We have just seen how production possibilities are increased:

  1. With more productive factors (quantity) (more workers, the discovery of natural resources, and increasing capital)
  2. With more productivity (quality) (more trained workers or better technology)

As a general rule, a country can contribute to economic growth, that is, to increase its production possibilities, in the following ways.

1. Invest in human capital.

If workers are better trained they will be able to produce better and faster. In this sense, a country’s spending on education and training courses for workers allow its citizens to be more productive.

2. Invest in physical capital (machines).

Capital accumulation. If we invest in physical capital, such as excavators or tractors, we will be able to produce more in the future. When we use capital goods (machinery, facilities, etc.) to produce more capital, we are accumulating capital.

3. Invest in research.

To improve technology, spending on RESEARCH AND DEVELOPMENT (R&D) is key. Research is key because it allows the development of engineering and the improvement or creation of new machines that allow producing better or faster. Spending on R&D in Spain in 2018 was 7,000 million euros (2,500 million less than in 2009), so many criticize that we must increase spending if we want to compete with the rest of the countries.

The growth dilemma How much to invest today?

We have just seen how investment in human capital, physical capital and research allows a country to grow and increase its production possibilities.

The problem is that, if we dedicate part of our resources to these investments, we will be giving up producing other goods that can be consumed and therefore we satisfy fewer needs and our well-being will decrease.

Imagine that our villagers spend 4 hours gathering vegetables and catching the fish they need to eat in one day. What do they do the remaining time?

In general, they have 3 options:

OPTION A. They could dedicate their time to rest or leisure, that is, to take a nap, to go with their friends to party or to the beach in the next village.

OPTION B. Spend a few hours producing other goods that they do not have, such as better cabins that protect them from the cold or clothing made from furs.

OPTION C. They could invest in training as workers to increase their performance. Or invest in physical capital or in research to have better nets, fishing boats or for more advanced vegetable harvesting systems.

The first two options represent an increase in the present welfare of the villagers. With the first option, leisure time is increased and with the second, more goods are consumed that satisfy more needs. With the last option, the villagers give up that well-being in the present in exchange for increasing their production possibilities. In the future, thanks to the investment, the villagers will be able to produce many more goods and satisfy more needs.

This dilemma of economic tuition in Singapore growth is that you have to give up consuming today and enjoy goods in the present, in order to enjoy more in the future. It is a dilemma that all people and companies face in their day to day.

When you go to those English classes in the afternoon instead of going with your friends, when you start studying for each exam instead of playing with your mobile, you are investing in your future. Every time you give up that personal enjoyment in the present to invest in your training, you are increasing your chances of well-being in the future. Today’s sacrifices give you a better chance to live better the rest of your life.