Introduction
The term ‘balanced economic growth’ denotes an economic state where a developing country’s investments in various sectors are sustainable. The microeconomic theory of any firm assumes that balanced economic growth can be related to supply-side policies, factor inputs, and technology. In fact, it is almost impossible to address the issue of balanced economic growth properly without mentioning the supply-side policies and demand problems in economic development. According to Aramov (2014), the supply-side policies are a means for establishing balanced economic growth through the development of strategies that fight against issues that hinder economic yield. Hence, supply-side policies help to address counterproductive issues such as hunger, diseases, and ignorance. With this concept in mind, this paper explores the subject of balanced economic growth, the various categories of supply-side policies, and the correlation between supply-side policies and balanced economic growth.
A Balanced Economic Growth
The problem of transforming an underdeveloped nation into a self-generating economy often calls for the adoption of a suitable strategy for economic development. This notion brings forth the concept of balanced economic growth. According to Gupta (2009), balanced economic growth implies that different parts and/or sectors of the economy should grow in a harmonious manner. A homogeneous financial development guarantees a situation whereby a country has enough of the resources it requires for its smooth growth. A balanced economic growth often calls for stability on the supply and demand sides of any country. For example, the operations cost of any industry such as agriculture should not exceed the sector’s returns. In other words, the basic overhead facilities such as transportation and power must be adequate to support and stimulate growth. In the event that a substantial amount of capital is being injected to develop the manufacturing industry whereas no efforts are being put to improve the agricultural sector, no significant returns may be achieved. However, if there is a balanced development of all sectors whereby the productivity of farmers registers a rapid growth that is accompanied by an increase in the demand for manufacturers, the situation creates room for investment in the industry.
Domestic and foreign trades are catalysts of balanced economic growth. Export revenues are often used to cater to a country’s developmental expenses. On the other hand, imports increase as employment and production expand. It is crucial to note that domestic trade often thrives when the importation of the necessary materials and equipment increases. A country that wants to cater to the rising imports must seek to create not only room for the increased export revenues but also a way of expanding its domestic and foreign trade. The growth of these sectors of trade must be in tandem with each other. Balanced economic development can only be achieved if all sectors of the economy are allowed to grow simultaneously (Chen & Lu 2015). Maintaining a balanced economic development calls countries to track the performances of all their sectors. Such close monitoring makes it easier for governments to keep a proper balance between various sectors, especially those that depend on each other. The logic behind balanced economic growth is often indisputable.
Furthermore, balanced economic growth requires governments to be aware of the link between wants, factors, and products at various production stages. The connection between these elements of production gives rise to many external economies. In terms of employment, balanced economic growth is possible only if the supply of the production elements is satisfactorily elastic. This concept can be further illustrated by analyzing the extensive levels of joblessness and underemployment in underdeveloped countries. Based on the nature of idleness in these economies, the provision of labor is not elastic. Inelasticity is also witnessed in the case of capital whereby the supply of resources is comparatively low in underdeveloped nations. If the supply of assets is not satisfactorily elastic, concurrent investments in various industries often raise the cost of capital. This situation, which also offsets external economies, slows down the balance of economic growth.
Supply-side Policies
Supply-side policies usually refer to strategies that countries establish to increase the cumulative supply of resources with the aim of achieving lasting and maintainable price levels, growth in employment, and real output. Supply-side policies seek to change the manufacturing and innovation incentives by focusing on the human resources, outlay in machinery and factories, and technology expansion (Atkinson 2007). As a result, governments have established supply-side policies to combat joblessness and price fluctuations. Proponents of supply-side policies reveal how lasting economic growth requires governments to address the issue of quality and quantity of factor inputs. However, specific policy prescriptions differ in terms of a country’s economic status. Stable, self-adjusting or naturally unstable economies usually have different policy frameworks.
Types of Supply-side Policies
Supply-side policies appear in two forms. The first category of policies aims to increase the duration of work when the labor bazaar is stable. These policies create room for more productivity. Governments often try to increase the amount of hired labor. However, they only realize this increment by cutting down their income levy charges. More often, the gap between human resources and labor supply arises because of the natural unemployment that must prevail at each wage category. The reason behind this situation is that the unwaged people will always be waiting for job offers based on their skills, some of which are hardly useful in the job bazaar (Koning 2007). However, governments can increase the amount of hired labor through other ways as shown in the following diagram.
From the above figure, governments can reduce non-wage labor expenses by letting employers incur costs such as retirement funds, job expenditure for retrenched or laid-off people, and maternity leave expenses. Secondly, governments can increase the demand for employment by encouraging new firms to create jobs. In this case, governments can establish regulations that owners of firms need to meet to ensure that they do not attract a state of imbalanced financial development.
The other category of supply-side policies aims to increase a country’s productivity without adjusting the working duration. Governments can employ various procedures to increase the yield per labor hour, regardless of whether employment remains at the same level or not. First, they can increase human resources for new entrants to heighten industries’ efficiency levels (Koning 2007). This idea is hinged on the policy decision of steadily raising students’ graduation period. Secondly, governments can arouse technological development to increase their productivity levels. It is possible for countries to encourage firms to undertake research and development with tax concessions and subsidies. Besides, they can enact patent and government grant laws that increase the returns that firms get from their discoveries and modernization. Thirdly, nations can encourage firms to invest in the automobile, buildings, and machinery industries to increase the amount of physical capital (Oosterbaan, van Steveninck, & van der Windt 2012). To realize this outcome, possible, they have to implement monetary policies that address the need to reduce interest rates, although such a move should be assessed since it can raise the projected inflation rate, hence making it harder to reduce the concrete inflation rate.
Correlation between Supply-side Policies and a Balanced Economic Growth
A correlation exists between supply-side policies and balanced economic growth. The hypothetical case of supply-side policies is not disputable. The policies offer not only the prospect of increased long-term outputs and employment but also price stability. The diagram below illustrates how supply-side policies provide means and ways in which the economy can overcome the issue of recession and stagflation which is often a catalyst for balanced economic growth.
King (2012) upholds the idea that supply-side policies advocate the investment in human capital to the extent that superior human capital increases a country’s productivity levels. This investment strategy boosts employment, which goes hand in hand with balanced economic growth. A balanced economic growth can also be brought about by investment in technology as an element of supply-side policies. Investing in technology involves coming up with new and better production procedures. In the recent past, firms have invested heavily in new technology to upgrade their capital goods. As a result, the increased stock of physical capital has heightened their human resource productivity, which contributes to balanced economic progress.
Deregulation is an important element that governments use to bring about a balanced economic growth that adheres to the supply-side policies. Deregulation of product markets helps to do away with entry obstacles. Besides increasing the prospect of having new and exciting market competitors, the deregulation strategy improves the overall supply-side performance. These guidelines increase market aggressiveness and resourcefulness (Oosterbaan, van Steveninck, & van der Windt 2012). The process of achieving balanced economic growth compels governments to play the privatization card that is a core aspect of the supply-side policies. Nonetheless, privatization needs to be accompanied by procedures that help to promote competition. Such regulated privatization leads to efficiency gains for firms and output gains for human resources. Supply-side policies help in curbing inflationary pressure in the long-term through the realized effectiveness and yield in the product and labor bazaars. Since balanced economic growth goes hand in hand with increased employment opportunities, supply-side policies often provide a means for creating jobs and sustainable growth because of their positive impact on industry competitiveness and labor productivity. According to Oosterbaan, van Steveninck, and van der Windt (2012), increased competition helps to improve the balance of payments.
Conclusion
Based on the above expositions, it suffices to conclude that supply-side policies are a gateway that governments use to increase the value of goods and services that they get from the domestic economy at any given level of interior demand. Based on the evidence that the paper has provided, supply-side policies are designed in such a way that they help to increase the current productivity by improving the efficiency within which governments utilize and/or allocate the elements of production. Besides, supply-side policies and balanced economic growth are mutually dependent on each other. The policies are integral to balanced economic growth because they increase the inflow of foreign savings. Therefore, it is apparent that these two elements are interrelated since policies that increase the current output may lead to a larger flow of savings and investments and hence a higher rate of growth in a country.
References
Aramov, A 2014, Balanced and Cyclical Growth in Models of Decentralized Economy, Springer, New York, NY.
Atkinson, R 2007, Supply-Side Follies: Why Conservative Economics Fails, Liberal Economics Falters, and Innovation Economics is the Answer, Rowman & Littlefield, Maryland.
Chen, Z & Lu, M 2015, Toward Balanced Growth with Economic Agglomeration: Empirical Studies of China’s Urban-Rural and Interregional Development, Springer, New York, NY.
Gupta, K 2009, Economics of Development and Planning, Atlantic Publishers & Distributors, New Delhi, India.
King, D 2012, Economics, OUP, Oxford, England.
Koning, J 2007, The Evaluation of Active Labor Market Policies: Measures, Public, Private Partnerships and Benchmarking, Edward Edgar Publishing, Massachusetts.
Oosterbaan, M, van Steveninck, T & van der Windt, N 2012, The Determinants of Economic Growth, Springer Science & Business Media, New York, NY.