard of living). Once more, the real GDP per capita of an economy is often used as an indicator of the average standard of living of individuals in that country, and economic growth is therefore often seen as indicating an increase in the average standard of living.

Despite the many positives in the use of economic growth to measure ‘standard of living’, there are still some negatives in using growth (in GDP per capita) to measure general objective well being. These are as follows:

• GDP per capita does not provide any information relevant to the distribution of income in a country;

• GDP per capita does not take into account negative externalities from pollution consequent to economic growth. Thus, the amount of growth may be overstated once we take pollution into account;

• GDP per capita does not take into account positive externalities that may result from services such as education and health, and

• GDP per capita excludes the value of all the activities that take place outside of the market place (such as cost-free leisure activities like hiking).

Thus the use of GDP as a measure of economic well-being has its problems but economists are forwarding this as an approach and not an end in itself. Some economists (for example Michael Todaro) are well cognizant of these deficiencies in using GDP, but believe that it should always be viewed merely as an indicator and not an absolute scale. Thus, in response to this limitation they have developed mathematical tools to measure inequality, such as the Gini Coefficient. There are also alternate ways of measurement that consider the negative externalities that may result from pollution and resource depletion (see Green Gross Domestic Product).

Economic growth, therefore, is one construct that is becoming increasingly less and less relevant with the pasting of time. But the phenomenon is a prelude to wider economic phenomenon of sustainable development.



REFERENCE



Beardshaw, John. 1992. Economics: A Students Guide. England: Pitman Publishers.

Bourne, Paul A. 2006. Human Development: An examination of the relationship between public expenditure on social programmes and levels of development. Department of Government, University of the West Indies. (Unpublished Essay).

Bourne, Paul A. 2005. Inflation: Causes and influences on the Jamaican Economy. Department of Government, University of the West Indies. (Unpublished Essay).


Hanson, J.L. 1986. Textbook of economics, (7th ed). London: Pitman Publishing

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Sen, Amartya K. 1999. Development as Freedom. New York: Anchor Books.

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ABOUT THE AUTHOR




The author, Paul Andrew Bourne, holds a Masters of Science degree in Demography, a Bachelor of Science degree in Economics and Demography from the University of the West Indies, Mona, Kingston, Jamaica, West Indies; and a Diploma in Teaching from the University of Technology, Jamaica. Mr. Bourne is the co-author of a text titled "Probing Jamaica’s Political Culture, volume 1: Main Trends in the July-August 2006 Leadership and Governance Survey, 2007". But this only measure a miniscule proportion of the historical background of this academia. As he belong an elongated career in teaching (formerly taught mathematics at- Kingston College, Vauxhall, St. Mary’s College, Oberlin High school; an educator who work in business education – Gaynstead High, Wolmer’s Boys, Pentab Evening Institute, and ACRM). On completion of his B.Sc. degree (in 2004) Bourne resigned from Vauxhall High (2004) where he was the Head of the Mathematics department and began working in the department of Sociology as a Tutor in statistics, and a research assistant (RA). His duties as a tutor was short lived as he was transferred to the position of a graduate assistant (GA) in the same department, only after four months. Mr. Bourne occupied the position of GA for approximately two-year, after which he was employed by the department (Sept. 1, 2006) as a Teaching Assistant (TA) in Research Methodology and Methods. Despite the demands of this position, he still is able to tutor statistics and Introduction to Population Studies in the department of Sociology, Psychology and Social Work.