Globalization of Technology International Perspectives (1988) / Chapter Skim
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Strategies for U.S. Economic Growth
Strategies for U.S. Economic Growth
Pages 159-176
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From page 159... ...
We find also that high capital investment rates are directly related to high productivity growth, which in turn is the key to rising prosperity and preservation of a high-wage economy. We conclude further that technological innovation and capital investment are essentially two sides of the same coin, and that the one without the other will not contribute significantly to the nation' s productivity growth.
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From page 160... ...
What seemed to emerge forcefully from these exercises was that long-term economic growth had been overwhelmingly a matter of using resources more efficiently rather than simply using more and more resources. Abramovitz was himself very circumspect in interpreting his findings, calling it "a measure of our ignorance." Others attached the label "technological change" to that entire residual portion of the growth in output which cannot be attributed to the measured growth in inputs, and thus equated it to the growth in productivity.
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From page 161... ...
THE REALIZATION OF THE MAJOR ROLE OF CAPITAL INVESTMENT Long-term real productivity growth rates conceal considerable erratic variation in the short run. This extreme variability is caused by extraneous shocks, such as the oil price rises, cyclical variations of the economy, wars, inflation, and many others.
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From page 162... ...
(1987) have each made recent extensive studies of the possible reasons for the productivity slowdown among various nations, and both draw particular attention not only to the lower rate of capital accumulation but also to the need to reallocate resources, because of the rise in energy costs or because of new regulations for greater environmental and health protection, etc.
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From page 163... ...
Often even maintenance capital may embody improved technology, although the constraints imposed by the total process and product eventually force decisions for complete new plants using later technology if the firm is to remain competitive. Hence, in view of the really novel technologies now becoming available and the effects of continuing R&D efforts, the need for totally new facilities and closing down of obsolete units is becoming much greater if the United States is to remain competitive and to catch up with the Japanese spurt of the last 20 years.
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From page 164... ...
This uncertainty included not only the energy crisis but also adverse macroeconomic policies by many nations, the collapse of the Bretton Woods fixed currency exchange rate system, the Vietnam War and its consequences, inflation and inflationary expectations, new sources of competition, and other changed circumstances from the relative tranquility of the earlier postwar years. Thus, to improve the erratic and unsatisfactory growth rate of the U.S.
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From page 165... ...
American wage rates have traditionally been high, although exact comparisons depend significantly on the exchange rates, productivity rates, and inflation rates. Many countries such as Brazil, South Korea, Mexico, and Taiwan still have much lower labor costs and are increasing their productivity faster in a catch-up process.
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From page 166... ...
Nevertheless, spurred by this competition, American manufacturing has been improving its productivity markedly. Labor productivity grew by more than 3 percent per year between 1980 and 1984, and is still growing at close to that rate, in contrast with a l.S percent rate in the 1973-1980 period.
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From page 167... ...
Thus, in the early decades of the twentieth century, business sector productivity failed to grow significantly, at a time when many technological changes were occurring. Not until the early 1920s did the productivity increases begin to occur.
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From page 168... ...
it&D-intensive companies are themselves capital intensive, because R&D is a long-term capital investment. This formulation of the American imperative reflects a basic shift in international trade from the situation where countries and industries could count on long-term stable comparative advantages to a dynamic state, in which comparative advantages are constantly being altered.
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From page 169... ...
This is particularly important with respect to the volatility of macroeconomic policies. The complementary and interrelated nature of capital investment used by well-trained people and based on the latest technology has been argued in this paper.
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From page 170... ...
Although the dollar is much weaker against the Japanese yen and the German mark since the intervention by the finance ministers of the five major Western countries, it is still almost unchanged against the currencies of many American trading partners, such as those of Canada and South Korea. Debt has accumulated at all levels at an accelerating pace, so that it now costs companies nearly 40 percent of cash flow to service debt versus 30 percent a decade ago and less than 20 percent in the 1960s.
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From page 171... ...
Science and technology, which require long time horizons, are bound to be undervalued in a short-term financial climate, which also favors financially oriented managers over engineers in promotions and salaries and short-term R&D projects over longer-term work, which might produce real breakthroughs. Inflationary expectations produce very short-term horizons indeed.
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From page 172... ...
So, from the early 1980s on, the American manufacturing strategy of the 1970s was ended by the strong dollar; firms were exposed to world deflationary trends and could not mask inefficiencies. The process of recovery, which entails adopting new technologies to regain a competitive edge, will be both expensive and perhaps even destructive of some jobs, of companies, and of certain industries that cannot realistically expect to restore their lost competitiveness.
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From page 173... ...
If continued, a cheaper dollar could eventually reduce the trade balance deficit, while the net national savings rate would improve as government dissaving is reduced. The reduced trade deficit would permit domestic demand to replace the loss of demand brought about by lower government deficits, as would increased demand for American exports abroad.
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From page 174... ...
Although there is certainly room for selective trade actions to meet egregious examples of foreign protectionism in order to improve overall world trade and therefore growth, "managed trade always ends up being managed on behalf of special interests," not the general public, as Paul Krugman (1986) of the Massachusetts Institute of Technology has stated.
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From page 175... ...
For example, in addition to those measures already descnbed, technologists in private companies may well be asking themselves whether new high value-added technologies can be developed that are not as capital-intensive as present technologies perhaps even more knowledge based. So, a positive-sum strategy boils down to this: Only if Americans become better trained and managed-and invest a great deal more capital and technology in both manufacturing and services-can the standard of living improve at an acceptable rate in a highly competitive world market.
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From page 176... ...
1957. Technical change and the aggregate production function.
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