Still another significant deficiency in our measures of growth lies in their failure to take adequate account of improvement in the quality and variety of economic goods and services, such as we and other Western countries have experienced. If, as appears to be the case, the Soviet-type economies have expanded their output without advancing as rapidly as other countries in the variety and quality of the goods they produce, the available figures must produce a biased comparison.
Fluctuations in the rate of economic growth brings me to my second point. Economic growth has not proceeded smoothly. I refer here not only to business cycles but also to the long swings, the swings in decade rates of growth that may be observed in the figures for various countries. In the United States, for example, the average rate of growth in national product or national product per capita during the most recent decade reflects a new primary trend. . . . This instability is especially disturbing when comparisons are made of the growth of different countries over relatively short periods of time.
A disparate rate of growth over a particular decade or so may reflect not a disparity of truly long-term trends but a difference between countries in the phase or intensity of the larger or shorter swings or in the presence of special and temporary factors.
The point is also of importance when we come to project rates of growth into the next generation or two. It would be hazardous to assume, in the light of our experience, that a higher than average rate during the most recent decade reflects a new primary trend. It might simply mean the ascending phase of a long cycle.
Projections stumble not only over the difficulty with long cycles but also over the biases referred to a moment earlier. To put the point briefly in terms of a question, if Soviet Russia should decide to divert some of its resources to improving the quality and variety of the consumer goods and services that it produces, as well as their quantity, would Russia be able to maintain its past rate of growth in aggregate output as this is ordinarily measured? There are many other problems encountered in making projections of our growth and that of other countries. No matter how carefully
they are made, projections must rely heavily on and reflect many assumptions, the validity of which is at best doubtful. Can we be sure that the long-term trends of the past, or the trends over the postwar decade, in such variables as population, percentage of the population in the labor force, hours of work, output per man-hour particularly, and so on, will be maintained? Yet every projection that has been made is based in large degree on the assumptions that past trends may be extrapolated, with or without adjustments that must also be based on assumptions.
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I have the feeling that in making these projections we have been performing arithmetical exercises of doubtful value. Indeed these exercises may be diverting us from more important analyses by posing artificial problems like the danger of a savings-investment gap 10 or 20 years hence. We need to further our understanding of the causes of economic development if we are to improve our projections.
We must go inside the aggregates to which so much of our attention is being devoted.
I have already mentioned that a characteristic of economic development is the transfer of work from the household to the market economy.
The two sectors grow at different rates. This difference is but one example of many such differences. Growth in the volume of goods and services per capita is accompanied by constant fluctuation in the kinds and quantities of goods and services produced, in the types of industries in which workers and capital find employment and in the distribution of activity among geographical areas.
For economic progress takes place through the development of new products, better materials, more efficient machines, and superior methods of organization and this means also that old products become obsolescent, inferior materials are discarded, one occupation loses workers to another. Economic growth necessarily means diversity in rates of growth in different parts of the economy and in fact actual decline in some sectors.