THE UNITED STATES: 2. 2. evidence of relative economic failure and decline in economic competitiveness n Example – John Agnew, 1987. The United States.

THE UNITED STATES: 2THE UNITED STATES: 2

2. evidence of relative economic failure and decline in economic

competitiveness Example

– John Agnew, 1987. The United States in the World Economy. Chapter 4.

Bluestone and Harrison, 1988. The

Great U-Turn.

Element 1: U.S.-based corporations went from a period of unparalleled growth to one of unprecedented global competition.

05

1015202530354045

1929* 1939 1949 1959 1969 1979 1986

Imports as % of GNP

Imported Merchandise as% of GNP originating inmanufacturing

Element 2: Significant profit squeeze for American corporations

U.S. corporate profitability, 1963-80 (net after tax rate of return)

Net pre-tax profit rates in selected industries

1963-68 1969-75rubber product 9.1 6.1glass products 12.0 7.9steel industry 7.3 4.4fab. metal products 8.0 6.4radio, TV equipment 12.2 3.8electrical equip, heavy 13.2 7.7motor vehicles 16.3 6.7RR equipment 7.8 3.4

Element 3: How those corporations responded

Abandoned core businesses invested offshore shifted capital to speculative ventures subcontracted work to low-wage

contractors demanded wage concessions from workers substituted contingent labor for full-time

workers

Example of General Electric Through 1970s a traditional large U.S.

mfg. Firm shift in 1980s to service and high-tech

– bought RCA, NBC, investment banking, financial services firms. ($10 B. acquisition spree)

eliminated housewares division & sold off 190 subsidiaries for $6 B.

eliminated >100,000 jobs (>1/4 of 1981 employment) including RCA domestic TV production--> Asia.

Dertouzos, 1989. Made in America.

Springboard is trends in productivity

0

0.5

1

1.5

2

2.5

3

Labor productivity Multifactorproductivity

1948-73

1973-79

1979-86

International comparisons

Manufacturing???

0

0.5

1

1.5

2

2.5

3

3.5

Labor productivity Multifactorproductivity

1948-73

1973-79

1979-86

BUT due in part to: DOWNSIZING--10% employment decline 1979-86 accounted for 36% of productivity growth--- and to rebound from recession.

Factors responsible for performance erosion Outdated strategies (Fordist) short time horizons

– role of cost of capital due to low savings rate (< 4% of GDP)

technological weaknesses neglect of human resources failures of cooperation within and

between firms government-industry relationships

Industrial Productivity

Van Ark and Pilat, 1993. Productivity levels in Germany, Japan and the U.S. Brookings Papers.

0

20

40

60

80

100

Germany/U.S Japan/U.S.

1950

1965

1973

1979

1990

Comparisons of Value Added in Manufacturing per hour worked

0

20

40

60

80

100

120

Germany/U.S. Japan/U.S.

food, beverages,tobacco

textiles, apparel,leather

chemicals, alliedproducts

basic, fabricatedmetals

machinery,equipment

othermanufacturing

Comparisons of Value Added per hour worked by manufacturing sector, 1990

Factor 1: Capital Intensity Effect

1950 1960 1973 1979 1990Germany/U.S.

total 53.1 51.3 87.4 94.2 82.4equipmentonly

47.8 46.2 92.2 94.8 81.5

Japan/U.S.

total 20.1 16.2 54.1 75.4 86.7equipmentonly

28.0 20.2 70.2 93.1 106.4

Gross stock of structures and equipment per employee

Factor 2. Structural Effect Adjusting for relative size of

different sectors lowers German productivity levels relative to the U.S.

Technological leadership.

Lester Thurow, 1992. Head to Head. Distinction between new PROCESS

and PRODUCT technologies U.S. firms make heavier

commitment to new product technology; Japanese to new process technology

Why are U.S. firms reluctant?– Managerial backgrounds in marketing

and finances– skill level of bottom 2/3 of labor force

Florida and Kenney, 1990. The Breakthrough Illusion