The Coming Global Boom

Date: 2015-10-07; view: 543.

TEXT 2

(Abridged from “U.S. News & World Report”)

America's share of the world's economy now stands at 23 percent. But unless current investment and productivity trends are reversed, that portion is certain to decline in the 1990s.

Polls show that Americans are gloomy, and with good reason: the dazzling 1980s, when the U.S. economy swelled by about 3 percent a year after inflation, are over. America's gross national product (GNP) may now grow only about 2 percent a year, the result of minimal productivity gains and a shortage of new workers. By contrast, the economies of Japan and Germany figure to grow at least twice as fast.

The U.S. is still on top by any economic measures. America's work force remains the most productive, the nation's universities and service industries are the world's best and the economy is still double the size of Japan's. But the U.S. is plagued by low national savings and investment, the legacy in large part of a decade of massive federal budget deficits. Average wages adjusted for inflation have been falling since the early 1970s; today's typical worker can't buy as much with his pay as his father could when Richard Nixon became president, notes Massachusetts Institute of Technology economist Paul Krugman.

What's more, global competition is forcing many U.S. industries into ignominious retreat. Two decades ago, U.S firms produced nearly 100 percent of the home electronics bought in America; today they make less than 5 percent. In the 1990s, 75 percent of America's goods will face foreign competition, compared with 5 percent in the 1950s. The critical question is “whether the American economy has the dynamism to maintain or raise the American standard of living, or whether the nation will slowly lose ground,” writes Harvard Business School Prof. Michael Porter, author of a new book, “The Competitive Advantage of Nations.”

Productivity Push. Getting growth back on track will require investing in everything from technology to infrastructure. Economists don't know what has caused the drop - but they know productivity must start growing faster. During the 1950s and the 1960s, U.S. productivity grew at about 3 percent a year, enough to double Americans' standard of living about every 24 years. Now, with productivity rising at just 1 percent year, living standards will double only about every 55 to 70 years.

The entire Group of Seven - the U.S., Japan, Germany, France, Canada, the United Kingdom and Italy - desperately needs a productivity boost. A key force propelling U.S. growth during the past 20 years, the entry of baby-boomers and women into the labor force, has petered out. Populations in these countries are aging, with unprecedented demands looming on a shrunken work force to finance health-and-retirement benefits for the elderly. To foot the bill, each of these nations needs skilled high-wage jobs that come from producing high “value added” goods and services, such as software or pharmaceuticals derived from biotechnology break-throughs.

Competition for Capital. In today's global financial markets, money is mobile, surging around the world in search of the surest returns. In the 1980s, the thirst for capital - especially to finance gaping U.S. federal-budget deficit - was satisfied largely by Japan and Germany, two countries with high savings rates and fat trade surpluses. This stash of cash has helped turn Japanese and German banks into the world's largest, shoving most American financial institutions into second-tier status. Now the conclusion of the cold war will shift demand on the pool of world savings in ways that will matter worse for the U.S.

Research and Development. The U.S. underspends Japan on nondefense research and development - devoting 1.9 percent of GNP to R & D in 1988, while Japan spent 2.9 percent. But American high-tech firms are also feeling the heat from foreign marketing and manufacturing skill - and especially, Japanese skill at getting the fruits of research into the marketplace quickly. U.S. and Japanese firms have about equal shares of the global market for software, but American companies are losing market share in a number of high-technology products, including telecommunications and computers. And as Boeing and Airbus, the European consortium, fight for dominance in civil aviation, the Japanese have signaled that they want 10 percent of that market by the year 2000.

Investing in People. Compared with spending on new plants or roads, investing in people would produce an even bigger payoff. High-tech jobs demand not the automatons of yesterday's assembly lines but a new breed of skilled workers. New production techniques require decision making by even the lowliest worker, while modern quality control demands a knowledge of statistics common among Japanese high-school graduates but rare among many U.S. college students. “I've heard officials of foreign firms say, ‘Don't quote me, but we have to simplify our machinery and training programs for workers in the U.S.,” says Robert Reich, who teaches public policy at Harvard and is writing a book on competitiveness.

The problem isn't entirely a lack of school funding: the U.S. spends far more per pupil on elementary and secondary education than Japan and Germany. But U.S. firms spend far less for on-the-job training and apprenticeship programs for the 75 percent of young adults who don't go on to college. Most American firms are simply seeking to automate faster - a tactic that may enable them to do without low-skilled in some areas but won't solve the problem of filling high-skilled, high-tech jobs.

Pool Resources. Successful nations are those where industries constantly upgrade themselves by investing in research, technology or people to innovate faster than their foreign rivals. A business environment should be both cooperative and competitive at the same time. As for cooperation, firms could pool resources for such activities as industrywide training programs or research. But when it came to manufacturing and marketing products, antitrust laws aimed at fostering competition would be enforced more vigorously then ever. That would doom such practices as “joint production” agreements among small companies to manufacture high-tech products, a form of cooperation that the House of Representatives recently voted to allow.

Economics teaches that competitiveness, like economic growth, is not a game of winner-take-all. Any country can upgrade itself and raise its level of prosperity if it has the will.