We often hear our economy is not growing fast enough. Basically this means that the total output of the economy must increase at a greater pace… meaning we must produce more. If the total output grows faster than the population, the standard of living will increase and we will be better off.
This does not necessarily mean we must work longer hours and harder. Instead we need to work smarter. With knowledge, machinery and technological enhancements we can accomplish a lot more with the same resources.
This brings us to the matter of scarcity and choice. Any economy is limited by available resources. We must choose carefully where to spend these scarce resources. Unfortunately we can’t have our cake and eat it. To grow an economy we must either find new resources or we must produce more with existing resources. We should minimize corruption and senseless wastage.
The Production Possibility Frontier shows that rich nations spend more on capital goods (goods that can be used to produce other goods and services). Poor nations spend more on consumer goods and services. This can cause a vicious spiral where there are so many people in need of basic consumer goods, that the resources are just never available to build our capital goods needed to expand the economy. Unemployment is also not helping. It means we are not using our Human Capital to its fullest.
What can government do?
Some policies encourage economic growth and others discourage it. Tax laws can be designed to encourage research, development and the application of new improved techniques. Government should also create infrastructure (building roads, public transport systems). Labor laws must encourage businesses to hire employees. Basically government is responsible for creating an environment where businesses can grow.
What can businesses do?
Businesses can create employment opportunities, develop skills, do research, build machinery, apply technology and invest in our country. Every time money is invested offshore, it means we have less capital to build our economy
What can you do?
Each of us can make sure we use our scarce resources effectively. How often do we see people wasting water? We can also build our knowledge and skills to make ourselves employable or become an entrepreneur or employ someone. We must also save and invest rather than spending it all on consumer goods. Money saved or invested in the financial markets can be lent to others who use it to produce goods and services or build our Capital Goods. Every contribution counts.
Karl E. Case, Ray C.Fair, Principles of economics. Seventh Edition, Pearson Prentice Hall, 2004, Chapter 2