In the modern world with its difficult economic and industrial situation, the speed of economic development plays a huge role, which determines the rate of accumulation of money by the state and the standard of living of its citizens. We hear about this almost daily from television programs. But far from everyone knows that in this case, intensive economic growth is implied, which is not characteristic of all states.
Highlights
The most important task of any government is to stimulate economic growth and maintain its pace at a consistently high level. In this regard, it is extremely important to have an idea of this concept, as well as those factors that stimulate it or, conversely, restrain it. Economists around the world are developing dynamic mathematical models that describe and model the stages of economic development under specific given conditions. Of course there are different types of economic growth (extensive and intense), but on a state or global economic zone scale, they still have a lot in common. But because these models are still crucial in all cases.
At the same time, the process of adopting the right strategy is greatly simplified, which will help to increase the speed of development of state and private industries, as well as other sectors of the national economy. In this article, we will consider extensive and intensive economic growth. However, the emphasis will be on intensification, since this particular development path is unambiguously recognized as the most preferable.
Deciphering the concept
But what is economic growth? By this we mean the exit of production processes beyond the limits of the niche originally designated for them, their transition to a new level. It should be remembered that economic growth is an indispensable component of the cyclical development of state production capacities. But this is a rather vague definition that does not reflect some of the nuances of the modern world. Today it is believed that intensive economic growth implies a steady progressive movement of the manufacturing sector with an excess of the number of final products over the population growth rate.
Clearly, it manifests itself in a significant increase in GNP (GDP) for a specific time period or in its increase per capita. So the intense type of economic growth will in any case be measured at the rate of annual increase in productivity.
It is important to understand that the main regulator of economic growth is almost always investment or government support for production, including in the form of subsidies. Of course, the process volumes fundamentally affect this. To expand production, in fact, there are only two main ways: either to increase manufacturability, or to increase the cost of labor and other resources. As a matter of fact, the choice lies between two directions of the organization's development: either intensive economic growth, or an extensive market model. First, let's talk about the latter option, since it is most often used in practice (unfortunately).
Extensive economic growth, its main characteristics
In general, this concept means a simple increase and expansion of production without emphasis on quality indicators:
- A lot of new employees are accepted into the organization’s staff, but practically no attention is paid to their real qualifications. By the way, this to one degree or another can be characterized by extensive and intensive economic growth. At first, even developed companies may have difficulties with hiring really highly qualified employees, and therefore they have to recruit more labor, followed by selection and on-site training.
- Accordingly, at the same time, production capacities begin to consume several times more resources, but the real efficiency of their assimilation remains at the same level, and in some cases it can generally decrease significantly.
- The owners of the company try to attract third-party investments, but the funds received are practically not used to enhance the manufacturability of production lines and the entire process.
- Finally, this development path perfectly characterizes labor productivity: it either remains at the same level or falls markedly.
Intensive economic growth, its main characteristics
In this case, the increase in output is associated with a sharp improvement in the ability to assimilate resources and significant increasing labor productivity. So, the following are among the intensive factors of economic growth:
- There is a constant introduction of new, economical and technological processes, and often this is done through a timely and thoughtful process of updating fixed assets. To put it simply, the intensive factors of economic growth include methods of introducing the latest achievements of scientific and technological progress into the daily lives of enterprises.
- Improving the organizational structure, including improving relations with existing suppliers or searching for new ones, improving the management structure of the company by dismissing poorly established middle and senior managers.
- Acceleration of depreciation of fixed assets, the purchase of more advanced and technological equipment. For example, a perfectly intensive path of economic growth characterizes the company's acquisition of a mobile workshop in which it is possible to produce not one, but five different types of goods.
- Finally, this development path is characterized by a constant increase in the qualifications of workers in production.
What is the difference between the intensive path of economic growth? It characterizes its previous or even reduced consumption of resources with an increased output. It is those enterprises that at one time chose this development path, are characterized by a significant increase in the welfare of their employees. Of course, in reality it is rarely possible to meet a “pure” variety of one or another method even at a single enterprise.
Where more often a combination of several methods is applied. Thus, an intensive type of economic growth is expressed in the adjustment of production by more technological methods, with the purchase of modern machine tools or other tools. But at the same time, it is often necessary to hire more employees, since the qualifications of the old ones will still not be enough for the first time to fully master new technologies. Another situation. The same new equipment often requires cardinal retraining of even experienced personnel. At this time, performance will inevitably fall.
How can you visually measure the rate of increase?
By the way, what is the growth rate? They are determined in the form of the economic relationship of GNP of the base and real year to the real GNP of the current year. All this is expressed as a percentage. The indicator can be measured in two ways at once.The choice between them depends on which tasks should be solved:
- As we have already noted, in the form of an increase in GNP or GDP for a specific time interval.
- In the form of an increase in one or another per capita per year.
Factors directly affecting economic growth
Economists have relatively long developed various ways to classify these kinds of factors. We give the most common, in which they distinguish two groups.
Determined by Sources of Economic Growth
This is the most important group of factors, since they imply the very physical possibility of economic development. Since the emphasis in the article is on intensification of production, the following are characteristic of intensive economic growth:
- The presence of natural resources (including minerals), and not only their quantitative, but also qualitative indicators are important. What other factors of intensive economic growth exist?
- The availability of labor resources. As in the past case, their qualitative characteristics (degree of qualification and educational level of workers) are of great importance.
- The technical condition and volume of fixed assets. It is easy to understand that a lot depends on this factor, since it is simply physically impossible to produce a sufficiently large volume of products necessary for marketing on worn-out equipment.
- The manufacturability of the used production lines. This determines how the cost of the manufactured product, and its final quality, as well as the availability of the ability to quickly restructure the enterprise if necessary, release something else. Since intensive economic growth is characterized by an increase in labor productivity and an increase in the quality of products with the same key indicators, production lines should be as technologically advanced as possible.
Growth Limiting Factors
As in the past case, this group is extremely important, since without taking into account these indicators, no company will be able to achieve at least some financial success for obvious reasons. The production process depends most of all on the degree and completeness of the use of resources available to the enterprise. Moreover, we are talking not only about “physical” reserves, but also about economic resources: in order to use them with the necessary degree of efficiency, enterprise economists must be able to efficiently distribute them between different production cycles.
Alas, it is precisely these negative factors of intensive economic growth that often hamper the development of industry in our country: our production capacities are "used" to rely on large volumes of output, but it is far from always possible to rationally distribute resources between different industries.
Resources and Products
Efficiency of distribution between the stock of resources and the actual volume of products manufactured by the enterprise. Since there is a direct correlation between aggregate demand and aggregate expenditures, the latter will have to be increased in order to keep pace with the changed volume of production. Finally, institutional factors. They can both completely limit and spur economic growth.
In this regard, legal norms (legislation, the fight against organized crime and / or corruption), moral and traditional foundations of a particular society are very important. Any form of discrimination or a poor workforce that “squeezes out” all promising and diligent workers can very strongly influence economic growth, even if it is a single enterprise. So, adequate labor legislation also refers to intensive economic growth, although some experts greatly diminish its role.
In general, the process of increasing economic productivity can always be represented either as a synchronous interaction of two factors that are different from each other, or their work separately, regardless of each other. Firstly, this is the amount of resources that are involved in production. Secondly, this also includes the degree and effectiveness of their use. In this case, economic growth can be represented as the product of production costs and its total productivity.
In general, it is the latter factor, that is, productivity, that is often the "stumbling block" in many development strategies. Many managers of modern companies complain that it is sometimes simply impossible to find truly trained personnel who, in principle, could “beat off” the normative output.
The main groups of factors of intensive economic growth
Today, economists say that all the nuances that somehow stimulate the process of increasing economic productivity should be divided into three main groups:
- The volume of the proposal. This group includes: natural and / or labor resources involved in production, as well as the amount of money invested in the company and technologies used in production.
- Demand factors.
- Volume of distribution. This indicator assumes the degree of efficiency of the distribution of resources and cash.
On the importance of supply factors for intensifying output
Despite the undeniable importance of all the issues discussed above, in real production much more attention is paid to supply factors, because it is they that allow one way or another to influence buying activity and, accordingly, the company's profit. Thus, the following factors affect the intensive path of economic growth:
- Increase or decrease in the cost of basic production resources.
- Any changes both in production standards and in its real indicators.
- Adoption of laws that one way or another modify pre-existing industrial relations. We know that intensive economic growth characterizes the accelerated rate of procurement of new equipment, for example. If for some reason the state adopts laws on the mandatory replacement of imported products with domestic counterparts, but there are no goods of adequate quality at first, the pace of development will inevitably fall.
So we examined the extensive and intensive factors of economic growth. As you can see, in the early and mid-90s in our country the very first technique was intensively used, and this did not lead to anything good. Now the economy (in many respects under the influence of external circumstances) begins to turn in the direction of intensification. Many experts note that in the modern world, with its constant crises and stagnant phenomena, only this strategy can ensure the survival and prosperity of the state.
