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Saturday, January 21, 2006

Global Competition and Changes in the Structure of the U.S. Economy

Daniel Altman talks about the decline in manufacturing and other changes in the U.S. economy driven by technological change and globalization:

Exporting Expertise, If Not Much Else By Daniel Altman, Economic View, NY Times: Want to understand what's really happening in the American economy? ...[T]he sea of numbers that pour out of ... statistical agencies... describe some disturbing changes. You can look at the economy in two ways: by production, or by people. The two aren't always the same... This is clear when you look carefully at the biggest long-term trend in the economy: the decline of manufacturing.

Both of manufacturing's two big categories, durable goods (like cars and cable TV boxes) and nondurable goods (like pastrami and pantyhose), have plunged, but the exact trends have differed. From 1965 to 2005, the percentage of payroll employees devoted to durable goods dropped to 8 percent, from 19 percent; over the same period, the share of the economy they represent shrank by just four percentage points. In other words, workers in these industries became a lot more productive as their numbers dwindled.


The picture was different for nondurable goods. In that category, the employees' share of the nation's labor force also declined steeply, by nine percentage points, to just 5 percent of the total. But nondurables' share of the economy dropped by even more, by 10 percentage points. ... Most of the losses in nondurable production had already occurred by the early 1990's. That's not too surprising, when you think about it: the nation's agriculture had become about as efficient as it could be, and clothing imports from developing countries like China, Bangladesh and Mauritius were in full swing.

The story for durable goods is more troubling. Half of the decline in production has been a legacy of the last recession: sales went down, and they have stayed down. The situation is a first, and it has been reflected in the labor market, too. ...[A]fter the 2001 recession, [employment] sank below nine million and hasn't picked up. ... The explanation may lie ... in the world's emerging economies. They saturated the American market with nondurables in the 1980's and early 90's, using the profits to move onto higher-value, durable items.

The change in the trend for durable goods was not the only worrisome legacy of the last recession. In the information sector, which had been among the most steadily growing areas of the labor market, growth has completely stalled ... The relatively small industries of broadcasting and Internet publishing have started upward ... But in print publishing, telecommunications and Internet services, the trend has been absolutely flat, despite the economy's return to regular growth.

Of course, there have been winners, too. The share of the economy devoted to medical care services has grown by eight percentage points in the past four decades, with commensurate changes in employment. But this isn't necessarily great news for the economy. ...

The leisure and recreational industries have also expanded, with the share of employment up by four percentage points. Here, too, exporting is difficult: after all, gambling, artistic performances and restaurant dinners usually take place on site. More promising, management and professional services like law and finance resumed their strong growth after taking a hit in the recession. These areas are the ripest for exporting. Need some business advice? No problem. Want some derivatives structured? Great. ...

We are becoming a nation of advisers, fixers, entertainers and high-tech engineers, with a lucrative sideline in treating our own illnesses. ... The change is being forced on us by global competition and our own aptitudes. The first step in dealing with it is to realize what's happening. The second, most likely, is to prepare for more of the same.

    Posted by on Saturday, January 21, 2006 at 04:43 PM in Economics, International Trade, Technology, Unemployment | Permalink  TrackBack (0)  Comments (21)


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