What economic growth is? (2019 Updated)

World Development Indicators_-_Google_Public_Data_Explorer

Above chart from Google Public Data show World GDP per capita growth from 1960 to 2014. Data is shown in constant US Dollars of 2000. This means that there’s no inflation effect in this chart and 1 USD of 1960 has the same value as one of 2014. Or, giving it slightly different perspective, if 1 USD = 1 Big Mac, an average world citizen in 1960 was able to buy 3000 Big Macs yearly and this number raised to 8000 Big Macs in 2014.

This growth is unprecedented. Essentially it says that current world population lives 2,67 times better than people in 1960. To achieve it, they grew at 1,83% of Compound Annual Growth Rate. What has driven such a growth? As per Economics Online there are four different reasons for economic growth: new technology, specialization of labor, new production methods and discovery of new raw materials. I believe there are two: growth in scientific research and growth in energy output. If we think long term, I would leave only one: scientific research growth.

Broader perspective confirms this reality. Serious economic growth in GDP per capita started when scientific method became widespread in Europe. Below graph depicts how steady (and low) was GDP per capita over the entire human history, up to recent centuries. Real growth begins only when scientists gain relevancy in the Western society.

GDP per capta

Let’s have a little fun and make an Excel projection of the future we may expect if the trend continues. For 2065 an average world citizen GDP per capita will be around 20000 USD. These are levels of EU countries nowadays (Spain’s GDP per capita in 2014 was 25000). Imagine a world where an average person would live like in Spain…

GDP per capita growth forecast

But there are also some points to consider. Although in vast majority of the cases GDP per capita growth translates into better social standards for all the citizens, there are some exemptions like USA, where’s no such correlation occur. In this interesting article of HBR “Why Americans Are So Angry Despite America’s Strong Economy” author compares Social Progress Index in USA and comparable countries in terms of GDP per capita. It shows that although USA enjoys steady economic growth, this don’t translate directly into increase in well-being of US residents. Some mechanisms of wealth distribution are failing.

W160721_GREEN_2016SOCIAL-850x432

The goal of current generations is to ensure that this don’t happen in 2065. Now is the moment to create mechanisms that will drive the growth into real improvement of people’s lives. We need to engage as more people as possible into the economy of the science, so they’ll be able to contribute for global growth. And the best way to do so is empower them through access to wealth so they receive the necessary tools to multiply that wealth.

More about my vision of economic growth you can read here.