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ECONOMIC GROWTH and PROSPERITY in DIFFICULT CONDITIONS at the BEGINNING of the 21St CENTURY38

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ECONOMIC GROWTH and PROSPERITY in DIFFICULT CONDITIONS at the BEGINNING of the 21St CENTURY38 European Scientific Journal December 2013 /SPECIAL/ edition vol.1 ISSN: 1857 – 7881 (Print) e - ISSN 1857- 7431 ECONOMIC GROWTH AND PROSPERITY IN DIFFICULT st 38 CONDITIONS AT THE BEGINNING OF THE 21 CENTURY Vladimir Gonda, PhD, Prof. Daria Rozborilova, PhD, Associate Prof. University of Economics, Slovak Republic Abstract Beginning of the 21st century can be specified as a period characterized by the reversal in the direction of intensifying pessimistic expectations regarding the possibility of overcoming the consequences of the global financial and economic crisis in a relatively short timeframe. The complexity of the problem requires finding of the solutions in collaboration of scientists from different disciplines, as well as cooperation theorists and economic policy makers, particularly in their orientation on real resources and their effective use. The paper is based on the identification of problems related to the long term revaluation of the importance of economic growth, and underestimation of the importance of prosperity as well as the comparison of the values of indicators of economic growth and prosperity (the subject of our interest are the EU countries), in order to justify the need for modifications to their perception, specify their interdependence and identify the primary determinants that may play a positive role in ensuring sustainable economic growth rate, and to increase the level of prosperity in the current difficult conditions. Implementation objective entails the application of holistic approach. Keywords: Economic growth, prosperity, globalization, indicators, financial and economic crisis Introduction: Questions of the sense of human activities were raised by scientists from different scientific disciplines since the past as well as nowadays. In view of the limited extent of this paper, the subject of our interest will be perception of the sense of economic activities. Is really any economic activity reasonable? What is the basis for presuming that certain economic activities except the profit motive, personal benefit of some individuals are not justifiable? If such economic activities exist, are these only exceptional cases and therefore they are not worth being paid attention or is it a not negligible range of economic activities? Is not exactly the current global financial and economic crisis the greed of gain reflexion of several individuals? The seriousness of the problem is even greater as it is not a specific case of behaving of a few individuals in a few countries, within a region, but it is a problem of a global character. Another fact which should be taken into consideration is intensification of pessimistic expectations regarding possibilities of overcoming the consequences of the global financial and economic crisis in a relatively short horizon. Complexity of problems requires looking for solutions in cooperation of scientists from various scientific disciplines as well as cooperation between theorists and creators of economic policy. 38 The paper was elaborated within the project VEGA No. 1/0174/11 Determinants of Forming the Knowledge Economy in the Context of the New Economic Strategy of Europe 2020. 242 European Scientific Journal December 2013 /SPECIAL/ edition vol.1 ISSN: 1857 – 7881 (Print) e - ISSN 1857- 7431 Shift in perception of economic growth – possibility or necessity: In economic theory the economic growth is defined as the increase of production in time or increase in income per capita. Respective authors who deal with the issues of economic growth pay attention mainly to the factors which influence the economic growth and its rate or to the identification of the share of respective factors on the increase of production. Inhomogeneity of opinions has lead to the formation a wide spectrum of theories and models of economic growth. To the most famous undoubtedly belong neoclassical, Keynesian, endogenous (new) or institutional theories and models of economic growth. Names of economists as Paul H. Douglas39, Robert M. Solow, Trevor W. Swan, Roy F. Harrod, Ewsey D. Domar, Alvin H. Hansen, Nicholas Kaldor, Robert B. Barro, Paul M. Romer, Robert E. Lucas, and Walt W. Rostow are fundamentally connected with the given topic and their contribution is generally accepted. Detailed analysis of their work and specification of their views on the factors conditioning economic growth is, however, not the subject of our interest.40 Long-term priority focus on economic growth, one-sided concentration on achieving the highest possible rates of economic growth, confusing the means for the goal has lead to forgetting the fact that sense of activities in human society should be the human being with its needs meeting of thereof will provide a happy and satisfying life. Of course, if it is supposed for the biggest possible part of society. After the Second World War and formation of two different socio-economic systems the effort to prove the advantages of the system came to the foreground in that way that the individual countries were overtaking in that how high rate of economic growth they are able to ensure as well as emphasizing the need of formation of welfare states. It could seem that economic growth should have been the condition of formation of the welfare states. Paradoxically, the extensive economic growth in combination with growing government interventions into economy which were manifested in the significant increase of the share of government expenditures on GDP,41 in the increase of deficits and public debt, did not lead to the increase of welfare, but to an ineffective allocation of limited resources, to excessive consumption of the minority part of population in the national, regional as well as global context at concurrent increase of that part of population which was on the poverty line or in its close proximity. At the end of the 1960s the Club of Rome pointed out the unsustainability of long-term orientation on high rates of economic growth42, which by means of its reports drew attention to possible consequences of global problems of mankind. In the year 1972 the work with title 39 American economist Paul H. Douglas cooperated with the mathematician Charles Cobb at verifying his production function on specific statistical material. The basis for them were the data from the period of years 1899 – 1922, while they analysed the connection between the volume of output and size of engaged production factors, namely labour and capital. 40 Approaches of respective authors are contained in referenced sources and a brief characteristic of these theories and models of economic growth is included in the textbooks of Economics, Macroeconomics or in the textbooks of the History of economic theories, e.g.: Lisý, J. et al.: Ekonómia. Bratislava: Iura Edition, 2011. Holman, R.: Dĕjiny ekonomického myšlení, Praha: C. H. Beck, edition III, 2005. Lisý, J. et al.: Ekonomický rast a ekonomický cyklus. Bratislava: Iura Edition, 2011. Lisý, J. et al.: Dejiny ekonomických teórií. Bratislava: Iura Edition, 2003. 41 When comparing the share G/GDP in the years 1960, 1985 and 1990 there is a clear increase of this share up to the year 1985, and subsequently in the majority of countries there is certain decrease of this share. For documenting this statement it is possible to mention the situation in certain EU countries: Germany (32,5; 47,2; 45,2), France (34,6; 52,4; 49,8), Denmark (24,8; 59,5; 58,3), Ireland (28,0; 54,6; 42,4), the Netherlands ( 33,7; 60,2; 54,1), Sweden (31,1; 64,5; 59,1). To the contrary, in Greece there was permanent increase (17,4; 43,2; 52,5). In: McNutt,P.: The Economics of Public Choice. Cheltenham: Edward Elgar, 1996, pp.76 - 98. 42 In the year 1968 was formed the association of theorists as well as professionals from practise, later known as the Club of Rome the aim of which was specification of reasons, links and consequences of global problems of mankind. 243 European Scientific Journal December 2013 /SPECIAL/ edition vol.1 ISSN: 1857 – 7881 (Print) e - ISSN 1857- 7431 The Limits of Growth was published.43 Its authors were looking for the answer to the question if the limits of economic growth exist. They supposed that if the rates of economic growth were increased exponentially, the limits of growth would be reached before the year 2100. They could see the solution in removing this tendency of constant increase of economic growth rates and achieving ecological and economic balance. Requirements of the change of orientation to zero and later organic growth are also connected with the Club of Rome. Particularly, in the second report of the Club of Rome there was stated that the problem is not the growth itself, but cancerous, undifferentiated economic growth which must be changed into the organic growth. The organic growth represents the growth in the system in which the individual parts of the system are interconnected and interdependent. In the further period we encounter the requirements for ensuring the long-term sustainable economic growth respecting ecological limitations or with the requirements for ensuring the intelligent growth (based on knowledge and innovation), sustainable growth (support of more efficient resources, competitiveness), or inclusive growth (based on ensuring the full employment, social and territorial cohesion). From the report of The World Economic Forum44 arise requirements for ensuring the sustainable global economic growth, global and balanced economic growth or green growth. We particularly state two quotations from the given report which document these requirements: “We can start by dispelling the myth that economic growth and low-carbon, environmentally-sensitive development are competing objectives. A growth model that improves resource efficiency and mitigates climate change also generates a number of mutually reinforcing benefits, including accelerated job creation, healthier populations, expanded access to secure energy supplies and sustained global economic growth” (p.3) “The concept of green growth began to take hold in 2008 at the Pittsburgh G20 Summit, where leaders launched the Framework for Strong, Sustainable and Balanced Growth.
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