Sustainable growth of an economy

GDP growth occurs when real output expands over time. Real output is measured
by GDP at constant prices, in other words, after removing the effect of inflation on
the value of national production.
Sustainable economic growth refers to a rate of growth which a country can
maintain without creating other significant economic problems, especially for
generations to come.
Rapid economic growth today is great, but it often comes with a trade-off
regarding future economic and financial health. If an economy grows too rapidly
today, the process may exhaust resources and cause environmental problems for
the next generation, or the following one.
Examples of environmental problems include global warming, oil supplies, and
fish stocks.
Sustainable growth for a business

 Entrepreneurs all face the huge challenge of creating long-term value with
limited resource. Offers the following fundamentals of sustainable growth
for commercial enterprises:
 – Clear Purpose: every business should have a clear vision of why it does
what it does. That is its North Star which guides every aspect of its
activities and commercial behavior, from product development and sales to
recruitment.
 – Partnership and Collaboration: sustainable growth is never achievable
for the micromanaging control freak. During the early days when funds are
low, it is tempting to do everything yourself.
 – Strong Brand: building brand equity and emotional connections with
customers is crucial. The stronger the attachments are that link customers
to a company’s products, the more likely they are to keep coming back.
 – Keeping Existing Customers: customer retention is dramatically
cheaper than finding new ones. Did you know that if you increase
customer retention by just 2%, it has the same effect as reducing your
business costs by 10%?
The advantages of growth

Higher GDP per capita

A rise in real national income means that wages and profits are likely to rise. Assuming a
stable population, this will raise GDP per capita.
More public and merit goods
A growing economy means that the public sector can receive more tax revenue and more
resources can be allocated to public and merit goods, such as more roads, hospitals and
schools.
Positive externalities
Public and merit goods generate considerable external benefits. More hospitals and
schools mean a healthier and better-educated population, which generates other economic
benefits in terms of the effectiveness of the labour force, and increases in long-term
aggregate supply.
More employment
Growth is clearly likely to stimulate demand for labour, and it is likely that more people will
be employed and fewer unemployed.
The disadvantages of growth

Negative externalities
As production and consumption increase, negative externalities, such as
pollution and congestion, are likely to arise. There is also the likelihood of
increased depletion of non-renewable resources, such as fossil fuels.
Inflation and balance of payments difficulties
Too rapid a rate of growth can also lead to two significant economic
problems: inflationary pressure and a balance of payments deficit, as imports
rise to satisfy an increasingly active household sector.
Widening income gap
Growth can also widen the distribution of income, because some groups may
benefit much more than others. Certainly in the UK, the relative income gap
has widened during the growth years of 1992 to 2008.
Case Study
The most immediate and widespread effect of the economic crisis on
the people of Indonesia has been accelerating inflation. Since the
beginning of 1998, price increases have accelerated still further to
levels which threaten hyper-inflation. Inflation for January and February
1998 was 20 per cent and estimates for annual inflation for the coming
year have ranged from 40-50 per cent up to 100 or even 200 per cent.
Prices have risen across most sectors, but the most severe increases
have been in critical areas such as food and other essentials. Food
prices increased by 30 per cent during January and February. During
the last year, rice has increased from 1800 rupiah per kilo to 3500
($A0.36 to $A0.70 at April 1998 exchange rates) and cooking oil from
2000 rupiah per litre to 5500 ($A0.40 to $A1.10). The price of protein
sources such as eggs, soy beans and chicken are rising beyond the
reach of many low-income consumers.(14)
The collapse of Indonesia's currency and the consequent exposure of the private
sector to massive unrepayable foreign debt has had a devastating impact on
employment, especially in urban areas. Accurate figures on the extent of job
losses are impossible to obtain, but most estimates put the figure at around two
million.The industry which felt the most immediate effect was construction (where
an estimated one million workers have been laid off) because much short-term
foreign borrowing had been directed into city building and infrastructure projects.
There have also been extensive lay-offs in manufacturing and in the banking and
service sector as new highly-leveraged manufacturing concerns have gone
bankrupt. The banking sector has virtually collapsed and industries providing
services to new industries and consumers have lost their customers. Indonesia
had experienced strong employment growth for the past several years, but it is
the jobs in the new growth areas which have been most vulnerable to changed
economic circumstances.
 Most unemployed urban workers are forced to eke out an existence
in the informal sector (street hawking etc.), depend on family
support or seek work in regional towns. The lack of a state system for
social support means that official statistics greatly underestimate the
problem, but even these calculate unemployment and
underemployment to have doubled in recent months to 8.7 million
and 18.4 million respectively, figures which represent more than 30
per cent of the workforce.