Economic growth is a key objective for politicians in all countries. Its benefits are widespread and far-reaching, including a higher standard of living, more jobs, lower poverty rates, reduced income inequality and increased health standards.
The benefits of economic growth are often attributed to greater labor productivity, but it is important to keep in mind that technological advances and improvements in capital equipment can also boost output. For example, the invention of gasoline made it possible to transport goods more efficiently and reduce costs by doubling the amount of goods that could be transported per unit of fuel used.
More recently, technological advances in information and communications technology (ICT) have helped increase the speed of communication and delivery of data, further boosting output. Meanwhile, advances in biotechnology are expected to improve agricultural production and reduce environmental damage.
It’s worth noting that not everyone enjoys the fruits of economic growth. Inequality is a persistent problem, with the rich getting much more from economic expansion than the poor.
McKinsey research shows that reducing inequality is the key to increasing overall economic growth, especially in developed economies where growing populations require more workers. Fortunately, there are many ways to address this issue.
The debate over whether economic growth is good or bad hinges on understanding what drives it. More importantly, the desirability of growth depends on the nature of the growth and whether it harms people or the environment.