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New ideas and their subsequent diffusion are the ultimate source of long-run quality of life improvements. In many respects the stories of economic growth and human history are the stories of technological change and changing beliefs and ideas. Economic growth comes from the accumulation of labour and capital inputs combined with improvements in the productivity of labour and capital arising from on-going scientific progress and technological change. |
Sustainable long-run growth in per capita output depends on innovation driving improvements in labour productivity. Investing in education and skills (human capital), equipment and infrastructure (physical capital), and in the production, diffusion and use of new ideas, is the only way to sustain growth in productivity over the long-term. Insufficient investment in skills, infrastructure and innovation will constrain future economic growth. Underlying all of this is the need for a supportive institutional architecture to incentivise innovation and ensure the efficient use of labour and capital.