Tanzania needs economic growth to generate enough resources

28Jun 2016
Muharram Macatta
The Guardian
Tanzania needs economic growth to generate enough resources

Economic growth and development are intertwined and can be accessed from two perspectives: the mainstream and the critical.

Countries need economic growth to ensure that generates enough resources to meet the needs of their population.(FILE PHOTO).

In the mainstream approach, economic growth and development are concerned with the unfulfilled material needs of people. Countries need economic growth to ensure that generates enough resources to meet the needs of their population.

According to this approach, development is linear: there is a specific "path" that countries can follow to achieve development. Of course, there are different stages that countries must reach and exceed before achieving economic growth and development and according to a reliable source, the five development stages include the initial "traditional society," a "take off" phase and the final "high mass consumption" stage.

Originally this approach implied that there was a possibility of unlimited economic growth and thus that all countries could achieve equal levels of development. Later, the focus of economic growth was transformed to sustainable economic growth. Observers indicate that the cultural context is fundamental because it shapes the values, beliefs and attitudes that frame economic growth and development.

Some go on to argue that development is "state of mind" and thus countries that fall behind need to reshape their values and attitudes in order to enter the path to economic growth and development. The critical approach to economic growth and development, conversely, puts emphasis not on a linear development path but on a diverse route.

This approach contends that development is about meeting the basic material needs of people and also the non-material. Human well-being is possible by creating societies whose social, political, economic and cultural structures empower their members. In this context, some observers consider "development as freedom." Communities can become self-sufficient thriving at balancing their activities with nature.

At the same time, sound democratic institutions allow societies to be more inclusive in terms of marginalized groups that lack access to the community's resources. An empowered society enables its members to achieve their potential and thus reach higher levels of prosperity as a community. Investment in human capital, for example, is fundamental for economic growth and development.

In this context, country competitiveness functions as the basis for economic growth and eventually for furthering development. Business efficiency, for example, can generate the ideal competitive landscape for countries to achieve prosperity by striving to use available resources productively.

Government efficiency, also contributes by facilitating a context in which competitiveness can flourish. For this reason, the majority of us consider both approaches to economic growth and development. For example, among economic indicators, the competitiveness index considers GPD per capita, the growth of GDP by country, exports of goods and commercial services, terms of trade and the ratio of trade to GDP.

Among the more subjective factors of economic growth and development that the Competitiveness Index incorporates are world education rankings, employee training, innovative capacity, language skills, quality of life, the attitudes of those members of society with direct impact on competitiveness and the general value system. In short, the Competitiveness Index assumes an all-encompassing approach to economic growth and development.

Economic growth is measured by an increase in gross domestic product, or GDP, which is defined as the combined value of all goods and services produced within a country in a year.

Many forces contribute to economic growth; unfortunately, no one is 100% clear about what these forces are or how to put them into motion. If this information was known, the economy, spurred by these forces, could grow at a constant rate unencumbered by recessions and stagnation.

Politicians and economists are forever holding debates on the different ideas trotted out with the promise of being economic panaceas. Once an idea is on the table, interminable squabbling ensues over its merits and pitfalls. Measures taken to induce economic growth include infrastructure spending, deregulation, tax cuts and tax rebates.

Infrastructure spending occurs when a local, state government spends money to build or repair the physical structures and facilities needed for commerce and society as a whole to thrive. Infrastructure includes roads, ferries, bridges, ports and sewer systems.

Economists who favour infrastructure spending as an economic catalyst argue that having top-notch infrastructure increases productivity by enabling businesses to operate as efficiently as possible.

For example, when roads and bridges railways are abundant and in working order, trucks spend less time sitting in traffic, and they do not have to take circuitous routes to traverse waterways.

Additionally, infrastructure spending creates jobs as workers must be hired to complete infrastructure projects that are green lighted. It is also capable of spawning new economic growth.

For example, consider the construction of a new highway, refurbishing or overhauling archaic railway line followed by gas stations and retail stores opening to cater to its motorists and passengers.

Tax cuts and tax rebates are designed to put more money back into the pockets of consumers. Ideally, these consumers spend a portion of that money at various businesses, which increases the businesses' revenues, cash flows and profits.

Having more cash means businesses have the resources to procure capital, improve technology, grow and expand. All of these actions increase productivity, which grows the economy. Tax cuts and rebates, proponents argue, allow consumers to stimulate the economy themselves by imbuing it with more money.

Before you can determine the proper indicators for economic health, you must understand what causes an economy to grow and expand. An economy grows when labour becomes more productive.

Investments lead to more and cheaper goods and the standards of living rise for participating economic actors. In short, a healthy economy has rising standards of living, labour productivity and high levels of productive investment.

This does not necessarily include popular measures such as gross domestic product, or GDP; gross national product, or GNP; the consumer price index, or CPI; or even unemployment.

All of these measures are inexact and imperfect representations of economic effects, which demonstrate why it can be so challenging to evaluate economic matters.

Economic transactions involve trades of subjective value. An individual who receives 2000 shillings per hour in wages is therefore willing to trade an hour of his time, up to a point, for 2000 shillings, while a company is willing to trade 2000 shillings for an hour of his labour. If the individual then takes that 2000 shillings and buys a pair of socks, he is again transmitting signals of economic value.

When labour becomes more productive, individual workers are able to trade the same amount of labour for more goods and services. This directly raises the standard of living unless the rising productivity occurs at the same time as rising levels of inflation.

Labour productivity only increases through improved technique or improved capital goods. Economists have a phrase for improved technique: specialization and division of labour. Unfortunately, it is very difficult to quantity specialization.

Capital goods are researched, financed and built through invested savings; current consumption is foregone and traded for increased future consumption. This can be tracked through reinvested profits from private business and raised capital through stocks and bonds.

Capital investment is a good measure of economic health for two reasons. The first is current investments correlate very well with future productivity. The second is current capital investment, which is only possible when money is saved and people feel secure in losing a little liquidity.

One very popular measure of economic health, employment, is not as useful a number as it may appear. Economic growth is not driven by more labor hours; it is driven by an expanding pool of real wealth.

The government could pass a law making it illegal for anyone to be unemployed. It could also offer everyone who is unemployed a job trying to stack marbles. Neither of those events would increase productivity, increase real wealth nor create an environment for increased capital investment, yet employment would be 100 percent.

Strictly speaking; people do not want jobs for the sake of work. Work is difficult and, for many people, less preferable to leisure. Rather, people want jobs to exchange their labour for material goods and services.

Unemployment is a major concern for all economies, even in wealthy developed nations. Yet, it is a concentrated individual problem; unemployment hurts the standard of living for the affected individual or family. It does not generate wealth; it results from it. In other words, employment and wages are lagging, not leading, indicators.

MUHARRAM MACATTA is a retired civil servant, a graduate in liberal arts, majoring in economics and political science. He served as a director of internal and international trade, import and export section, with the then ministry of commerce and industries, which later became to be the ministry of commerce and cooperative; and served as principal marketing officer assigned to several marketing boards. He established state motors corporation and also founder regional offices; and first director of the Saba Saba International trade Fairs.

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