Skip to main content

Aiming for GDP growth alone is no longer good enough

The modern economy is an incredible human creation. It has developed over thousands of years as a result of the evolution of human technology, knowledge, organisation and culture.  It began with the Neolithic revolution when humans first cultivated plants and domesticated animals. Simple markets were established for the exchange of local produce. With the development of metals and the use of animal, wind and water power, markets became wider in scope, spanning nations and, for the most expensive goods, continents. In the last few hundred years, following the Industrial Revolution, the scale of wealth creation has increased massively. This is because the 8 fundamental factors necessary for the modern economy to function had finally come of age: economies of scale, natural sources of power, money, technology, companies and competition, marketing and logistics, personal development, and governance.

The modern economy has undoubtedly transformed lives for the better.  We now live three times longer and have much more fulfilling lives than our forebears. However, population growth, environmental problems and wealth distribution issues are threatening to stall progress.  To avoid this, the focus of economic management has to move away from GDP growth alone. In future we will need to achieve the difficult task of preserving the environment and cease wasting natural assets at the same time as maintaining or improving everyone’s standard of living.

I believe this can be achieved if the aim of economic management becomes that of creating and maintaining wealth for all to benefit. The concept of wealth includes personal wealth, company assets, institutional, local and national infrastructure, natural assets and the talents and energy levels of the population at large. To create and maintain wealth requires investment not only in physical structures but also in education, research, health care and preserving the environment. Economics should concern itself with the balance between investment and consumption. Sufficient money should be invested to ensure that wealth levels are maintained or improved; if necessary, consumption on the optional extras of life may have to be discouraged. To achieve this requires a change in direction in each of the eight economic fundamentals.

  1. Economies of scale and efficient transportation

We have come a long way from the self -sufficiency of the early farmers who laboriously constructed their possessions from basic raw materials. With the globalisation of trade since the Second World War, it is now possible to mass manufacture goods at one location and supply fantastic technologies cheaply to all parts of the world. The whole globe has become a network of economic interdependencies. The key issue now is resilience. Nations need to review critical supply chains to ensure they have sufficient contingency to overcome potential problems

  1. Harnessing non-human sources of power

Use of coal, oil and gas powered the Industrial Revolution. Climate change has forced a necessary change in direction. A huge programme is required to move away from the use of fossil fuels

  1. Stable money

Having a reliable means of exchange is vital to any economy.  In the last century we have progressed from physical tokens of exchange to electronic records. Money is created by bank lending and state expenditure. The 2008 banking crisis showed the dangers of uncontrolled lending. A strong regulatory oversight of the banking sector and their risk and reward strategies is vital to maintain economic stability.  Governments also need to continue to ensure that debt payments are honoured and exchange rates are maintained.

  1. Science and technology

Whereas at the start of the Industrial Revolution practical engineers were at the forefront of developments, it is now progress in science and technology that are the  key enablers of significant advance. Continued investment in biosciences, materials and energy is important. Less should be wasted on projects with less long-term reward potential, such as space exploration. The effect of corporate donations on research should be monitored and controlled to ensure that research is optimally focussed for the common good.

  1. Companies and competition

Free and fair competition is the fundamental driver of economic development.  Companies compete against other companies in an evolutionary process. Those companies that prosper can raise more money and grow; those companies that falter will fall by the wayside. By this means products, services and value for money are gradually improved for the benefit of all.

Governments must ensure that this evolutionary process operates as fairly as possible and that only the most effective companies survive. They must continue to ban all cartels and other anti-competitive practices.  They must prevent companies corrupting government processes by unfair lobbying, political donations and providing individual inducements.

However, there are situations when the profit motive does not work for the common good. This can be when companies have a high market share or when public infrastructure, health, social care, education and environmental issues are involved. These situations will need extra control and regulation to ensure companies don’t over-exploit their dominant position.

  1. Selling, marketing and logistics

The Industrial Revolution changed the means of selling from local markets and travelling pedlars to using high-street shops, media advertising and national supply chains. Recently, the development of the internet and e-commerce has heralded a new revolution in the sales and marketing processes. The customer now has more choice, access to cheaper prices and easier ways to pay.

There are downsides, there has been a rise in the number of people employed in insecure jobs on poor wages with none of the sickness, pension and security benefits that are available to fully employed staff. The high street, such a major part of local community life, is suffering badly. This is partly because the tax system favours out of town developments.

Economists should ensure that there is a level playing field between the new and old ways of marketing and selling.

  1. Personal skills and health

The ability to acquire and pass on knowledge across the generations is a fundamental human skill. Since the availability of printed books in the West, this ability has increased enormously; over 80% of the world population are now literate. Recent developments in the internet have taken access to knowledge to a new level. There needs to be a continued investment in skills and education to grasp the new opportunities created.

Improvements in disease management and living conditions have increased lifespans immensely since the start of the Industrial Revolution, creating a more experienced and healthier workforce. However, in the last decade, the growth in the healthy lifespan of adults in the West has stalled due to a number of factors including workplace stress, obesity and drug issues.  Both in order to harness the maximum creativity of their populations as well as to reduce expenditure in healthcare and social support, improving healthy lifespans should be a government objective. This requires investment in healthcare, public health and creating a healthy working environment.

  1. Governance and taxation

The concept of governance for the good of all has only come of age in the last few hundred years.  Maintaining a fair legal, tax and regulation system has proved vital to create a just, peaceful and effective society; it is important to have an equitable distribution of the rewards of investment so that everyone can both contribute and benefit. Excessively rewarding the rich allows individuals to divert investments that would profit all of society to their own personal consumption.

To overcome climate change and other current issues requires effective long-term planning. However, the way the current democratic system works encourages focus on short-term results in order to get re-elected. Governments need to undertake of fundamental review of their processes for representation and governance to improve involvements and outcomes. They should be independently monitored as to effectiveness, efficiency and performance.

The world’s economies are now so interconnected that we ignore the plight of others at our peril. Solutions to fundamental problems rely on international co-operation. Governments need to be outward looking and concerned with progress across the world.

.