The Positive Sum Strategy Harnessing Technology for Economic Growth (1986) / Chapter Skim
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From page 1... ...
Yet so great is the power of compounding that this growth rate enabled the United States largely rural in 1850—to become He greatest industrial power in the world by 1985, while the United Kingdom sank to a position of economic inferiority even in Europe In the late nineteenth century Japan seed its rise to industrialization. It achieved a more rapid growth rate than any other major county,, and by 1985 had become the second-greatest industrial power.
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Expectations of the world's populations are now also clearly rising everywhere, and dissatisfaction with economic conditions affects an increasing number of nations, contributing to world political instability and compounding the problems of operating businesses from a global standpoint, as the current economic trends inexorably dictate. Japanese companies have recogn~zed this dilemma and are following a global strategy of great sophistication, where control is Grin and centralized in Japan, and not in venous geographic regions as Is often the case among United States companies (Landau and Hatsopoulos)
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After World War lI Paul Samuelson and Sir John Hicks, among others, combined Keynes's concepts win the neoclassical methods of optimum resource allocation. This synthesis dominated economics until the 1970s, when stagflat~on and low growth exposed its fundamental weaknesses.
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However, Marx saw technology as the cause of massive unemployment, which would bring about the destruction of the capitalist system. It was not until the early l950s Hat modern economists such as Robert Solow and Moses Abramovitz began to look seriously at the determinants of growth, and at the macroeconomic level encountered a large residual i.e., the huge gap between the growth in GNP and the growth in conventionally measured inputs of labor and capital.
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INSIDE THE BLACK BOX OF TECHNOLOGY By decomposing the macroeconomic aggregates of the postwar period up to 1979 into 35 industrial sectors, Jorgenson opens the black box somewhat and finds that the energy price increases of the 1970s and the changing net effective tax rates of corporations can be correlated very well with the decline in productivity growth. The tax rates raise the "hurdle" rates for return on investment for private companies (Landau and Hatsopoulos)
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On a macroeconomic level this climate entailed fiscal and monetary policy; on a more microeconomic or second-tier level (Boskin) , tax, regulatory, made, and spending priority policies became important.
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The contrasting Japanese macroeconomic policies are described by Aoki, and to some extent by Okimoto. These American macroeconomic policies have had varying effects on different sectors of the U.S.
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If American macroeconomic policy can change in time, therefore, many manufacturing, agncultural, and some service sectors may show very large increases in productivity as their utilization of capacity rises above the current 80 percent to perhaps 86 or 89 percent (Reeder) , and Heir export capability improves.
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. Yet we detect that there is a common theme among many of the authors in this volume: that new technology is the key to productivity growth, and that capital investment employed by properly trained people is the major expression of such new technology.
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He points out that big companies lose valuable personnel as a result. Swanson says venture capital is still a critical need, while Quinn, who discusses the profitability of venture capital, suggests that it is better to have too much Han too little, as exact calibration of the market is impossible.
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l institutions support technological innovation in many ways: as users of technolo=,y, venture capitalists, equity underwriters, lenders, advisers and consultants, project financiers, and conduits to the international capital markets." Smaller exporting companies and exports generally are not greatly helped by any of these large banks. The Export-Import Bank's role is ver`; limited in comparison with the resources at the disposition of American competitors abroad, and particularly so in regard to the smaller companies (Hannay)
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. Mettler reminds us, however, that the distinction between high technology and smokestack industries is largely fictitious today, and that manufacturing and services are inextricably intertwined- the '~salami economy.'' As Young and Hannay write, the general feeling is that from now on the United States will be largely dependent on global markets, especially in the manufacturing,, agricultural, and certain key service sectors, and must "get its act together" on a permanent basis.
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From page 13... ...
growth is the continued belief in an endless cornucopia of production and innovation, a belief that adequate levels of capital formation and technological change will somehow be forthcoming, even in the presence of policies that may adversely affect them. Thus, large deficits are tolerated and a drastic rearrangement of the entire tax structure along untested lines is again proposed, constituting, in effect, an experiment win the entire economy (Landau and Hatsopoulos)
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. Such incentives as the capital gains tax differential have been beneficial for innovation and risk taking and should be retained (Baldwin)
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savings rates, points out that we do have an industrial policy, although it has never been publicly proclaimed, and its name is "consumer spending." Similarly, David emphasizes that the United States has a de facto set of policies, such as in Boskin's second-tier economic policies, which greatly influence innovation and diffusion of technology. Beyond these steps economic science should look more closely at how He process of innovation translates into economic growth.
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From page 16... ...
Eads is pessimistic about American capabilities for matching the Japanese resolve, and fears that our system excessively favors equity and risk aversion. This situation might lead to greater protection of uncompetitive industries, companies, and jobs through trade and government policies; such protection would further weaken the country instead of strengthening the determination to improve efficiency.
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