Download Globalization, International Trade, and Outsourcing

Globalization, International Trade,
and Outsourcing: Understanding
Economic Growth and Polarization in
America
25th Anniversary Montana Arbitration and Labor
Relations Conference
Barry Bluestone
Northeastern University
Bozeman, MT
September 23, 2004
A n n u a l G ro w th
Long-Term Real GDP Growth in the
United States 1800-1995
6.0%
5.1%
WW II
5.0%
4.5%
4.2%
4.5%
4.4%
4.1%
3.9%
A v e ra g e
4.0%
2.9%
3.0%
2.0%
D
E
P
R
E
S
S
I
O
N
3.2%
3.0%
2.3%
Glory Days
1.0%
0.1%
0.0%
1800-1840
1870-1890
1840-1870
1913-1929
1890-1913
1939-1949
1929-1939
1959-1969
1949-1959
Sources: David (1800-1840); Gallman (1840-1870); Maddison (1870-1929); CEA 1987 (1929-59); CEA 1997
Indicators" (1989-2000)
1979-1989
1969-1979
1989-1995
(1959-1989); "Economic
The Post-War Glory Days
1947-1973

Rapid GDP Growth in the U.S.:





Real Family Income doubles (+104%)
Declining Unemployment


1950s: 3.9%
1960s: 4.4%
1970s: 3.2%
Unemployment Rate declines to 3.8% -1966-1969
Rising Incomes for Most Families
Real Average Hourly Earnings
Total Private Sector ($1982)
$9.00
1972
$8.50
2003
1959-72
$8.00
+
34%
1972-93
1982
$7.50
1993
- 16%
$7.00
1993-03
+ 10%
1959
$6.50
59
64
69
74
79
84
89
94
99
4
A n n u a l P e rc e n t C h a n g e
How U.S. Family Income Grew
1947-1973
4%
3%
3.0%
2.6%
2.7%
2.7%
2.4%
2%
1%
0%
Lowest 20%
Middle
Lower Middle
Top 20%
Upper Middle
Why the U.S. Grew So
Fast
1947-1973
Y= C+I+G+X-M

Consumer Boom
Pent up Savings & Pent up Demand
 Union collective bargaining gains


Investment Boom


Conversion to Civilian Production
Government Spending Boom
State & Local Spending on Urban Renewal,
New Suburbs, New Regions
 Cold War



Export Boom - Marshall Plan
Import Implosion - Legacy of WWII
Wage & Security-Led Growth

Rise of Collective Bargaining
36% of American Workforce Unionized
 Another 1/3 or so benefit from “sympathetic”
pressure


Traditional Workplace Contract







AIF/COLA Wage Formula
“Fringe” Benefits
Seniority System
Grievance System
Work Rules/Job Classifications
Union Security Clause
Management Rights Clause
The Post World War II
Virtuous Cycle
Union
Collective
Bargaining
Gains
Pent-up
Savings
Pent-up
Demand
Wage &
Benefit
Growth
Consumption
Virtuous
Cycle
Public
Sector
Demand
Stimulus
Investment
Output
Growth
Productivity
Growth
Growth in
Labor Supply
Technological
Innovation
Federal
R&D
Spending
The End of Affluence …..
An Age of Diminished
Expectations
A v e r a g e A n n u a l G r o w th R a
Revised GDP Growth Rates
1959-1995
5%
4.4%
Declining Growth Rates
4%
3.2%
3.0%
3%
2.3%
2%
1%
0%
1959-1969
1969-1979
1979-1989
1989-1995
A n n u a l U n e m p lo y m e n t R a t e
Average Unemployment Rate
United States 1960-1989
8.0%
7.0%
Rising Unemployment
7.3%
6.2%
6.0%
5.3%
5.0%
4.0%
3.0%
1960s
Source: Bureau of Labor Statistics, Handbook of U.S. Labor Statistics
1970's
1980's
Real Average Hourly Earnings
Total Private Sector ($1982)
$9.00
1972
$8.50
2003
1972-93
- 16%
$8.00
1982
$7.50
1993
1993-03
$7.00
1959
$6.50
59
64
69
74
79
84
89
94
99
4
A n n u a l P e rc e n t C h a n g e
How Family Income Grew
1973-1995
2%
1.3%
1%
Increasing Income Inequality
0.5%
0.2%
0%
-0.2%
-0.6%
-1%
Lowest 20%
Middle
Lower Middle
Source: U.S. Department of Labor
Top 20%
Upper Middle
So Why Did the U.S. Growth Engine
Sputter in the 1970s?






Oil Crisis in the 1970s
Business forced to focus on energy efficiency,
not new products or new technologies
Corporate Myopia and Arrogance in face of new
competition
Little emphasis on productivity, quality, and
innovation
Global Competitors stepped in
Imports clobbered the economy
Labor Productivity Growth
A n n u a l G ro w th
1949-1995
1973-1995
1949-1973
3.5%
3.4%
3.0%
3.1%
3.1%
2.5%
Plummeting
Productivity
A ve rag e
2.0%
1.5%
1.3%
1.0%
1.2%
1.1%
0.5%
0.0%
1949-1959
1959-1969
1969-1973
1973-1979
1979-1989
1989-1995
Imports as % of GDP
Truman
Eisenhower
Kennedy
Johnson
Nixon Ford
Carter
Reagan
Bush
Clinton
Bush W.
16%
P e rc e n t
14%
12%
10%
8%
1929 Import/GDP Ratio
6%
4%
2%
47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03
48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04
U.S. Trade Balance
Exports - Imports (Goods)
Truman
Eisenhower
Kennedy
Johnson
Nixon Ford
Carter
Reagan
Bush
Clinton
Bush W.
100
-100
-200
$
b illio n s
0
-300
-400
-500
47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03
YEAR
So Why Did Inequality Explode?










Skilled-Biased Technological Change
Rise of Service-based Economy
Industry Deregulation
Declining Unionization
Lean Production & Destruction of Job Ladders
“Winner-Take-All” Labor Markets
Growing International Trade
Outsourcing & Capital Mobility
Immigration
Trade Deficits
Surprise, Surprise!
Prosperity Regained …
1995-2000
R
A n n u a l G r o w th
Revised GDP Growth Rates
1959-1999:III
5%
4.5%
4.4%
4%
3.2%
3.0%
3%
A v e ra g e
2.3%
2%
1%
0%
1959-1969
1969-1979
1979-1989
1989-1995
1995-1999
A n n u a l U n e m p lo y m e n t R a t e
Average Unemployment Rate
United States 1960-1998(II)
8.0%
7.3%
7.0%
6.4%
6.2%
6.0%
5.3%
4.9%
5.0%
4.0%
3.0%
2.0%
1960s
1970's
Source: Bureau of Labor Statistics, Handbook of U.S. Labor Statistics
1980's
1990-95
1996-98
Real Average Hourly Earnings
Total Private Sector ($1982)
$9.00
1972
$8.50
2003
1959-72
1993-03
$8.00
1982
$7.50
+ 10%
1972-93
- 16%
$7.00
1993
1959
$6.50
59
64
69
74
79
84
89
94
99
4
So Why did the U.S. Grow
Again?
The New Conventional Wisdom:
The Wall Street Model
Wall Street Model





Weak Trade Unions kept wages and prices down
Welfare Reform increased labor supply, keeping wages
and prices low
Tight monetary policy kept inflation under control and
interest rates low
Deficit Reduction/Surplus Generation raised aggregate
savings rate, lowering interest rates
Free Trade depressed wages, forced prices down, and
kept inflation under control

>>>>>>
All leading to a stock market boom and
new investment
Subdued
Inflation
Increased
Savings
Wall Street
Virtuous Cycle
Increased
Corporate
Profit
Falling
Interest
Rates
Rising
Stock
Prices
Improved
Productivity
Virtuous
Cycle
Technological
Innovation
Increased
Wealth
Increased
Capital
Investment
Increased
Spending
Output
Growth
Falling
Interest
Rates
Subdued
Inflation
Increased
Savings
So Who’s responsible for the new
economic boom?



Was it Bill Clinton … who got the deficit under
control?
Was it Alan Greenspan … who got inflation under
control?
Was it Ronald Reagan … who got government under
control?
Answer:
None of the above ....
Despite all the ballyhoo, the Wall Street Model
does NOT explain the U.S. boom in the late 1990s
It takes a little bit of
history to understand
America’s
new prosperity...
Long Lags in
Technology/Productivity Cycle
A n n u a l G ro w th
R a te
Revised Productivity Growth Statistics
4%
1949-1999:III
3.4%
3.1%
3.1%
3%
Productivity Rebound
began in the 1980s
3%
2.1%
2%
A v e ra g e
1.7%
1.6%
1.5%
2%
1%
0.8%
1%
0%
1949-1959
1959-1969
1969-1973
1973-1977
1977-1981
1981-1989
1989-1993
1993-1999
"Learning Curves"
Introduction of New Technologies
4.5
Technology
Release 3.0
P r o d u c tiv ity
4
Technology
Release 2.0
3.5
3
2.5
Technology
Release 1.0
2
Actual Productivity Trend
-----------
1.5
1
1
8
15
22
29
36
43
Time
50
57
64
71
78
Productivity Growth during the
British Industrial Revolution
in
%
Figure 3.4
L a b o r P r o d u c tiv it y G r o w t h
1.2
1.1%
1.1
1
"Mature"
Phase
0.9
0.8
0.7
0.6
"Pre-Revolution" Phase
0.5
0.5%
0.4%
0.4
"Diffusion/Learning"
Phase
0.3
0.2%
0.2
0.1
0
"Initial" Phase
1660
1680
1700
1720
1740
1760
Source: Adapted from Jeremy Greenwood, 'The Third Industrial Revolution"
1780
1800
1820
1840
1860
1880
in
%
Productivity Growth
during the U.S. Antebellum Period
G ro w th
1.6
1.40%
L a b o r P r o d u c tiv it y
1.4
1.2
1
0.8
0.63%
0.6
"Diffusion/Learning"
0.4
0.30%
0.2
1800 1805 1810 1815 1820 1825 1830 1835 1840 1845 1850 1855 1860 1865 1870
Source: Adapted from Jeremy Greenwood, "The Third Industrial Revolution"
New Technologies that spurred
Economic Growth



Steam Engine
…. 19th C.
Electrification
…. Early 20th C.
Integrated Circuit …. Late 20th C.





Computer Hardware
Computer Software
Internet
e-commerce
But each takes decades to impact
productivity and growth
Where did the new technology come
from for the 1990s Boom?
The Missile Race following Sputnik (‘50s/’60s)
 The Space Race with Russia (‘60s/’70s)
 From Government Spending on Defense to the
Private Sector in a Quarter Century
 It was hideously expensive, terribly wasteful, but
in a peculiar way it paid off decades later
So who’s most responsible for U.S. Economic Boom?

Nikita Khrushchev
Public Sector + Private Sector
Working Together



Federal Government provided Basic
Research funds
Local, State, and Federal Government
educated and trained a labor force to
effectively use the new technology
Private sector converted basic research to
applied development
.... and productivity soared
Public Investment in the 1960s,
1970s, and early 1980s ...
 Basic Research


Education (after Sputnik)
Public Infrastructure (Interstate
highways, airports, internet)
......PAID OFF IN THE LATE 1990s
Since 2000 .....
Monthly Net Job Growth
th o u s a n d s )
from Truman to George W. Bush
300
235.4
210.6
200
168.1
117.6
89.5
100
( in
196.5
33.5
0
-100
-200
-93.6
-177.3
Hoover
Eisenhower
Nixon-Ford
Roosevelt-Truman
Kennedy-Johnson
Reagan-Bush
Carter
Bush W.
Clinton
Duration of Job Loss
Recession Years 1947-2003
?
30
M o n th s
25
20
15
10
5
0
1953-54
1957-58
1960-61
1970-71
Months of Continous Loss
1974-75
1981-82
1990-91
2001-
Months of Year-over-Year Loss
Growth, Productivity, & Employment
2001-2003:III
P e rc e n t C h a n g e
10
8.1
8
7.2
7.0
6
5.4
4
3.3
2.4
2.1
1.9
2
1.4
0.3
0.1
0
-0.1
-0.4
-2
-0.1
-1.3
2001
2002
Real GDP
2003:I
Productivity
2003:II
Employment
2003:III
Percentage Point Change
in Unemployment Rate
7%
6%
5%
6.0%
“Democratizing” Unemployment
4.6%
4%
3.3%
3.2%
3%
1.9%
2%
2.3%
1.5%
1.4%
1.0%
1%
0%
2.0%
1.9%
2.1%
Early 1980s' Recession
Early 2000s' Recession
Early 1990s' Recession
Less than High School Grad
High School Grads
Some College
College Grads
Federal Outlays for Physical Capital, Research and Developm ent, and
Education and Training: As a % of GDP
2.75
2.7%
2.25
1.75%
2
1.75
Year
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1.5
1962
% of GDP
2.5
Year
2004
1.25
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
2.25
1966
1964
1962
% of GDP
Federal Outlays For Research and Developm ent
As a % of GDP
2%
2
1.75
1.5
1%
1
0.75
0.5
Federal Outlays for Non-Defense R&D
As a % of GDP
1.20%
1%
0.80%
0.60%
0.4%
0.40%
Year
20
04
20
01
19
98
19
95
19
92
19
89
19
86
19
83
19
80
19
77
19
74
19
71
19
68
19
65
0.20%
19
62
% of GDP
1.00%
Federal Outlays for Research and Developm ent in National Defense
As a % of GDP
1.40%
1.00%
Reagan “Boomlet”
0.80%
0.60%
Year
20
04
20
01
19
98
19
95
19
92
19
89
19
86
19
83
19
80
19
77
19
74
19
71
19
68
19
65
0.40%
19
62
% of GDP
1.20%
Federal Outlays For General Science R&D
As a % of GDP
.75%
0.80%
0.70%
0.50%
0.40%
0.30%
.10%
0.20%
0.10%
Year
20
04
20
01
19
98
19
95
19
92
19
89
19
86
19
83
19
80
19
77
19
74
19
71
19
68
19
65
0.00%
19
62
% of GDP
0.60%
Federal Outlays for Energy R&D
As a % of GDP
Energy Crisis
.12%
0.14%
0.12%
0.08%
0.06%
0.04%
.015%
0.02%
Year
20
04
20
01
19
98
19
95
19
92
19
89
19
86
19
83
19
80
19
77
19
74
19
71
19
68
19
65
0.00%
19
62
% of GDP
0.10%
Federal Outlays for Transportation R&D
As a % of GDP
0.06%
0.05%
0.04%
0.03%
.02%
0.02%
Year
20
04
20
01
19
98
19
95
19
92
19
89
19
86
19
83
19
80
19
77
19
74
19
71
19
68
19
65
0.01%
19
62
% of GDP
.04%
Federal Outlays for Natural Resources and Environm ent R&D
As a % of GDP
0.06%
.05%
0.04%
0.03%
.02%
0.02%
Year
20
04
20
01
19
98
19
95
19
92
19
89
19
86
19
83
19
80
19
77
19
74
19
71
19
68
19
65
0.01%
19
62
% of GDP
0.05%
Federal Outlays for Health R&D
As a % of GDP
0.25%
.25%
0.15%
.10%
0.10%
Year
20
04
20
01
19
98
19
95
19
92
19
89
19
86
19
83
19
80
19
77
19
74
19
71
19
68
19
65
0.05%
19
62
% of GDP
0.20%
A Model of Growth for the
21st Century
Regaining and Sustaining
Prosperity

Quick stimulus in short run

Public investment in basic research,
education, homeland security, and
infrastructure in the long run
Restoring Social Equity






Higher Minimum Wage
Labor Law Reform to Foster Unionization
Fair Trade
Invest in Public Schools
Universal Health Care Coverage
Expand Public Goods (e.g. Transportation,
Day Care, Elder Care)
21st Century
Main Street Model
Virtuous Cycle
Union
Collective
Bargaining
Gains
Federal
Reserve
Policy
Wage &
Benefit
Growth
Consumption
Increased
Minimum
Wage
Virtuous
Cycle
Investment
Output
Growth
Productivity
Growth
Growth in
Enhanced Labor
Supply
Technological
Innovation
Public
Investment in
Education &
Training
Public
Investment in
Infrastructure
Public
Investment in
R&D