Alternative Theories of Growth Performance: I The Supply Orientated and Neoclassical Approaches

The questions of what determine a country’s growth rate (gross domestic product or GDP), and why countries grow at different rates, have always been central issues in the study of political economy. They were the major concern of Adam Smith, the ‘father’ of economics, in his Inquiry into the Nature and Causes of the Wealth of Nations (1776), and they have remained on the agenda of theoretical and empirical enquiry ever since. This is hardly surprising since it is the growth of national product that determines how fast a country’s living standard grows, given the rate of population growth. A 6 per cent growth of output per head will double living standards every 10 years, whereas a 3 per cent growth of output per head will double living standards only every 25 years. Differences in country growth rates, even over a short space of time, can make a significant difference to the relative affluence of countries. After the Second World War, Britain was still among the top six richest countries in the world measured by per capita income. In the last forty years, Britain has slipped to about seventeenth in the per capita income stakes, as a result of its lamentably low growth rate relative to other countries. What accounts for this dismal performance, and the relative growth record of countries in general? This book aims at addressing these questions, focussing particularly on the relationship between the balance of payments and growth performance.