Volume
2, No. 6, December 3, 2002
New Economy Information Service E-Bulletin
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In this issue:
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Workforce Productivity Despite anxiety about war, faltering consumer confidence, tepid performances by our international trading partners, and revelations of corruption in our top business leadership, the American economy somehow still keeps chugging along. How come?
One factor appears to be the remarkable growth in our economy's productivity. According to a report in early November by the U.S. Department of Labor, productivity - the amount of output per hour of work - grew in the third quarter of 2002 at an annual rate of 4 percent. For the full year ending last September, productivity grew at a remarkable 5.3 percent rate. Alan Greenspan, not given to irrational exuberance, puts it this way: “The increase in non-farm business output per hour over the past year will almost surely be reported as one of the largest advances, if not the largest, posted over the past thirty years.” Increasing productivity could make it possible for wages, tax revenues or corporate investment to increase without the adverse effects-such as inflation-that sometimes attend such benefits. Fed Chairman Greenspan, like many in business leadership and academic economics, ascribes these productivity increases largely to effective business management. “Fat” is being worked out of new technological processes and new organizational structures that were introduced in more carefree boom times. Not much credit is given to the people who actually do the ground-level work of the economy. Nor is much consideration given to the increased effort that many employees put in to generate higher productivity in times of staff reductions and speeded-up production schedules. For example, a New York Times account from Dell Computer, one of the companies that boasts big productivity gains, reports, “From the trenches, the secret to productivity gains is simple: more work for the same pay…' They're putting a lot more load on the remaining people, said the employee…They're asking us to put in more time on the house.' “ ("Productivity; We Saved Your Job, But Gave You More Work," by Daniel Altman, October 29, 2002.)
Chairman Greenspan does make a backhanded reference to the front-line workforce. In a recent speech to the American Enterprise Institute he acknowledged that “Firms do not necessarily reap the full benefits of their capital investments immediately because of the disruptions to activity that can be initially created when new equipment is installed; these disruptions may include learning to use the new equipment and software or getting the new machines to mesh with existing systems. http://www.federalreserve.gov/board Perhaps this is an acknowledgement that technology and new organizational structures are not productive in themselves, and that increased output also depends on those who effectively put these tools to work. The training, responsibility and the work ethic of American workers could have something to do with keeping our economy humming.
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The Potent Politics of Wealth Creation
Seventy percent of the voters in the mid-term election have money in the stock market, and they voted Republican by a 12- point margin. So says Matthew Dowd, polling director of the Republican National Committee. It's one clue that points to an explanation of why, despite a sluggish economy and eruptions of corporate chicanery, Republicans showed surprising dominance on economic issues.
A more detailed untangling of this interesting problem can be found in an insightful piece by the New Republic's Noam Scheiber, who contrasts the way New York Attorney General Eliot Spitzer has handled corporate malfeasance with the way it was dealt with by some Democratic leaders in the Congressional campaign.
Scheiber explains that Spitzer does not simply denounce and threaten business and financial leaders, he proposes rules to make them serve their stockholders with greater transparency and accountability. The rhetoric of Dick Gephardt, however--“Big Brother is Corporate America”--seemed to some to be more attuned to exploiting a problem than to fixing it.
“[A]lthough Americans were outraged by corporate scandals,” Scheiber writes, “more than half of them--and two thirds of voters--own stock in some form. Any attack on business that seemed to hint at excessive fines or burdensome new regulations could therefore be seen as an attack on their personal financial interests.”
“…[N]obody wants the marketplace to crumble and to see their 401(k) drop even more,” Attorney General Spitzer told Scheiber. For the moment, wealth creation trumps wealth distribution at the polls.
But there are other strategies for promoting wealth creation besides improving corporate governance, and it is possible that candidates in both parties will now start looking at them more closely. One of these (how did you guess!) is to strengthen capabilities of our workforce. The link to between workforce skills and what retiring boomers are going to have in their 401(k) accounts is hardly a far-fetched one.
UK's Union Workforce Program Grows
The Ministry for Adult Learning and Skills announced November 15 that an additional $50 million would be made available to Britain's new Union Learning Fund. This sum will complement new statutory rights for union-appointed learning representatives that are due to go into effect in the spring. Among other things, the new law will permit learning reps to take time off to counsel fellow workers on their training and educational needs at the job site.
These measures fulfill commitments made by the Blair Government to unions that reflect a new and sometimes controversial strategy in labor relations that has been taking shape for some time in Britain. Detractors contend that giving union reps time off to assist with education and training will become a beery boondoggle. Proponents argue it can make the British economy more competitive and profitable -- while at the same time helping workers. Stay tuned.
It is likely that state workforce development funds will come under increasing pressure as budget crises unfold. Federal grants to states under the Workforce Development Act are already slated for cuts. The impact of these reductions on what has been the relatively successful welfare-to-work strategy implemented by state governments in recent years bears watching. Shortages of skilled labor could develop as the economy tries to climb back.
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REVIEW & COMMENT:
The New America Foundation, described by The Economist as having "the brightest American thinkers under 40," held a Washington forum on November 12 to discuss Jeff Madrick's new book "Why Economies Grow: The Forces That Shape Prosperity and How to Get Them Working Again." Madrick is a columnist for The New York Times economics section and over forty, but nevertheless an impressive thinker and researcher. He looks at many of the explanations of growth put forward by experts--such as the availability of raw materials, national savings rates, and new technologies--and finds them simplistic.http://www.newamerica.net/
Madrick argues that the process of growth is far more complex. He plumbs analyses of economic growth back to the Middle Ages (with a fascinating description of the economics of windmills) and de-bunks superficial "new economy" hype (not ours, of course.) He concludes that most theories overlook the importance of growing markets and the evolution of institutions of governance and commerce. Effective government and growth go together, and public investment in education, transportation and infrastructure helps markets develop. Madrick worries, however, that today's widening income gap will have a dampening effect on demand, and thus on economic growth.
One area Madrick neglects is labor's contribution to growth, and the impact of workforce skills on productivity. If a shrinking working age population results in labor shortages throughout the developed world, as some predict, GDP growth will depend exclusively on rising productivity. While technology may to some extent take up the slack of a declining workforce, the successful adoption of new technologies will depend on the education and skills of workers.
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This E-Bulletin is published by the New Economy Information Service
(NEIS), a project of the Foundation for Democratic Education. NEIS
provides information and reviews debate on the impact globalization
and technological change has on democracy at home and abroad.
Current interest focuses on how American workers can be equipped
with the skills they need for decent employment and economic
security, and on how the globalization of the economy and the
expansion of democracy can strengthen one another.
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