Subsistence agriculture in developing countries, for example, may utilize a lot
of (family) labour on a small plot of land with only simple farming equipment
(little capital) to produce food for their own consumption. Large-scale
commercial agriculture in developed countries may use little labour, lots of
land and large amounts of capital (such as fertiliser and tractors) to produce
crops for export. A given stock of factors of production can produce more
output if they are used more efficiently or if technical change permits more
output to be produced. A given quantity of land may produce more output (a
higher yield) by using modern fertilisers. A given stock of labour may become
more productive if people are better educated. A computer today produces
more output than one eighteen months old. Total output (called gross domestic
product or GDP) is equal to the total stock of land, labour and capital being
used in production and a measure of the efficiency with which those factors of
production are utilized. The measure of efficiency is called total factor produc-
tivity (TFP) and captures the combined impact on total output of changes in
efficiency of all the factors. A measure of efficiency such as labour productiv-
ity only measures the efficiency of a single factor of production so is only a
partial measure of productivity. Therefore:
GDP level = total labour supply + amount of land + total capital stock +
level of TFP
GDP growth is then equal to the change in these components
GDP growth = growth of labour supply + growth of land + growth of capi-
tal (investment) + change in TFPThe accumulation of land can and has been important. The opening of the
trans-continental railroad in the 1860s and subsequent settlement of North
America opened enormous new tracts of agricultural land. Cutting down the
rainforest in Brazil has increased the supply of farmland in more recent
decades. Over long periods of time land tends to make only a marginal contri-
bution to economic growth. Growth rather comes from raising the yield of
existing agricultural land through new seed types or fertiliser or converting
land to more productive manufacturing industry. For this reason land will not
be considered in great detail in this book.
Many economists stop here and derive some rather straightforward policy
conclusions: that more growth requires some combination of more labour,
more land, more investment and more efficiency. They also explain the higher
growth rates in East Asia relative to Sub-Saharan Africa over the last fifty years
by much higher investment rates (creating capacity to export and infrastructure
to make those exports competitive) and by higher TFP (more technological
change and a better educated workforce). Policy, they suggest, should focus on
efforts to raise levels of investment, to motivate foreign firms to use Sub-
Saharan Africa as an export base,or to improve education. Such ‘analysis’
risks becoming rather banal, based around mantras such as ‘investment is good
for growth, therefore we need more investment’. If growth is a good thing, all
6 Introduction