Every nation strives to increase its level of economic growth for several reasons. It is favourable from a political stand, as the increased standard of living will result in higher tax revenue and less money needed to be spent on social security as well as boosting civilian morale. Corporations will also benefit from economic growth, as it will mean higher sales as peoples disposable income increases. Economic growth is represented by an increase in national output for example over a twelve-month period. But what we have to consider is what role does research and development play in this process, and whether there are any other factors that have to be considered.
Since the post-war period the spending on research and development (R&D) has increased dramatically in every industry. At first it was concentrated in the manufacturing sector but since then it has moved into other industries for example the pharmaceutical industry, which is all research orientated. Certainly increased expenditure on R&D was key to the government increasing its national output levels after war. If industries grow then national output will increase due to higher levels of aggregate demand. It can be seen as a major component of economic growth as it lead to the employment of thousands of workers the chemical, electrical, steel and textile industries.
Research and development is clearly a major factor in the cause of economic growth, as R&D can lead to greater levels of efficiency in the future as a result of new technology and innovations which come as a result of it. A greater level of efficiency will mean that costs in the future will be reduced which can lead to economies of scale as marginal costs will eventually equal marginal revenue. Lower costs will be passed onto the consumer in the form of lower prices. This in turn will have the knock-on effect of increasing national output as aggregate demand rises. R&D comes about as a result of investment, which not only is a component of aggregate demand but also helps determine the level of actual output. Not only that but investment is also a major determinant of potential output, which leads to the development of new technology and therefore enhances the chance for economic growth.
But problems do arise, as R&D is a very long-term method to increase economic growth. It is not only long-term growth with which governments are concerned; there is a short-term problem too due fluctuations in growth. At this point we can analyse the other methods to gain economic growth. One method to increase the level of potential output is to increase the amount of resources available. For example the nations output depends on its stock of capital, and an increase in its stock will increase output. Increasing the amount of land and raw materials used can also generate a limited amount of growth.
Supply side policies can also be used to raise the natural levels of output and employment by providing incentives to greater work effort along with risk taking to remove impediments, which might be blocking competition. One example is to increase privatisation as the private sector is seen as more efficient than the public sector. It is argued that a return of assets to private ownership will increase aggregate output. Also decreasing the rate of income tax will also have the effect of encouraging saving and increase work effort. Increased competition and deregulation will help increase mobility and efficiency.
R&D is certainly a major factor of economic growth as it has lead to technological improvements that increase the marginal productivity of capital. But it has to be taken into account that there are several other factors that cause economic growth, not just R&D alone. Not only that we must also remember the long-term basis of R&D and that it cannot solve short-term fluctuations, even though investment in it is considered the best method to increase economic growth in the long-run.
Innovations have led to the growth of many industries ranging from motor vehicles to that of pharmaceuticals. The nature of an innovation is to be something that has been developed and has never been seen before. Also it must be noted that a new product that has a high financial cost will be adopted much more slowly and will eventually have a higher level of return than a cheaper one. Innovations can help industries grow as they will lead to the introduction of new technology which can increase efficiency as well as make the tasks at hand a lot easier. This will lead to an overall decrease in costs, which means that extra money can be implemented to strengthen other areas.
If we were to look at the example of the British example we can draw up an impressive list of innovations at both national and corporate levels that have helped industries grow. For example since 1945, Britain has received more royalties in the technological industry than it has paid out. Between 1876 and 1900 when Britain was seen as a real superpower, fourteen percent of technique was thought up in Britain.
The importance of innovation systems to the development of industries can be reflected, as many believed that the decline of the British industry came about as a result of the loss of innovative leadership and ideas. This is reflected also by some traditions for example the technocratic tradition that believe innovation and economic success go together. If we continue to look at the case of Britain we can also conclude that it has declined in its level of innovativeness, and since 1870 the level has dropped significantly which can be reflected by the demise of the manufacturing sector.
An excellent example of innovative systems helping major industries to grow can be shown by the examples of the use of robots in the form of machine tools to do jobs on the production lines that humans would be less efficient at. For example the spraying of cars and the welding of parts are universally done by robot arms now. This has made the car industry grow as it saves both time and money. This is shown as the robot arm does not have to be paid or be given breaks, and will not be affected by social or political factors like normal workers.