Public and Private Benefits of Growth

Productive investments in institutions, technology, education, and physical capital all contribute to growth. A prime contributor to economic growth has been rising labor productivity made possible by a better trained and better educated workforce.

Figure 16.6 shows that both labor productivity growth and total factor productivity growth was higher in the United States than in other leading developed countries during the late 1990s. Notice the close relationship between labor productivity growth and total factor productivity growth. Clearly, private- and public-sector investments in education and other "human capital" have paid off in terms of economic betterment.

Economic betterment also stems from rising capital investment. Resources for investment are obtained when people save and invest. Growth can be accomplished by encouraging current generations to sacrifice so that future generations may be better off. Conversely, growth can be reduced when the capital stock is run down or when governments borrow from future generations to increase consumption today.

Some argue that because future generations are not represented in the political process, government actions that reduce their well-being are inherently unfair. The national debt, a liability passed on to the future, is sometimes cited as indicative of a government financial policy that is unjust in this sense. Future generations, however, inherit stocks of private and public capital, technology, knowledge, and institutions. Government-sponsored public schools and financial aid to college and university students represent transfers from older to younger generations.

Recent Global Changes in Labor Productivity and Total Factor Productivity (1990-1995 to 1996-1999)

Productivity growth has been higher in the United States than in other leading countries.

Average annual percent change

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