Friday, July 28, 2006

The American Economic Clolossus

Some much needed perspective from The Economist. We should be happy, joyful, and confident. Not since a Trajan and Victoria have a people been in a better position.
...Whether American firms are building plants overseas as a way to exploit cheap labour, or closing down factories because they cannot compete any more, the widespread assumption is that the country's entire industrial base is being “hollowed out”. “Our media (NB: Prime Directive-Make Bush look bad) act as if American manufacturing is going to grind to a halt at around two o'clock this afternoon,” says Cliff Ransom, an independent analyst who scours America for the most assiduous metal-bashers.
...
But someone forgot to tell American manufacturers the bad news. Most of them have enjoyed roaring success of late. Net profits have risen by nearly 9% a year since the recession in 2001 and productivity has been growing even more rapidly than is usual during economic expansions (see chart). The country's various widget-makers, moreover, show no sign of losing their innovative edge.
...
Capital equipment and durable goods-makers such as Caterpillar, General Electric, an industrial conglomerate, and Boeing, an aerospace giant, have always been the strongest bits of America's manufacturing base. Their position is the most secure, says James Womack of the Lean Enterprise Institute, a think-tank in Cambridge, Massachusetts, because there is so much knowledge embedded in what they make. Even when a company such as Boeing stumbles over its efficiency, as it did a few years ago, its intellectual property gives it room to recover. These days, however, American manufacturers of all sorts—not just the big durable-goods makers—are quickly improving their efficiency.
...
Manufacturers were already outpacing their rivals in rich countries during 1995 to 2000, when their productivity was growing by 4.0% a year. After 2000, the country's metal-bashers somehow managed to raise their productivity growth by another notch, to 5.1% a year, according to the Bureau of Labour Statistics.
...
IT drove much of America's productivity burst between 1995 and 2000. In a new paper, Messrs Jorgenson and Stiroh, along with Mun Ho of Resources for the Future, a think-tank, have compared the late 1990s with the productivity growth of the past five years. Not only has productivity growth accelerated further—by another 0.7% a year, to 3.2%—but the forces behind it also appear to have become more broadly based.

The economists looked at the entire private sector, not just manufacturing, and suggested that there could be several explanations for the recent strong performance. Because American firms are finding myriad ways to raise productivity, and are not merely riding one wave of innovation from the IT boom, the economists think that productivity growth will settle at a rate above what America achieved in the two decades before 1995. Over the next decade, they expect private businesses as a whole to boost productivity by 2.6% a year. That would be good news. Manufacturers, which are boosting productivity even more rapidly than the rest of the economy, should do even better.
And here is something our enemy finds out on the battlefield on a regular basis.
“Being flexible and willing to learn are skills that America still excels at,”
As a sidebar to all the happy-happy-joy-joy above - review what happened within a century of the above named rulers and the power of their emp...err...nations.

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