Rapid Economic Growth brings few benefits to businesses and causes great problems. To what extent to you agree with this statement? (15 Marks) Economic growth is the increase in the level of economic activity or real GDP (gross domestic product) within a nation. Economic growth affects businesses in different ways, but it does depend on how quickly the growth occurs as to whether it has a positive effect or not. It is normally measured using GDP, and a rise in GDP usually represents a higher standard of living. Most countries will attempt to improve their economies over a period of time, as this can increase levels of consumer spending, improve profit margins for businesses and therefore make more money for the government.
For businesses, rapid economic growth is likely to be more of a problem than a benefit. While it has the potential to increase sales and generate more profit for the company, it also put a large strain on the workforce. If the company produced luxury goods for example, they would see a large increase in demand from consumers who were now able to afford a higher standard of living. It may be difficult to increase the amount that they can produce if they are already working at a maximum capacity. When consumers do not get the service that they feel is adequate from one company, they will go to a different one with better customer services and quicker delivery time.
This could be the moment where customers think less about brand loyalty, and more about instant gratification; this could see them swap to companies who are coping with economic growth well. For companies who previously had a high market share with a sought-after product, they could be looking a loss in sales which could result in some job lay-off’s in order to cut costs. However, by cutting costs they would be losing those employers that are helping them to meet the demands of the economy. This is a vicious cycle in which businesses could find it very hard to break out of.
Another factor that businesses would need to consider is the environmental impact that large economic growth could include. Growth cannot be separated from its environmental impact. Fast growth of production and consumption can create negative externalities (for example, increased noise and lower air quality from air pollution and road congestion; the rapid growth of household and industrial waste and the pollution that comes from increased output in the energy sector) These external influences reduce social welfare and can lead to market failure as more and more consumers become more environmentally aware. Growth that leads to environmental damage can have a negative effect on people’s quality of life in the long run and may also impede sustainable growth.
On the other hand, businesses can generally enjoy higher sales and increased profits. In the short term, rapid economic growth could be sustained for companies who are currently not working at a full capacity. They have the option of recruiting more employees to help them meet the demands of the economy. By offering jobs, they would be reducing unemployment in that area, meaning that those people would have more money to spend, thus encouraging a quicker economic growth.
Economic growth normally has a positive impact on company profits & business confidence; this is good news for the stock market and also for the growth of small and large businesses. For a company to sustain higher levels of output at less than maximum capacity, they would need to find the most effective method of production, and then capitalise on it. If they were currently using labour intensive work, they could invest in capital intensive labour, as this automation would quicken production at lower costs in the long run. They would also gain economies of scale in the technical sector.
Rapid economic growth is a good thing if it is sustainable, but there will always be a point where people a business can no longer cope with the added pressure that has been applied to their workforce. While it is good for the government, as it means that they will gain increased tax revenues, businesses may struggle to maintain this strain on the workforce. It could lead to demotivation, increased absenteeism, and potentially an increased labour turnover. This could be dangerous for the company as it is costly to recruit new members of staff and other resources.
This may result in higher wages (as an incentive for new staff to join), higher costs and therefore higher prices for consumers. This could create uncertainty within the business community, because prices were higher, they would need to sell more units to break even. To ensure that more units are sold, they would advertise and make their product better quality than its competitors. To do this, they will need to invest in better quality standards and a marketing campaign with money that they are struggling to make anyway. There are many benefits that the UK economy can enjoy from economic growth, but there is an inverted u shaped graph that can show benefits in relation to the rate of economic growth.
This graph shows that low economic growth has the same level of benefits that rapid economic growth does. While rapid economic growth can be good, it holds a lot of negatives that could be more damaging than a steady level of growth. Benefits are at their highest when growth is steady. Sales will increase gradually, meaning businesses enjoy higher profit margins, and the government will receive increased tax revenues, thus being able to spend more on the public by improving the NHS, roads and public transport sectors. If the standard of living continues to increase, people will continue to have more money to spend, providing the tax and interests rates stay the same. Overall, rapid economic growth affects businesses in different ways, but it does depend on the size and current capacity of the business. Some businesses have the capabilities to prosper in periods of high economic growth, while others will falter because they simply cannot deal with the extra pressures that will be put on them.