Will America pay for going soft?

Its product is flimsy and fleeting, just a souped-up disk orchestrating electrons.

But after decades flickering from the sidelines as the dazzling Tinkerbell of the economy, the computer-software industry will next year nudge aside automakers as America's No. 1 manufacturer.

The rise of software bolsters claims of a dawning, post-industrial "New Economy."

Years of lavish spending on information technology (IT) - software and its supporting fields - has in recent years helped to nearly double productivity growth across the US economy to about 2 percent, say economists.

Thanks to IT, "growth in output per worker has accelerated, elevating the standards of living of the average American worker," Federal Reserve Chairman Alan Greenspan said two months ago.

Still, there is sharp skepticism over the euphoria for an Information Age. Champions of "hard" industries like steel and autos are especially critical, saying traditional manufacturing offers more benefits to more people.

"The New Economy has brought many benefits to the American consumer - we all love the Internet," says Eamonn Fingleton, a Tokyo-based journalist and author of the recently published book "In Praise of Hard Industries" (story, page 17).

"But as far as productivity increases are concerned," he adds, "what we have seen is something of an illusion."

Regardless whether hard or soft industries dominate, job-growth forecasts suggest American workers would sooner win prosperity by preparing for a highly computerized economy.

So far, the United States has staked much on new know-how. US business spent 4.7 percent of gross domestic product (GDP) last year on IT, nearly double the ratio in Europe and Japan, according to the European Information Technology Observatory.

As a result, software is flaunting its coming of age across many fronts. This decade software employment has annually jumped 11 percent and sales have annually swelled 13 percent, reaching $140.9 billion last year.

The sector's average wage this decade has soared 60 percent to $68,900, according to the Business Software Alliance.

Even doubters among the government's bean-counting crowd now hail software's economic heft. As of late last month, the Bureau of Economic Analysis no longer considers software a raw material. Instead, it deems it a form of business investment and, for the first time, a contributor to GDP.

"Today, economic value is best symbolized by exceedingly complex, miniaturized integrated circuits and the ideas - the software - that utilize them," Mr. Greenspan said. "Most of what we currently perceive as value and wealth is ... impalpable."

But proponents of traditional industries say software is especially vulnerable to competition from low-cost producers in India and other developing countries. Moreover, software companies require comparatively scant capital and both the know-how and product can quickly move across national borders to rival companies.

Champions of hard industries say IT has beguiled executives, economists, and politicians, blinding them to advantages of traditional manufacturing: steady income growth, strong prospects for exports, and jobs that range across skills and wages.

Indeed, in a trend that reinforces longstanding concerns of "deindustrialization," many blue-chip US manufacturers have drifted toward services.

For example, since staging sweeping layoffs early this decade, International Business Machines Corp. has closed several computer-manufacturing plants and become a leading provider of high-tech services.

Ford Motor Co. and DaimlerChrysler AG have outsourced vehicle assembly or moved such jobs overseas while emphasizing marketing and other services. Consequently, DaimlerChrysler is the No. 1 exporter from Mexico, which now ships "more cars to the United States than the United States exports to the rest of the world," according to Robert Scott, an economist at the Economic Policy Institute in Washington.

Ford announced in September a joint venture with Microsoft Corp. to build cars according to Internet orders. The alliance will tie Ford closer to consumers and strengthen its marketing and services.

"There is a perception that we will become a nation of services. But the question is, who are we going to serve?" says Paul Wilhelm, president of US Steel Group. "This economy survives on basic manufacturing."

For the US steel industry, high-tech has been a mixed blessing. It has enabled the sector to revive, especially in production of specialty steel, and slash the number of work hours required to produce a ton of steel by 60 percent since 1980.

But higher productivity, along with stiff foreign competition and underpricing by overseas firms, has prompted a 60 percent cut in the number of steel workers over the same period.

"These are jobs that allow you to support a family, buy a home, buy a car, educate your children and this way of life is all in jeopardy when this kind of industry is shut down," says George Becker, president of the United Steelworkers of America.

The number of jobs in manufacturing annually rose about 1 percent from 1993 to 1997. Last year, the sector gave up 169,000 jobs, about the same rate as earlier gains, mostly because of the fall in demand from East Asia. During the first half of this year, manufacturing employment shrank at a monthly average of 36,000 jobs, according to the Bureau of Labor Statistics.

GDP for manufacturing from 1992 until 1997 grew 5.2 percent, well ahead of the 3.1 percent growth in the broad economy, according to the US Commerce Department.

Thanks to higher productivity, manufacturing during the period contributed more to GDP than any other sector, says the National Association of Manufacturers in Washington.

Business executives suggest a big threat to the US economy is not dependence on soft, cerebral, post-industrial companies but a shortage of skilled workers.

"We are now employing nearly 3,500 engineers in the United Kingdom, Germany, China, Japan, Taiwan, and Korea because we can't find the people" in the US, says Richard McGinn, chairman of Murray Hill, N.J.-based Lucent Technologies Inc. "It's a long-term problem for us that unless things change will only get worse."

Official forecasts also highlight an imperative for better training. The occupations that grew the most between 1984 and 1994 demanded the highest skills.

For the decade ending 2006, professional jobs will grow 27 percent compared with overall employment growth of 14 percent. The fastest growing occupations, says the Bureau of Labor Statistics, center on computers.

(c) Copyright 1999. The Christian Science Publishing Society

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