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multiplier effect — English
An economic concept which basically means that success breeds success. One successful retail outlet in an area will lead to other businesses being established nearby which will attract even more businesses, and so forth. One farmer starts to plant canola (from which canola cooking oil is extracted) instead of wheat which has traditionally been grown in the region. He/she gets a very good price for the canola and next year a few other farmer will also start to grow canola and then the multiplier effect really kicks in and soon all the farmers are planting canola (as in the Overberg region in South Africa). However, wheat production has been shrinking at an increased rate and soon wheat production is so low that wheat has to be imported. The feedback loops (see “feedback loop”) in an economic system will assure that growth continues to grow exponentially. What has often been called “the eight wonder of the world”, namely compound interest, demonstrates this multiplier effect perfectly. Invested money grows and earns interest and the larger amount of money grows even faster and earns even more interest. Now the investor is receiving interest on interest and his/her money is making money which makes more money, and so it goes on and on. A billionaire can easily make another million Rand and that is why the richest people in the world are simply getting richer and richer while the poor are getting poorer and poorer. This is how a classic capitalist, totally free-market economic system works. In such a system economic and industrial growth take place at an exponential rate, not a geometric one. Of course, it cannot continue ad infinitum, but no one knows when the system will break down. In this respect, natural and human-made systems behave exactly the same. Exponential growth in a natural system also results in break-down of the system, but we are not able to predict when the break-down point would be reached.
