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Over 60% of real economic growth is generated by changes in:
  • technology
  • techniques1,
  • learning resulting from:
    • the accumulation of tacit knowledge2
    • generation and exchange of better explicit knowledge3
all of which support the process of innovation4.

Real economic growth is usually measured by the degree to which the real incomes of producers vary year on year. Real incomes are essentially the purchasing power of disposable nominal incomes received (see Why real incomes?).

One of the most significant reasons for misallocation of public resources to the agricultural sector has been that mainstream macroeconomic policies do now have, within their basic theories any microeconomic foundations because they are mainly concerned with monetary inflation targets and fiscal balance of government revenues and expenditures which may involve public debt. Industrial policies are ad hoc initiatives and, in the case of agriculture, the practice of "direct" or "coupled" payments transfers funds to farmers based on eligibility factors such as areas of land held or production.

Unless such payments are tied to some form of conditionality such as an agreement that recipients should act to improve productivity, to lower unit costs and secure improved techniques, then the resilience5 of the agricultural sector stagnates or declines. The sector can only achieve economic and social sustainability through appopriate changes in productivity, unit cost reductions and technological innovation.

Taking into account the fundamental factors that contribute to economic growth, listed in the bullets above, it is evident that economic policies need to be designed to promote the more effective deployment of these factors.

The objective of appropriate actication of these factors is to promote productivity, lower unit costs and advance technical progress. On the human resoures side there is a need to support dissemination of good information (explicit knowledge) on the apropriate use of resources so as to support learning and the accumulation of tacit knowledge (experience) related to appropriate techniques so as to result in significant imporvements in technical efficiency. It is this combination of refinement in technique and increasing productivity that drives the leading edge of innovation as the means, whereby, the margins and incomes of farmers are sustained and overall sector resilience is protected.

The only macroeconomic approach that combines supply side instruments that can be manipulated by farmers and other producers and tha emphasizes productivity as the foundation of economic growth, is the Real Incomes Approach to economics. Because of the dominance of monetarism and fiscal policy and the instability arising from over-financialization, policy-making has become over-indulgent in focussing on financial solutions to an every increasing private and public debt. In reality the solution is supply side. For further information access the Real Incomes website.

1  Technique - is the specific way in which people apply a specific technology, differences in technique can result in different levels of productivity
2  Tacit knowledge - is the accumulated experience and build up of competence in applying a specific technique, cannot be taught, each persons needs to descent the tacit knowledg learning curve to embedy this factor
3  Explicit knowledge - explcit knowledge is information used for instructions and communications, this content can be taught, a basis for instructions and decision-making
4  Innovation - innovation is the first time a way of doing things is applied in a new geographic location. Innovation can be unique or can be introduced from another geographic location
5  Resilience - is the ability of a farm to suvrive normal variations in conditions such as low prices. It depends upon levels of productivity being high enough and unit costs being low enough

The Decision Analysis Initiative 2015-2020
George Boole Foundation