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3 Economic processes
3.1. Growth, employment and productivity in
the US, Europe and Japan
3.2 International trade and industrial competitiveness
3.3 International corporate strategies
3.4 The debate on the American decline
3.5 The US military economy
3.6 The US international economic strategies
The rapid growth of Europe and Japan and the relative decline of US economic power are the major features of post-war relations among advanced capitalist countries. The economic processes that have brought about such a transformation are reviewed in this chapter. Without attempting to draw too broad a picture of the changes in the world economy, we will refer largely to the studies that in recent years have explained, with largely converging interpretations, the nature of the economic system marked by the US hegemony, its crisis starting from the late 1960s, and the following process of restructuring (Aglietta 1979; Castells 1980; Amin et al. 1982; Bluestone and Harrison 1982; Bowles et al. 1984; O'Connor 1984; Davis 1984, 1985).
The aim of this chapter is to outline some key aspects of the American economic decline, providing the background for the analysis, in Chapter 4, of the technological strategies to revive US leadership. This approach leads to a focus on macroeconomic and industrial processes, while leaving aside other important factors, such as the monetary and financial ones, that have also played an important role in the US strategy (see Aglietta 1979; Parboni 1981, 1986).
3.1. Growth, employment and productivity in the US, Europe and Japan
The pace of the growth of the economies of Europe and Japan in the first years of the post-war period has been very rapid, bringing these countries closer to the US on all major economic indicators. In 1971 Bob Rowthorn noted that 'with the exception of a brief period in the late sixties,... continental Europe has grown substantially faster than the United States during the last two decades. Japan has grown even faster than continental Europe' (Rowthorn 1971: 36).
In the past twenty years the changes in the relative positions of advanced capitalist countries have continued to develop. Table 3.1 shows that the four major European economies (West Germany, France, Italy and Britain) and Japan have experienced growth rates or increases in real Gross Domestic Product (GDP) consistently higher than the US from the mid-1960s to 1980. With only one exception, the rate of growth of Japan was in all years greater than that of Europe.
Gross fixed capital formation as a share of GDP in the US has been always lower than in the four major European economies, that in turn always had a lower rate than Japan in the past twenty years. Exactly the same pattern is shown by the share of gross national saving in the GDP (see Table 3.1).
After 1980, however, the US economy has done better than Europe in all years but 1982, and it grew faster than Japan in 1983 and 1984. The 6.6 per cent growth of US GDP in 1984 (an election year, when Ronald Reagan won his second term as president of the US) has been a remarkable achievement for an economy that had slow growth or stagnation for twenty years. Is this a reversal of the long pattern of relative decline of the US economy, or is it a simple occasional boom? Other factors need to be considered here.
First, the pace of the US growth should not make us forget that the country was recovering from the worst recession since the 1930s. Second, since 1984 the US growth has slowed down again, to between 2.5 and 3 per cent a year in 1985 and 1986, and then it fell further, converging with the rates of growth of Europe and Japan. Third, US growth in the 1980s has been mainly stimulated by consumption, while in Europe and Japan the key role has been played by exports (OECD 1985a: 22). Therefore, no reversal of decades-long trends took place, and the sudden growth of the US in the 1980s is increasingly showing its high cost.
Massive public expenditures, mainly for the military budget ($1,500 billion between 1980 and 1986; see section 3.5) and generous tax cuts have produced a strong 'Keynesian' stimulus for growth, by an administration professing its faith in 'supply-side economics' and monetarism (Moffitt 1985). The result has been continuing deficits in the federal budget, around $200 billion a year, that have brought the federal debt to $1,823 billion in 1986 and the interests paid to $129 billion (Kennedy 1987: 30).
The debt has been financed by a massive transfer of resources from abroad. The US has become, for the first time since 1914, a net debtor with the rest of the world. Between 1982 and 1986 the US borrowed from abroad $400 billion and in 1986 it had a net foreign debt of about $150 billion. The projections of the American Enterprise Institute to 1990 reach $750 billion, and the need to service such a huge foreign debt will absorb 1 per cent of US GNP in the next five years (Business Week, 20 April 1987, p.46). According to OECD estimates, the net foreign asset position of the US has worsened by about $500 billion between 1982 and 1987, with a fall in the revenues from investment between $35 billion and $50 billion a year (OECD 1986a: xvi).
Among the results of the recent US performance, the one that is most frequently considered as evidence of unquestionable success is the growth of employment. The unemployment rate has fallen from 9.5 per cent in 1983, to 7.1 per cent in 1985 and then stabilized around 7 per cent. In the EEC the 1985 unemployment rate was at 11.9 per cent and still rising (OECD 1986b: 167).
Since the 1982 recession, in the US 7.5 million new jobs have been offered (OECD 1986a: 28). It is estimated that 80 per cent of them have been created in services, that now employ 70 per cent of all private sector workers (Business Week, 3 March 1986). Putting at 100 total employment in 1979, in 1985 in the US the index increased to 109, while in Europe it fell to 95 (Dornbusch 1986: 20). Both the US and Europe lost employment in industry (-2.8 per cent a year between 1980 and 1983 in Europe; -1.7 per cent a year in the US) and have increased the number of jobs in services (the US at a 2.1 per cent rate, double than the European one).
In the US manufacturing industry the employment index has followed the cyclical pattern of the economy. It has increased from 90 in 1976 to 100 in 1979, falling to 85 in 1982 and rebounding to 92 in 1985. In Europe, however, the trend has been consistently downward, from 100 in 1979 to 82 in 1985, with a strong acceleration in the 1980s (ibid.).
Table 3.1: Rates of growth of GDP; shares of gross fixed capital formation and savings in GDP
GROWTH OF REAL GDP at market prices (percentage changes)
|United States||5.8||3.1||4.1||2.3||- 0.3||2.7||4.9||5.0||-0.7|
|Four major European countries||3.6||2.9||5.0||5.4||4.6||3.2||4.0||6.0||1.3|
Gross fixed capital formation as percentage of GDP
|Four major European countries||22.0||21.6||21.6||21.9||22.7||22.8||22.5||22.6||22.3|
Gross saving as percentage of GDP
|Four major European countries||23.9||23.1||23.8||24.9||25.5||24.4||24.0||24.6||22.6|
Notes: Growth rates for country groups: These are obtained by applying growth rates for each country to their 1982 values expressed in 1982 US dollars.
Percentages for country groups: The percentages for each group of countries are calculated from the total GDP and gross fixed capital formation for the group, with both aggregates expressed in US dollars at current exchange rates.
Growth of real GDP at market prices (percentage changes)
|United States||- 1.0||4.7||4.5||5.1||2.0||0.0||2.1||-2.5||3.4||6.6||2.9|
|Four major European countries||- 1.2||5.0||2.3||3.2||3.6||0.8||-0.1||0.4||1.5||2.3||2.4|
Gross fixed capital formation as percentage of GDP
|Four major European countries||21.1||20.9||20.4||20.2||20.6||21.0||20.1||19.3||18.9||18.9||18.6|
Gross saving as percentage of GDP
|Four major European countries||20.3||21.4||21.8||22.0||22.2||21.3||19.2||18.9||18.9||19.4||19.6|
Gross saving is the sum of national disposable income and consumption of fixed capital less consumption expenditure of households and government. It is the surplus available from current transactions to finance gross capital formation and capital transactions with the rest of the world. It is the sum of lines 1 and 7 in Table 1 (capital transactions of the nation) of National Accounts, Volume II, Detailed Tables.
Source: National Accounts (annual OECD publication). The data in this table are measured according to the standard definitions of the OECD-United Nations system of accounts (See A System of National Accounts. Series F. No. 2, Rev. 3. United nations, 1968.) The table. in this form, is taken from OECD Economic Outlook 40 (Dec. 1986): 156, 158. 159.
Manufacturing made no contribution to the job growth, neither in the US, nor in Europe. The shrinking of industrial employment has been a long-term trend; in the US, estimates are that during the 1970s between 32 million and 38 million jobs were lost, mainly in the industrial and unionized areas of the north-east, due to the corporations' strategy to disinvest and produce abroad (Bluestone and Harrison 1982: 9). The loss of manufacturing employment is still continuing: in the first ten months of 1985, 270,000 jobs were lost (OECD 1985b: 25), and in the same period of 1986, 177,000 jobs disapeared (Business Week, 24 November 1986: 27).
A more recent analysis by Bluestone and Harrison has shown that in the period 1979-85, of the 9.3 million jobs (including part-time jobs) created in the US, 44 per cent paid less than $7,400 a year and only 10 per cent of them paid more than $30,000 dollars a year (Bluestone and Harrison 1987). As manufacturing has not added new jobs since 1979, all the growth has been in services. The greatest absolute increases have been in retail and wholesale trade, in hotel and restaurants (OECD 1986a: 35). According to the projections of the US Department of Labor for the 1984-95 period, the occupations that will offer the greatest number of jobs (between 500,000 and 300,000 each) will be, in order, cashiers; registered nurses; janitors and cleaners; truck drivers; waiters and waitresses, wholesale trade sales workers; nursing aides, orderlies and attendants; retail salespersons; accountants and auditors. Of these, only in nursing, wholesale and accounting the wages are above the average for all workers (Business Week, 3 March 1986, p.80).
The growth of low-wage service employment is not, however, limited to the US: 'in several countries two-thirds to four-fifths of new service jobs were created in branches with labour costs below the service average' (OECD 1986a: 35).
Unemployment in manufacturing and new low-wage service jobs have produced a general containment of wage rates that in nominal terms have increased in all OECD countries more slowly than during the 1960s; the 1983-85 period 'was the longest period of near stability in unit labour costs since 1958-59' (ibid.: 8).
For the US, the OECD Economic Outlook in 1985 also noted that
1984 wage increases under major collective agreements reached
post-war record lows, wages being frozen or cut for up to
one-quarter of workers under contract. Such developments were not
new, having first emerged in 1981 and being even more common in
1982. What is novel is continuing union acquiescence in basic
wage and work-rule concessions, despite a comparatively strong
recovery in activity and profits.
(OECD 1985b: 39)
However, also in the other advanced countries, perhaps with the exception of Germany, wage settlements did not respond to the growth of profits (OECD 1986a: 7).
The containment of wages has led to a redistribution of income from the poor to the rich. In the US, between 1979 and 1985, the average of hourly wages of production workers fell by 6 per cent in real terms (Gordon 1986b). In 1985 the median real household income was 8 per cent lower than in 1973; at the same time, the share of people employed in the total population has increased from 40 per cent in 1970 to 46 per cent in 1987 (Business Week, 20 April 1987, p.49). The result is that the poorest 20 per cent of US households has less than 5 per cent of the national income, while the richest 20 per cent controls more than 40 per cent (ibid.: 50). The number of people living in poverty has also increased from 11.7 per cent in 1979 to 14.4 per cent in 1984 (Gordon 1986b).
While a fall in the share of wages can be found in most advanced countries, important differences remain. Between 1978 and 1984, the average of real hourly wages for auto workers declined in the US by 5 per cent, but increased in Japan by 9 per cent, a result of the diverging trends of US and Japanese productivity (Gordon 1986a: 105). The same has happened in comparison to Europe: between 1979 and 1984 the real labour costs in the US increased by 0.2 per cent a year in the US and by 1 per cent a year in Europe. But labour productivity increased over the same period by 0.8 per cent in the US and 1.9 per cent in Europe, thus leaving a greater margin to European economies (Dornbusch 1986: 25).
When we combine the indicators of product and employment, in the indicators of productivity, the weakening of the US is more evident. OECD estimates of the annual rates of growth of the ratio between gross product and total employment between 1982 and 1986 put the US behind Japan and the major European economies, with few exceptions (OECD 1985a: 26). The same pattern can be found also in the estimates on gross value added per hour of work, but here the international comparisons are made difficult by differences in the procedures for estimating the data (ibid.: 47).
More specific analyses of the dynamics of productivity have necessarily to confine themselves to manufacturing industry, where it is possible to make international comparisons among relatively homogeneous products that are internationally traded. Data Resources International data show that between 1977 and 1983 the productivity of US manufacturing industry has increased at an annual rate of 1.2 per cent. In Japan it increased 3.9 per cent, in West Germany 2.5 per cent, in France 3.5 per cent, in Italy 3.1 per cent, in Britain 3.3 per cent (Thurow 1985b: 22). The product per hour of work in West Germany ($20 at 1983 prices) is greater than the US ($18) (ibid.).
Even after 1983, the productivity performance of the US has not improved. Between the second quarter of 1984 through the second quarter of 1985 there has been no productivity growth (ibid.) and the data of the US Congress Joint Economic Committee, in Figure 3.1, show a zero growth in 1985, as a result of -a long-term decline.
Some studies have denied that there is a 'problem' with US productivity. Robert Lawrence of the Brookings Institution, argued that in constant 1972 dollars, the share of manufacturing in US GNP shows only a slight downward trend and he explained the fall at current prices as the effect of technical progress (Lawrence 1984). The loss of industrial jobs, according to Lawrence, is not a process of 'deindustrialization,' nor a long-term decline of the US competitiveness. On the bases of such analysis, he argued that small currency devaluations will be adequate to compensate for the slower US productivity growth.
The faith in the ability of the traditional instruments of macroeconomic policy to solve the problems raised by the productivity slowdown has remained unshaken among the economists close to the Brookings Institution such as Charles Shultze and Lawrence Summers. C. Fred Bergsten has argued that 'it would be extremely difficult to conclude that the US faces any fundamental problem of international competitiveness' (quoted in Norton 1986: 3).
While the debate among American economists will be considered again later, in section 3.4, reviewing the explanations of the US decline, there is little doubt that the consequences of the productivity slowdown of US industry are even more serious if we set that in the context of the current structural transformations of the US economy. The share of manufacturing industry in GNP has fallen from 30 per cent of 1953 to 21 per cent of 1985 (Business Week, 3 March 1986) and the productivity in services is largely below the industry average. According to the US Labor Department, putting at 100 the index of productivity in 196() for manufacturing and for services, in 1984 the former reached 190, and the latter was at 150 (ibid.: 58). Estimates of the American Productivity Center put the growth of productivity in the service sector at a poor 0.1 per cent a year from 1979 through 1983, five times less than the manufacturing average (ibid.: 80).
Figure 3.1:Rates of growth of US productivity
Source: Joint Economic Committee 1986.
The picture emerging from these data on the US economy is slow growth with low-wage jobs. One of the consequences is a lower pressure for labour-saving investments, which can contribute to increase innovation and productivity. Here there is a stark contrast with Europe and Japan. Table 3.1 shows that in 1985 gross fixed investments (including residences) in per cent of GDP was 18.6 per cent in the US, 19.5 per cent in West Germany and 27.5 per cent in Japan. The same order can be found for all the two previous decades. A summary of the different paths taken by the most advanced economies from the 1970s up to now is offered by the graphs in Figure 3.2, comparing the dynamics of investment and employment. It is remarkable how the US has expanded employment more than the other countries, while Japan increased more its investment, and the four major European economies showed no clear trend, with little growth of investment and none of employment.
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