Ways of thinking about growth
To an economist there are three main ways of thinking about growth: as a
process of change; as progress towards an ideal end-state; and as an assump-
tion of progress. In addition to incomes we may be concerned with wider
measures of human well-being or ‘development’. There are many ways to
conceptualize development including GDP growth, capabilities, basic needs,
the Millennium Development Goals, nutrition and happiness.
Growth as a process of change
Economic growth was the main policy goal of newly independent developing
countries in the 1950s and 1960s; how to increase the growth rate was the
central concern of the emerging school of Development Economics. Walt
Rostow (1956) examined the pre-conditions for developing countries to expe-
rience a takeoff into self-sustained growth, while Ragnar Nurkse (1953) advo-
cated balanced growthacross economic sectors, and Albert Hirschman (1958)
argued the government should promote those sectors of the economy whose
expansion would spill overand promote growth in other sectors. Recent
research has noted that developing countries seem to find it relatively easy to
start growth but that sustaining it is much harder. For example Congo, Nigeria,
and Côte d’Ivoire all experienced rapid (6 per cent+) growth in the 1960s,
followed by economic stagnation.
Using GDP growth as a measure of change is problematic in a number of
ways, however. GDP growth only measures market transactions so ignores the
subsistence/household productioncommon in developing countries and non-
marketed household work (usually by women) common throughout the world.
Measuring GDP only gives something a value if it has a price or wage. Non-
marketed household labour plays a crucial role in sustaining the health and
nutritional status of the current labour force and promotes the education levels
of the future labour force so clearly has a crucial value even if it has no market
price (there is a strong relationship between the literacy levels of a mother and
her children). As an economy and incomes grow over time individuals tend to
shift from household-based production (baking bread) to market transactions
(buying bread in a supermarket). Making allowance for this change over time
would tend to reduce GDP growth rates in developing countries because some
of the measured increase in GDP represents, not higher output, but a shift from
non-market to market-based transactions.
Corporate accounting has clear rules to distinguish total or gross from net
investment. Net investment accounts for the depreciation of buildings,
machinery and other assets. But oddly, GDP measures are not corrected for
using up the environmental stock. Incomes earned from converting a tree into
wood and furniture and selling it are included, but the loss of the tree that has
been felled is not. Making these adjustments for Indonesia in the 1970s and
1980s when 40 per cent of its GDP and 80 per cent of its exports were
26 Sources of Growth in the Modern World Economy since 1950