(fw) U.S. economy in the 90s: not so hot

[Mark Dillon]

U.S. in 1990s: Land of the unequal, home of the poor

PETER COOK

The Globe and Mail (Toronto), Monday, March 12, 2001

BRUSSELS -- Foreign critics of the United States are starting to
question just exactly what the world was supposed to admire in the
once-unassailable, now-fragile, U.S. economy.

As ever, the genesis of such thinking is Europe -- which, outside
Britain, has never really been a fan. When the United States possessed
the world's first self-styled recession-proof economy, the Germans,
French and others stayed mute. Now that it is the home of haunted stock
markets and craven consumers, Europe's economists are delving into the
record books to discover what a decade of New Economy triumphalism has
meant in real terms. Their first answer: Not very much.

Yes, the United States acquired a lead in advanced technologies that
others will have to copy. But catching up on invented technology is a
process that is often easier and more rewarding because it generates
fewer mistakes.

Beyond that, if you look at the past 10 years of economic progress in
the three areas that advance living standards most -- growth in output,
gains in productivity and job creation -- there has actually been little
to choose between the United States, Japan and Germany.

There is some irony in this. When the 1990s opened, a humbled United
States was worried that it was losing out on managerial and marketing
supremacy to the Japanese, and on long-term investment to the Germans. A
brash presidential candidate, Bill Clinton, exploited both these alleged
faults to get elected. Since then, and certainly since U.S. consumers
started out on history's biggest spending binge, we have not heard much
about foreign economies. Instead, the story has been the amazing
performance of the United States.

Study the numbers closely, however, and no gap has opened up. Figures
put out by Eurostat and the OECD (Organization for Economic Co-operation
and Development) show the U.S. economy did better than the rest after
1992. But that discounts an earlier U.S. slowdown while counting several
years of near-stagnation in Germany and Japan. Go back 10 years instead
and both German and U.S. growth are the same, at an average annual 2.5
per cent, while Japan is not far behind at 2 per cent.

This is a surprising figure because the increase in the U.S. population
(and therefore in the economy's potential to grow) was much greater over
the period.

In terms of growth per capita, Germany outgrew the United States --
though this was a reflection of a political event, German unification,
which overnight endowed former east Germans with the blessings of living
in a German-mark economy.. Anyway, if Americans think they got richer
faster in terms of GDP (gross domestic product) in the past decade, they
haven't. Both the Germans and the French did better.

The same is true of productivity. Yes, the Americans remained ahead
during the 1990s. But, contrary to the view that their technology
revolution has greatly enhanced productivity, the U.S. lead over others
has not widened at all. True, U.S. productivity gains in services may be
understated. But even that does not explain why, in 1990-99,
multi-factor productivity rose an average of 1.4 per cent in Germany,
1.6 in Japan and just 1 per cent in the United States.

The one clear advantage Americans have enjoyed is in job creation. Their
unemployment rate stands at an unbeatable 4.2 per cent, compared with
9.3 per cent in Germany. So, if the 1990s boom was a success, it was
chiefly for reducing the jobless rate painlessly and without any rebound
in inflation. But the critical thing to look at is not a long, stable
economic expansion but at just who, beyond dot-com millionaires,
benefited.

A study done by three U.S. economists, Timothy Smeeding, Lee Rainwater
and Gary Burtless, and reported on by BusinessWeek magazine, looks at
levels of pay inequality and absolute poverty. On both counts, it has
not been a good decade for the United States. Using an after-tax income
measure of poverty that includes cash and near-cash welfare payments,
they found the United States ranked seventh out of 10 rich nations in
the mid-1990s (below Canada, Sweden and Germany, and above only Britain
and Australia).

Using a second measure that defines poverty in terms of having an income
that is 40 per cent below the median income, they found only one country
in the 10 had a double-digit poverty rate (at 10.7 per cent in 1997) --
the United States.

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