So, is economic growth important? Only if you want to live a better life than your forebears. Because of the accumulated economic growth, countries in Europe have a higher standard of living than those of Africa or most of Asia. Europeans can afford more education and better healthcare, not to mention all other small perks that we enjoy on a daily basis – fresh fruits in December, for example, but also cars and chocolate. All these things were virtually non-existent just decades ago, or so expensive that only a fraction of the population could afford it. In the meantime, our societies got wealthier, and the capitalist logic of mass production often dramatically reduced costs and prices.
Small numbers make a big difference
Even small numbers can make a difference in the right context. When talking about economic growth, we are usually commenting on the growth rate. Growth rates are usually a couple of percents a year, but they differ among countries. Although the question whether a growth rate is 2% or 3% may seem trivial, these differences, in the long run, are very important. With a 2% growth rate you can expect for an economy to double in approximately 36 years – an average working lifespan, basically. If the economy grew at 3%, it would double in just 24 years.
Imagine two economies with the same GDP per capita. Economy A is growing at 2% annually, and the economy B is growing at 5%. After one average working lifespan, workers of B would be living in an economy that is almost 2.5 times more affluent than the economy A.
This hypothetical question has real-life counterparts. In 1990, on the eve of the transition, Ukraine and Poland had almost the same level of GDP per capita – 1 570 USD vs 1 730 USD. Today Poland boosts itself with the GDP per capita of 13 800 USD, while that of Ukraine is only 2 640 USD.
Not all growth is good
Of course, there are some limits. If a small country depletes its national resources and uses the profits solely to increase the spending, and does not invest in infrastructure, education etc. this growth will not be sustainable. The moment these resources are depleted the growth will stop. While Norway was able to defeat this resource curse, some other countries have not. For example, Russian fiscal broadcast is more concerned with the prevailing forecast of oil prices than the actual rate of economic growth.
Also, if growth is based on high public spending that is financed through deficit spending and piling up of public debt, the situation will finally get out of control and lead to fiscal problems and bankruptcy, just as the case of Greece depicts.
Equality is good, but making poor people richer is better
There is usually a political and policy question whether it is better to have a more equal distribution of income or allow more inequality if it would foster economic growth. The question is what goal brings more benefit to the poorest? Would you rather live in 1977 China with the GINI coefficient of just 17.7 and GDP per capita of 185 USD (equal to 750 USD in today terms), or would you prefer China in 2013 with the GINI of 42.2 and 8 120 USD? Therefore, even with higher inequality, with a higher level of development, even the poorest will have a higher income. The most important political question is not how to divide the cake, but how to make it bigger.