US Still Leads the Pack; Only Japan Closes Gap
Despite poor image, US is tops in productivity and living standards
THE United States economy will be "much more dynamic" in the 1990s than the economies of Western Europe or Japan.Skip to next paragraph
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Thus, predicts economist Edward Wolff, the sizable US lead over Germany, France, and Britain in productivity and standard-of-living will expand. And Japan will not catch up by much.
"The Japanese have big structural problems that are going to hinder them," the New York University (NYU) professor says.
The prevalent public image of the US economy is hardly one of strength. The recovery only now is showing signs of vigor, though national output officially emerged from a recession in March 1991. The charts presidential candidate Ross Perot displayed for millions of television viewers last fall showed an economy in deep trouble. Lamentations over the huge federal budget deficit often suggest the country is headed for rack and ruin.
Yet two recent studies indicate that the US still runs the world's greatest economic powerhouse.
"We are in a far better position than superficial views would suggest," says William Baumol, director of NYU's C. V. Starr Center for Applied Economics. "But we are in no way guaranteed to keep in that position if we rest on our oars."
A report by Mr. Baumol and Professor Wolff concludes: "All in all, the data indicate that the American economy's long-term performance is far better than it is generally believed to be, and that there is little evidence that it is about to get worse."
A study by the McKinsey Global Institute finds that in 1990, US per capita output (gross domestic product per person) was 16 percent greater than in West Germany, 22 percent larger than in Japan, 23 percent greater than in France, and 37 percent more than in Britain. (These numbers are based on purchasing power parity. The conversion of foreign currencies into US dollars is not simply based on foreign exchange market rates but on what it costs to buy a standard basket of goods and services in other count ries relative to how much the same basket costs in the US.)
"Somewhat surprisingly," the McKinsey study says, "we see no trend towards the European economies converging to the US level. There has been some convergence by Japan, but at a rather slow rate." Dual-income families
A primary reason for the higher living standards in the US is that more people, particularly women, work for pay. The two-earner family is commonplace.
Even taking this factor into account, average labor productivity remains higher in the US than elsewhere. Measured in GDP per person employed, it amounts to $49,600 in 1990 dollars. France is close behind at $47,000, the McKinsey study finds. West German productivity is about 10 percent behind, at $44,200. That number prompted some disagreement in Germany when it was first published last fall. The gap with Japan and Britain is 20 percent. (See charts)
In manufacturing, Japan and Germany have only about 80 percent of the productivity of US manufacturers, France 76 percent, and Britain 61 percent. Japanese productivity in machinery, electrical engineering, and transport equipment is ahead of the comparable industries in the US. But the growth rate in manufacturing productivity in Germany has fallen behind that of the US in recent years and the rate in Japan is now "almost neck and neck" with the US, according to Baumol and Wolff.
To William Lewis, director of the McKinsey Global Institute, these studies indicate that the US should not attempt to copy any other economic model, including that of Japan. "The issue is primarily one of making this [US] model work better," he says.