Post War World II Era Term Paper

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The rise of productivity within competitors to the United States means that overall import/export balance will be severely altered. This can already be observed over the lopsided balance of trade for the United States, whose trade deficit will exceed 100 billion once again this year. When there is a comparison decrease in productivity, the economic impacts are both short-term and long-term. In the short-term the strength of the dollar will depreciate against other currency. This is already happening as the dollar has depreciated within the past five years against the Euro, and as the productivity trends move against the United States this will become even more evident in the years to come. With respect to a broad basket of currencies that include the rise of Asian currencies, this will only mean that the dollar will lose strength over the next few years. The long-term implications are that the United States will be out-competed on a myriad of fronts that could dramatically alter its current economic prospects. With the rise of productivity in Eastern Europe as well as the East Asian sector, this will mean that trade will become more lopsided and American exports will decline. All of these should have negative implications on overall U.S. growth within the next few generations.

Recovery from the productivity slowdown must come from technology implementation; this has already been witnessed within the past five years. According to recent metrics, productivity rates have increased by substantial growth in recent years. These episodes of accelerated growth can be attributed in increased investments made by companies into their infrastructure and their investment specific technological changes that have increased worker productivity. Economic models suggest that due to the increased integration of information technology systems as well as other means of technology implementation, the productivity slowdown of the 1970s are over. However, the same metrics show that because technology investments now are only a reflection of a "snap-back" effect that is occurring because of previously low levels of investment. The long-term implications of this model is that productivity growth will remain at a moderately accelerated rate for the near-term future, however further growth within this sector will be wholly dependent upon investment in technology on an industry wide level.

The American economy is currently at cross-roads in terms of both economic output and productivity. Although it is still the foremost leader and the world's strongest economy, current trends in world growth along with consistent underwhelming performances implies transitive changes in economic power over the next decade. The implication is that the productivity slowdown of the 1970s laid an infrastructure of lower recursive growth. While this was acceptable during the 1980s and 90s due to the decrease in productivity compared with other industrialized nations, it can no longer stand up to the changing nature of globalize economies. Countries such as China, Korea and India are increasing their productivity by as much as 65% per year, in order for America to maintain its position it will have to make substantial changes at an infrastructural level across industries.

The purpose of the above report is to analyze the specific causes of the productivity slowdown during the 1970s. Three specific causes have been identified as prevalent causes for the productivity slowdown. First, increases within oil prices as a result of the formation of OPEC, and the Iranian hostage crisis led to industry wide cutbacks in production by slowing down all sectors of production, manufacturing and distribution. This was the first impetus for the productivity slowdown. The second factor is that entrance of baby boomers into the workforce which diluted both the experience of the entire workforce in general and also the experience level of management level employees. This caused productivity to decrease according to an "order of magnitude" affect as baby boomers had to progressively learn the skills necessary to increase their productivity. The final reason for the 1970s slowdown is a substantial decrease in technology investments and infrastructural investments on an industry wide level. As a result, companies were not improving their core competencies and thus could not adjust to the myriad of other factors that were present on the market. Despite the logic of these three steps, other critics have suggested that there was in fact no crisis at all as the productivity slowdown was a mere statistical mirage.

Overall however, this is apparently a problem that does not need to overtly concern the American public. The productivity growth rate has remained at a steady if unspectacular rise. As a result, the only concern is how to boost productivity and thus economic growth to the competitive levels in comparison to other nations. The problem of productivity is one that the United States will continue to struggle with for the next decade. However, it is a problem that has solutions, from an industrial and political level; changes must be made in the current structure of both governmental policies and subsidies and the approaches of industries to increase the overall productivity and economic welfare of this country.


Baily, Martin Neil, Robert J. Gordon, and Robert M. Solow, "Produc- tivity and the Services of Capital and Labor," Brookings Papers on Economic

Activity, 1981, 1981 (1), 1-65

Chari, V.V. And Hugo Hoenhayn, "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, 1991, 99 (6), 1142-1165.

Fischer, Stanley, "Symposium on the Slowdown in Productivity Growth," the Journal of Economic Perspectives, 1988, 2 (4), 3-7

Gordon, Robert J. And Daniel E. Sichel, "[Productivity Growth and the New

Economy]. Comments and Discussion," Brookings Papers on Economic Activ- ity, 2002, 2002 (2), 245-265

Oliner, Stephen D. And Daniel E. Sichel, "The Resurgence of Growth in the Late 1990s: Is Information Technology the Story?,"…[continue]

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