Economic Growth in the UK - Essay Example

Describe in detail the major determinants necessary for economic growth and examine how far the costs of economic growth in UK outweigh the benefits.How far do you think economic growth is a good thing? The promise of impressive economic growth has been a staple of electoral promises ever since the inception of parliamentary democracy in the UK. In recent years, this phenomenon has only gathered pace with both the Tories and the New Labour leadership claiming the ‘economic growth’ mantle as their own. Here, the implicit assumption is that economic growth per se is a good thing for the country and its citizens. But there are economists and intellectuals who would argue that other parameters of human development should also measured alongside economic prosperity. The rest of this essay will delve into some of their arguments and also attempt to ascertain the major determinants of economic growth and how far their benefits outweigh their costs. Various economic theories differ in their emphasis on key determinants of economic growth. But some of the determinants appear more frequently than others, helping them gain recognition as factors contributing to economic growth. Foremost among these determinants is the governmental institutions that overlook economic activity in a country. The broad policy framework adopted by the government and its impact on microeconomic and macroeconomic conditions is an important determinant. Some commonly used measures of the quality of institutions include “government repudiation of contracts, risk of expropriation, corruption, property rights, the rule of law and bureaucratic quality” (Allen, et. al., 2005). The development of infrastructure and human capital as a way of facilitating business is also a crucial determinant. In other words, “Economic policies can influence several aspects of an economy through investment in human capital and infrastructure, improvement of political and legal institutions and so on (although there is disagreement in terms of which policies are more conductive to growth). Macroeconomic conditions are regarded as necessary but not sufficient conditions for economic growth. In general, a stable macroeconomic environment may favour growth, especially, through reduction of uncertainty, whereas macroeconomic instability may have a negative impact on growth through its effects on productivity and investment (e.g. higher risk).” (Weissman, 2003) The role of central banking institutions and their reputation for stability and control cannot be overstated. Some theories emphasize the importance of ‘human capital’ as an indicator of robust economic growth in the future. The rapid rise of India and China in recent decades is a testament to the value of ‘human capital’ for economic growth. Public and private sector investments are also considered important. Innovation and R&D activities also have the potential to promote economic growth. This claim has been empirically tested and proven as well. Further, “Openness to trade has been used extensively in the economic growth literature as a major determinant of growth performance. There are sound theoretical reasons for believing that there is a strong and positive link between openness and growth. Openness affects economic growth through several channels such as exploitation of comparative advantage, technology transfer and diffusion of knowledge, increasing scale economies and exposure to competition. Openness is usually measured by the ratio of exports to GDP.” (Allen et. Al., 2005) Since the phenomenon of globalization has become ubiquitous in the new neo-liberal world order of the last few decades, it would be instructive to study aforementioned determinants within the framework of international capitalism. This particular form of capitalism has steadily replaced socialistic and communistic forms of economic arrangement in many countries in the world. While proponents of this global economic model argue that this is the best possible system, there are also those who strongly oppose various aspects of this system. Taking a historical perspective, we see that the events of the two centuries are shaped and defined by the practice of capitalism. While conceding that concentrations of power and finance in and of themselves do not lead to oppression and injustice, empirical evidence of the workings of the capitalist model suggests such an outcome. Similarly, while neo-liberal economic paradigm might have improved the Gross National Products (including that of the UK) of individual nations and improved the general standards of living, there are other aspects to human wellbeing that is not easily measured and fulfilled (Dixon, 1998, p.125). For instance, when assessing economic systems and determinants of economic growth, it is only logical to consider the consequences to the environment alongside measures of human standard of living. There is an emerging consensus among intellectuals and research scholars that there is indeed a strong correlation between the two concepts. In other words, it is rarely a coincidence that poverty thrives in hostile geographies and that affluence is usually seen in ambient landscapes. Apart from the literal sense of the word, ‘environment’ could also be taken to mean the political and socio-cultural context of a particular geographic space. Further, global capitalism has led to the practice of exploitation of cheap labour offered by Third World nations. So, while global capitalism, promoted and measured by the above mentioned determinants of economic growth, is further developing the length and breadth of its reach, it benefits certain sections of people while disadvantaging others (Thorsby, 2001). Going by criteria such as GDP, per capita income, etc, one would conclude that the United Kingdom is one of the most prosperous and advanced countries in the world. But probing a little further, we find that there are sections of the population that lives in poverty and without access to life’s necessities. People both inside and outside the country associate it with abundant opportunity for work, prosperity and overall success. While these assessments are not completely imaginary, it does goes to suggest that beyond the ostensible wealth and opulence there is also widespread poverty (Eckersley, 2009). Seen in this backdrop, it does seem that there is a heavy price to be paid for sustaining economic growth. Hence factors such as access to healthcare, pollution levels of air and water, quality of education systems, functioning democratic systems, equitable distribution of key resources, etc also need to be included as criteria for evaluating the effectiveness of an economic system (Allen, et. Al., 2005). In conclusion, it is quite clear that much of the criticism directed at prevailing methods of assessing economic systems and their key determinants is quite justified, especially in the context environmental degradation and inequitable distribution of wealth. The objections related to this practice can be seen as part of a broader critique of contemporary industrial societies such as the UK. These criticisms include deceptive mass advertisements, over-population, environment damage, toxic dumping, corporate greed, etc. A good starting point for reform would be the United Nations Human Development Index (HDI), which includes a broader list of parameters in assessing health, wealth and prosperity of a society. For example, in spite of being the leading global economy and military power, the United States is superseded by Scandinavian and Western European countries in the recent HDI index released by the United Nations (Eckersley, 2009). As ultimately all economic systems serve a social and political goal, it is important to evaluate their merits in this broader context, as opposed to strictly financial and statistical terms. References: Weissman, R. (2003, July/August). Grotesque Inequality: Corporate Globalization and the Global Gap between Rich and Poor. Multinational Monitor, 24, 9+. Allen, Robert C., Tommy Bengtsson, and Martin Dribe, eds. Living Standards in the Past: New Perspectives on Well-Being in Asia and Europe. Oxford, England: Oxford University Press, 2005. John Sloman, Essentials Of Economics, Fourth Edition, ISBN: 978-0-273-70881-0 Dixon, John, and David Macarov, eds. Poverty: A Persistent Global Reality. London: Routledge, 1998. Eckersley, Richard. "Is Life Really Getting Better?." The Futurist Jan. 2009: 23+. Thorsby, C.D. (2001). Economics and culture. Cambridge : Cambridge University Press (Retrieved on Oct, 21, 2009) Read More