Apr 29, 2010

Economic growth - end or means to an end?

We often see articles or commentaries by 'experts' who predict that demographic changes would be 'devastating' for countries like Japan who face declining population. Their message is that 'economic growth' would be seriously affected and therefore, urge these countries to speed up immigration & of course baby-making to ensure 'growth'. Scary headlines and tag lines using words like 'crisis' are often used to emphasise on the 'danger' of low birth rate.

There are many countries facing such 'crisis', including fairly large and thinly populated ones like Russia and Eastern European states. It can, in such cases be a genuine national security threat. But in the Asian context, is lower population really a crisis? How many times have you felt 'what Japan (or for that matter any other country in similar situation) needs is a few more people' as you ride the crowded subway to work in these countries?

This brings us to the topic of 'economic growth'. It seems, at least to 'experts' and financial analysts and the 'Wall Street' gang, it is an end in itself, instead of merely being a means to an end.

One can understand that in the context of a listed corporate entity that has to constantly produce growth and higher profits. Even there, it leads to ridiculous situations. A random stone thrown in any 'developed' city is likely to hit not just one, two but sometimes even three Starbucks (or 7-11 or you-name-it) outlets. Until someone wakes up and realises may be it has gone too far...often the pendulum swings the other way with closures and sackings, only to swing yet again in boom-time.

But in the context of nations, is 'producing' steady and sometimes increasing economic growth mandatory?

Simple common sense arithmetic will tell us that size of the economy is a factor of two things - how many people there are and how productive they are. That is why a country like Switzerland is rich because with fewer people, they produce more - produce meaning not just factory output but services such as banking. A country like India is poor because people produce less even though they are more in number - which is also why sheer numbers give Indian (and Chinese) economies large size even with low 'per-capita GDP'.

The latter - 'productivity' is much more difficult to fix in the short or even medium term. In countries already highly productive like Japan it may even be difficult in long term. But the former, population size, can sometimes be 'fixed' in the short term, by encouraging immigration and discouraging emigration as well as in the medium term by encouraging couples to have more children.

That is where 'Gross National Happiness' comes in. Bhutan, a tiny Himalayan nation is considered a very happy country based on surveys, even though by most financial measures it is poor and backward.

Instead of going for higher economic growth as if it were compulsory and mandatory, it is good if we can satisfied by simply having stable or even declining economy, as long as living standards stay high and people are happy. And trains less crowded.

People already are making that choice - which is why, even though New Zealand, for instance, is more 'backward' when compared with many Asian economies from a per-capita GDP perspective, there are more Asians queuing up to move there than the other way around.

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