Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 18, 1990 TAG: 9003182540
SECTION: HORIZON PAGE: F1 EDITION: METRO
SOURCE: Peter Passell The New York Times
DATELINE: LENGTH: Long
Even as the world learns to stop worrying and love Big Macs, the U.S. economy seems to be losing its productive edge. The nation, the thinking goes, is borrowing billions to cover expenses and to build high-tech toys like the Stealth bomber, while everything from vocational education to computer-chip factories slides into obsolescence.
At the same time, the United States is losing its self-declared economic war with the Japanese - Toshiba and Toyota seem to have stolen consumers' hearts - and watching passively as the Latin American democracies strangle on debts to United States banks.
To economists, the truth is elusive. By every objective measure, the United States remains No. 1. But signs of decline are evident to those who care to see them. And many young Americans do not need a doctorate to understand that it is as hard to live as well on two incomes as their parents lived on one.
Here is a statistical sketch of where the economy is and some clues to where it is going.\ Strength in numbers\ The sheer size of an economy is one benchmark of a nation's capacity to assert its interests. And here, the United States is still doing very well. While the growth rate of the U.S. output lagged behind Japan's in the late 1960s and '70s (and far behind rates in poor, newly industrializing economies like Korea and Brazil), the gap in rates narrowed considerably in the 1980s.
As important, the U.S. economy remains the lion among pussycats. In terms of purchasing power, it is almost three times as large as Japan's and twice as large as the combined economies of West Germany, France and Britain.
The Soviet economy barely rates comparison, even when the Soviet output is translated into dollars at a very favorable exchange.\ An efficiency gap\ Another broad gauge of economic performance is efficiency, measured here as labor productivity or output per unit of labor. And this time around, the numbers are not so encouraging.
The rate of growth of productivity in the United States has lagged far behind Japan's for four decades, and has declined by half since the 1960s.
The average U.S. worker still produces a third more than his Japanese counterpart, but these averages are skewed by Japan's wretched performance in services and agriculture.
When Japan's mom-and-pop grocery stores and 5-acre rice farms go the way of the vacuum tube, the productivity gap will inevitably narrow.
It cannot be assumed, though, that Japan will rocket ahead in the 1990s. William Baumol, an economist at Princeton University, believes that productivity levels tend to converge as easy efficiency fixes are used up and economies depend on service industries to grow.
If Baumol is right, the U.S. rate of productivity improvement is most worrisome because it has slowed, not because it is slower than Japan's.\ In the idea factories\ One factor, perhaps the factor, driving productivity growth in the long run is technology. And in light of the United States' apparently strong commitment to research and development, that has to be good news.
The percentage of national income invested in research and development is roughly the same in Europe, Japan and the United States. But the U.S. economy is so much bigger than its competitors' that the absolute level of R&D effort, measured in purchasing power or in scientific personnel, is far greater.
The puzzle is why the United States seems to be getting less commercial bang for its R&D buck. In some areas - notably aircraft design and production - the United States remains the world leader as measured by the ratio of exports to imports. But in a variety of high technology industries, it is far behind Japan and West Germany.
It is possible that military spending is draining critical research efforts; atom bomb-powered X-ray lasers are little help in building better auto transmissions.
It is possible that the U.S. emphasis on basic research has freed Japanese scientists to skip the gritty groundwork and focus on commercial applications. The simplest explanation, though, is the most discouraging: U.S. corporations may not be very good at transforming good R&D into marketable products.
In the view of many economists, the smoking gun of U.S. decline can be found at the nexus where trade, savings and international finance meet.
In the 1960s and '70s U.S. imports rose rapidly along with exports. In the 1980s, however, export growth slipped to nothing, while U.S. consumers' appetite for everything from Saabs to Sonys grew insatiable.
Foreign spending beyond our means was made possible by the sellers' willingness to lend us the difference. Hundreds of billions of foreign cash augmented the anemic level of domestic savings, permitting the economy to modernize factories and automate offices even as consumers and politicians burned the candle at both ends. But in the process the United States became the world's largest debtor.
This case for decline, however, can be turned on its head. It is just as logical to say that the trade deficit permitted the foreign capital inflow as vice versa.
The real cause of the deficit, supply-side economists claim, was the worldwide rush to buy into the United States' future. And the legacy of foreign debt is thus evidence of U.S. strength, not its weakness.
This much seems certain: Low savings and high economic growth rates cannot go hand in hand indefinitely. To pay back its creditors when they ask and still remain a player in the big leagues of the world economy, the United States will have to shed its profligate ways.\ where to find cash\ If the United States is in decline, why is it that the average American has never had more to spend? One possibility, of course, is that the United States is not in decline. Another is that the averages mask a plenitude of sins, themselves a symptom of decline.
Many U.S. families take home more only because they work more. Adjusted for inflation, disposable personal income per person is indeed up 20 percent since 1980. But average wage rates have slipped 2 percent.
An increase in the number of second breadwinners, mostly women, has made up part of the income gain. Increased Social Security and private pension payments have made a difference, too. But more - fully half the gain - comes from higher average interest and dividend payments.
Higher living standards, then, have been heavily dependent on higher corporate profits and higher interest returns to those with savings.
It is thus not surprising that many people without a spouse to bring in paychecks or coupons to clip have been left out of the prosperity of the 1980s.\ The poorer poor\ Compared with the Third World, the United States is generous to its poor. But compared with the welfare state in West Germany or the full employment state in Japan, it is a piker.
In 1980 the poorest fifth of U.S. families received just 5.3 percent of national income. Seven years later the U.S. economy had provided a lot of poor people with jobs. But as the statistics suggest, the jobs did not pay well. And government benefits did not pull many out of poverty.
Living standards for the bottom fifth of families fell substantially, explaining, perhaps, why at least some Americans believe that the economy is in decline.
Living standards for the young and those with children fell even more. Indeed, among the economically vulnerable the only winners were the elderly: Largely shielded from escalating medical costs, they enjoyed substantial real gains from rising Social Security payments.
by CNB