What Is Economic Growth? Is It Sustainable?We hear the term almost daily in the news, but what is economic growth and what impact does it really have on our lives in both the short and long term?
The primary concept underlying national economy in the developed world is the model of continuous growth in the individual companies within the nation. Without exception all stock market listed companies are expected to perform consistently better on a year by year basis, producing more and more profits. To be exact, listed companies are under pressure to maintain an increase in their rate of profit making on an ongoing basis. What is Economic Growth:- An Amazing Flying Car?
If we look at this idea away from the business environment we can see clearly what the concept implies. If we replace the company with an automobile and use the car's speed as a substitute for company profits we have a reasonable analogy of the situation. The car starts off traveling at 100 kilometres an hour. However this is not good enough and we want to see some improvement in the car's performance. The car then accelerates to 110 kmph, giving us a 10% profit.
But we are not satisfied with the new speed either. We expect to see another improvement and it has to be at least 10% otherwise the car will be deemed as no good, unable to maintain its rate of profit. So the car squeezes out another 10% improvement in speed. But this time its actual speed has increased by 11 kmph, not 10 and the car is now moving at 121 kmph. The next increment is 133 kmph, 146, 161, 177, 195, 214 and so on. The speed of the car is shown in the graphs above and to the right.This shape curve is called an exponential curve. It becomes apparent after only a short amount of inspection that this is clearly an impossible situation to sustain. With regards to the motor car, thirty five successive increases in speed would have it traveling in excess of 2500 kmph, which is roughly the same speed that the earth spins with. After a mere 250 repeats, the car would be traveling faster than the speed of light. This is obviously a ridiculous expectation yet this is at the core of virtually all businesses and is therefore the foundation of the economy of a nation. What is Economic Growth:- Unrealistic Expectations It has come to the stage where even very stable and well performing companies can find themselves in dire trouble if they fail to maintain this rate of profit increase. According to the Sydney Morning Herald the major Australian based airline QANTAS recorded a profit of $969.7 million for the 2007-2008 financial year which was a 44% increase in profit over the previous financial year. This was less than expected though, which caused QANTAS' share price to dip. Should QANTAS fail to make a similar or larger increase in profit in the next financial year it will experience trouble at the stock market.
What is Economic Growth:- Greed In Another Form The root of this model of economic growth is greed. We do not seem to be satisfied with anything other than an increase in our wealth, possessions, status, whatever. The continuing need for more has brought about this unsustainable and illogical economic model, and this in turn is responsible for much of the environmental degradation going on around us. If we are to prevent the worst effects of climate change then we will need to give serious consideration to our obsession with economic growth and the root cause of greed that lies behind it.
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The economic growth or lack thereof that a nation incurs is the sum total of all the smaller economic units operating within that country, including both domestic and import / export industries. As such the economic growth of a nation is difficult to pin down to any firm causes. The performance of individual companies, consumer spending trends, whether there is an election looming and many other factors affect overall total productivity of a nation.
Note here that it is not sufficient to be making a steady profit, or even just to break even. As far as investors go, companies like that are not worth bothering with. Never mind if they provide a valuable service to the community or much needed employment; these are not the issue. All that is important is an impossible, insane need for ever increasing profits.