Economic growth occurs when there’s an increase in the amount of goods and services produced by the economy. This growth can be measured by real gross domestic product (real GDP), which reflects the inflation adjusted value of the goods and services produced. Long-run economic growth is not only a sustained increase in real GDP, but an increase in the overall capacity to produce (Wolla, 2013). Long-run economic growth is vital to the future of a country because it can help improve standards of living (Palmer, 2012).
The factors that lead to economic growth consist of natural resources, physical capital, human capital, and institutions. Some examples of natural resources are land, water, oil, forests, rocks, minerals, and animals. Physical capital refers to the tools and technologies used to produce goods and services, which include factories, ships, engineering vehicles (like tractors), and retail storefronts. Newer and more efficient methods of production – like Henry Ford’s moving assembly line in 1913 – are also considered physical capital factors. Yet another more current example is the on-going digital and cloud transformation push, which allows organizations to get their products and ideas to market faster. Human capital consists of the labor force qualities that enable better productivity, such as education, training, experience, creativity, and entrepreneurship. Finally, institutional factors also contribute to economic growth. In this context, institutions are – as Douglass North (1990) so eloquently states – “The rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction." These institutional factors include the rule of law, political stability, strong health care, patent protections, competitive markets, and efficient financial institutions.
Policies can be implemented for each source of economic growth to enhance or strengthen that source. For example, one policy for natural resources would be to open up land acreage for oil drilling. Though this can lead to new jobs and growth, pushback in the form of protests and lawsuits from environmental groups should be expected. Investment in physical capital – “roads and bridges; water supply and sewers; seaports and airports; schools and hospitals; plants that generate electricity, like hydroelectric dams or windmills; and telecommunications facilities;” (Greenlaw, 2017) – allow the economy to produce more. Roads for example open up new areas for commerce and “are the arteries through which the economy pulses” (Berg, 2015).
Human capital policies are necessary to ensure a more skilled workforce. A government mandate for a minimum technology standard by the time students graduate from high school should be considered. In order to be competitive with countries like China, it is critical to start exposing quantum computing, machine learning, and artificial intelligence concepts to elementary and secondary students. More than three decades ago in elementary school, I recall contests to build the strongest bridges with various household materials and create the best containers for protecting eggs dropped from great heights. Funding should not only be continued for those experiments, but additional budget should be allocated for teaching emerging technologies – for example, coding a toy car to maneuver around obstacles using machine learning. Spending on adult job training using the latest techniques like augmented and virtual reality is also recommended to gain a competitive edge.
From an institutional standpoint, policies should be enacted to make obtaining construction permits easier. This might entail a more transparent and speedy process that is completely online. The ability to produce more will increase when there are bureaucratic bodies that run like agile startups.
As an individual, the benefits of achieving strong economic growth include more productivity, better quality of life, and greater levels of happiness. Remote work policies implemented by my organization have contributed to more productivity (partly due to fewer water cooler talks), less angst from travel and commutes, and overall higher satisfaction levels at work. These policies may not have been as effective without FCC initiatives to expand broadband. Challenges include debt and overextending of credit, environmental impacts, depletion of resources, and the leaving behind of the poor. The negative environmental impacts from global warming caused by higher levels of pollution are beginning to take center stage, especially amongst Generation Z (zoomers) (Wolla, 2013).
What I’ve learned from this exercise is that though many may grumble about the decline of American exceptionalism, I don’t believe there’s anywhere else in the world that provides the raw resources and capabilities to thrive – provided that effort is put in. Individual choices can and do indeed make a difference for the greater good. I started working in the financial sector in 2001, but have spent the last nine years utilizing my technology skills to work on equitable solutions to help the underserved. One such solution – a two-way SMS “nudge bot” for use in opioid crisis interventions and student and classroom outcomes – would not have been possible without the coherence of several factors of long-run economic growth: start-up incubators, cloud computing and cheap usage costs (due to economies of scale), and patent protections. I plan to further contribute to society and economic growth by obtaining a doctorate in computational neuroscience so that I can make significant and innovative impacts to the study of brain-computer interfaces.
References
Benefield, H. (Host). (2014, Sep 10). Economic growth (No. 15) [Audio podcast episode]. In The Economic Lowdown. St. Louis Fed. https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-15-economic-growth.
Berg, C., Deichmann, U., & Selod, H. (2015, December 8). How roads support development. World Bank Blogs. https://blogs.worldbank.org/developmenttalk/how-roads-support-development.
Greenlaw, S. A., & Shapiro, D. (2017, January 12). Fiscal policy, investment, and economic growth. Principles of Economics 2e. https://opentextbc.ca/principlesofeconomics2eopenstax/chapter/fiscal-policy-investment-and-economic-growth/.
North, D. (1990). Institutions, institutional change, and economic performance. New York: Cambridge University Press, 1990.
Palmer, N. (2012). The Importance of Economic Growth. Institute of Certified Public Accountants in Ireland. https://www.cpaireland.ie/CPAIreland/media/Education-Training/Study Support Resources/F1 Economics/Relevant Articles/the-importance-of-economic-growth.pdf
Wolla, S. (2013). What are the "ingredients" for economic growth? Page One Economics.