Transcript | 8. lecture: Why the growth is important - University for modern Slovakia

Economical growth means the growth of efficiency and it, if is continually maintained, brings the growth of wealth as well. We mentioned in a previous lecture what the gross domestic product is, but let’s remember, that it regards to the total value of all final goods and services produced in the particular country during the particular year. Speaking about economical growth, we usually mean the growth of GDP per year per one inhabitant, in constant prices. Growth per inhabitant is important, because if the number of inhabitants grew faster than GDP, the country would become poorer in spite of the growth.

Despite all the objections to the GDP indicator, it definitely is the most complex and the most accurate indicator of economical efficiency; therefore it will certainly play a key role in future as well. The final goal is not economic growth, of course, but growth of employment, income, living standards, life quality and ultimately people’s satisfaction and happiness.

However, these goals are not achievable in our conditions without the economic growth. As shown in a previous lecture, although there are countries in which the level of satisfaction and happiness of people is relatively high independently of wealth, those are countries in which we would hardly look for inspiration (Bhutan, Guyana, Honduras, Guatemala, Ghana, Costa Rica, Colombia, Suriname, Guinea - Bissau, Bangladesh, Dominican Republic, Gambia, etc.)

Economical growth means more work, growth of payments in private and in public sectors and growth of state resources for public need (healthcare, education, social system, infrastructure). It seems that people are especially afraid of losing job. The ones, that lost it have problems with finding a new one and are not satisfied with the quality of healthcare, education, the lack of infrastructure and with the quality of public and social services.

Therefore, solving these problems and improvement of situation in the areas with which people are not satisfied will require in particular (but certainly not only) restoring a high, but as well sustainable economical growth.

Countries such as Ireland, South Korea, Singapore or Taiwan have managed to jump up in two-three decades from poor developing countries to developed and wealthy thanks to the high economic growth. To illustrate the importance of growth, let’s compare, what time does a country need to double its GDP in varying degrees of economical growth. At 2% year growth it is 35 years, at 5% year growth it is 15 years and at 10% growth it is only 7 years. Yes, even in a short period of seven to ten years, the gross domestic product can be doubled.

The Irish example shows that it is possible even in European conditions. This is best illustrated by two covers of a prestigious economical newsreel The Economist, which were dedicated to Ireland. The first one, from the year 1988 identifies Ireland as “Poorest of the Rich” and in less than ten years, in the year 1997 the cover title stated “Celtic tiger: Europe’s shining light.”

By these figures, we have to realize, that the world’s economy has been growing during the past decades in average annually by 3.5% to 4%, with the average growth of developed countries being lower (around 2.0%-2.5%) and the one in developing countries higher (4.0%-4.5%). The exception was, of course, the crisis year 2009, when the world’s economy fell approximately by 1%, while developed countries have fallen by 4% and the growth in developing countries has fallen by +2%.

If we assume restoring of the growth rate from past decades during the post-crisis period (which may not prove to be real), it is clear, that if we want to quickly catch up with developed countries in the economic level, our growth rates should be higher than 5%.

In this context it is also important to note that the Slovak economy can provide significant creation of job opportunities only if economic growth is higher than 4%.

How can economical growth be accelerated and what positive results it brings for the country and its citizens, we were able to convince ourselves on our own experience. Reforms, which were held in Slovakia during years 2002-2006 attracted new investors and started a high economical growth (10.4% in year 2007), which brought growth of employment and growth in living standards. It is best demonstrated by data on the number of unemployed. While in year 2001 were registered in labour offices in Slovakia 533 652 job applicants, in May 2008 there were only 222 260. Then, especially because of the crisis, the number began to grow again and in spring 2010 it reached almost 400 000 (396 205). We will not significantly reduce this number, if we are unable to restore the economical growth and restore it to the level higher than 5% per year. That is also why growth is important.

Note: Correct answers to the test questions are intentionally not included in the text of the lecture. The reason is to motivate students in their additional self-study and partially (as revealed from the students’ responses and requirements) to make the test questions more challenging.