Economic growth is an increase in economic output and it is believed to be hinged on three fundamental pillars: Production, Exchange and Consumption. These pillars constitute a virtuous cycle in which people should be embedded to eventually build economic prosperity and resilience. Intriguingly, economies which prioritise any of these pillars above the others will most likely suffer from challenges such as Balance of Trade deficits, increased emigration pressures and undiversified commercial activities.
Production as the first pillar of economic growth is based on its factors namely land, labour, capital and entrepreneur. The implication of this is that everyone must have access to these factors to produce something of economic value for income and its streams to be created. For instance, the factor of land will produce rent which in turn yields food and accommodation; the factor of labour will produce income for household members; the factor of capital will produce interest which will yield investments and further wealth and the last factor of entrepreneur gives the requisite mix of the previous factors which will produce profit.
Exchange is the next pillar of economic growth after production has been sorted. Economic value created through production needs to traverse the space of “needs and wants” also known as the “Market” for further growth of the economy. Hindrances to exchange such as geo-political fragmentations alongside trade restrictions, insecurity and multiplicity of taxes, can reduce or eliminate needed transactions and as such stifle the economic activities of market players. Market restrictions often culminate in the inhibition of the last pillar of economic growth which is consumption with the aftermath negatively impacting the creation of income and its streams.
Consumption is the last pillar of economic growth and must be particularly encouraged if an increase in the value of goods and services within an economy is to be driven. Consumption is so critical for economic growth that it is the force that engenders demand and supply, the push of employment, the Vision Statements of organisations, the reasons for government spending, the fuel for monetary and fiscal policies and the source of well-
being and life. Once consumption is compromised by unavailable or limited goods and services, reduction in disposable income, aging population, high morbidity and mortality rates, financial instability and inflationary pressures, economic growth becomes stunted while the Production-Exchange-Consumption Cycle becomes disrupted. Unfortunately, many economies in the world are currently in this situation with unwanted pressures and heightened uncertainties, in its tow.
Therefore, it is imperative to consider options of adjustments that can help governments, investors, businesses and households thrive through the growth of global and local economies. For starters, Government spending must be prioritized and effective for it to be qualitative enough to meet or surpass specified goals’ standards. This is important to help Government meet up with their responsibilities and also reduce their debt burdens (both requirements for economic growth).
There is also need for a review of existing metrics (with the active involvement of various stakeholders), which monitors Government spending for accountability and control purposes. This is because Government spending is a major economic capital that spurs growth once directed appropriately.
In addition, Government spending in the form of subsidies must begin to target productive capacities (primary, secondary and tertiary) especially, in emerging and low income economies without forgetting their climate considerations. Focusing on these while addressing inflationary challenges with stronger monetary and fiscal policies’ frameworks, can improve and stabilize earnings within an economy with significant results in generating sustainable revenue for government. On the other hand, having a predominantly “Consumption and Exchange” driven economy is not very viable in driving Government revenue over time.
Furthermore, Government should be more serious about squashing verminous-like problems in its systems such as corruption, profligacy and the absence of meritocracy, which all hinder efficiency in its spending and other exigent functions. A revamped government at this time will not only focus on effectively deploying crucial human capital within its structure but will equally make itself attractive to both public and private partnerships and participation through the conduits of trade and investments.
Investors and business owners on their part need to know that they have a huge role in contributing to economic growth despite the harsh times and must begin to seriously consider survival objectives. Business survival often entails reducing costs, protecting cash flow and increasing revenue, retaining staff and customers, diversifying and outperforming competition, among others. Engaging in “Business Profiling” can be quite
helpful in giving a panoramic view of a business’ health while understanding the survival strategy relevant to it.
A thorough business profiling of an organization can help ascertain if its business model is still relevant to its stakeholders within its business space and at the stage it is currently in; if its products or services are still being developed in tandem with its (existing and potential) customers’ expectations; if its strategies, culture and resources are adaptable or flexible, considering factors like its customers’ financial challenges or high operational cost and if there is a need to adjust its Vision or Mission Statement. To achieve business profiling objectives, a professional’s help or artificial intelligence interventions can be employed. In addition, business owners must begin to consider the role of financial and non-financial services such as banking, insurance and asset management in their business operations, which can help in reducing the risks that threaten business survival.
Lastly, households have to become more productive and seek out every legitimate avenue to create economic value or become embedded in a value-chain to boost economic growth. At the moment, households are facing challenges of rising poverty, increased exclusion from the labour market, climate change impact and rising threats against public health with possible pandemic concerns.
However, an active involvement in the nano or small enterprise sector including the productive engagement of family assets, can be a smart way to tackle unemployment and poverty, at the household level. Households should equally play an active role in combating climate change which is directly impoverishing to them, if they remain uncommitted. Proper disposal of waste, reduction and recycling of waste and increased awareness on how to reduce dependence on fossil fuels can reduce climate change crises and its impact on economic growth. Furthermore, more efforts should be invested by households in getting affordable healthcare with options of health insurance being in the forefront. Moreover, households must adopt responsible lifestyle choices alongside an increased vigilance and timely reporting of public health safety issues.
Production, exchange and consumption remain a viable means of stimulating economic growth; governments, investors, business owners and households should embrace its dynamics.
Writer : Bidemi Nelson, Shield of Innocence Initiative, Ibadan, Oyo State, Nigeria.