Economic growth

Many millions of people enjoy a quality of life today that previous generations could not have dreamed of. Home ownership, private cars and holidays are now standard for most families in industrialised countries. And yet at the same time, billions of people in other countries live without even clean drinking water. How can this be? The answer is that the fortunate few live in countries with sustained economic growth.

An economy is growing when the gross national product is increasing year after year. When economists calculate economic growth, though, they must take into account the effects of inflation. For example, imagine that the gross national product of a country increased from $500 billion to $510 billion from one year to another. That's an increase of two per cent in output. Very impressive! However, if the rate of inflation was two per cent, then there has been no real growth at all.

The other thing to remember about economic growth is that not all growth is good. Governments want steady, sustainable growth. Sudden, sharp increases in growth – a boom – can cause the economy to overheat and fall into recession. For many economies, the long run growth over many years is steady, but the short run is a roller-coaster ride of boom and depression. For instance, the long run growth of the UK economy since 1950s has been a steady 2,5% per year. However, if you look closely at any decade you'll see that there is a cycle of growth, recession and recovery. The truth is, steady growth in the short term is very hard to achieve.

Nevertheless, many countries are still struggling to achieve any kind of growth at all. Why is this? What is necessary for growth to happen? Many economists have tried to find the answer to this question, and there are plenty of theories to choose from. However, most economists agree that three things are essential for economic growth to occur: capital growth, savings and technological progress.

Capital refers to the factories and machinery that the labour force uses to turn raw materials into products. More workers and more raw materials will only lead to a certain amount of growth. Eventually, the economy needs more capital for the labour to use. Capital growth can also include training and education for the labour force. This makes the workforce more efficient, creative and productive.

Of course, someone has to pay for the new machines and training. In other words, capital growth needs investment. Money for investment needs to be borrowed from banks. Banks can only lend if customers make savings. This is why savings are so important for growth. However, the economy will not grow if everyone is saving and no one is spending. Getting the right balance between consumption and saving is another part of the challenge of economic growth.

But above all, technology is the real miracle worker of economic growth. An advance in technology can increase productivity from the same amount of capital and resources: just what the chancellor ordered!

B Comprehension

Now read the text again and choose the sentence which best summarises each paragraph.

PARAGRAPH 1

1. Economic growth does not happen everywhere.

2. Economic growth did not happen in the past.

3. Economic growth happens only in industrialised countries.

PARAGRAPH 2

1. GNP and economic growth are the same thing.

2. An increase in GNP always means the economy is growing.

3. An increase in GNP may not show economic growth.

PARAGRAPH 3

1. All growth is good.

2. Past growth is good.

3. Steady growth is good.

PARAGRAPH 4

1. The majority of economists believe three factors positively influence economic growth.

2. Economists are sure about what causes economic growth.

3. Economists have no idea about what causes economic growth.

PARAGRAPH 5

1. The economy needs more raw materials to grow.

2. The economy needs more machines and factories in order to grow.

3. The economy needs more labour to grow.

PARAGRAPH 6

1. For economic growth there needs to be more spending and less saving.

2. For economic growth there needs to be more saving and less spending.

3. For economic growth there needs to be the right amount of saving and spending.

PARAGRAPH 7

1. Technology creates more raw materials with less labour.

2. Technology creates greater output from the same amount of capital, labour and materials.

3. Technology creates more labour with fewer raw materials.

C Listening

Now listen and tick the things that helped the East Asian Tigers grow.

1. spending on education __

2. cuts in welfare benefits for unemployed __

3. high rate of savings __

4. high rate of local consumption __

5. exports to richer countries __

6. non-democratic governments __

7. democratic governments __

8. good relations between management and workers __

9. strict management rule __