Globalization international trade

1. Globalization, International Trade,Globalization, International Trade,
and Outsourcing: Understandingand Outsourcing: Understanding
Economic Growth and Polarization inEconomic Growth and Polarization in
AmericaAmerica
25th Anniversary Montana Arbitration and Labor25th Anniversary Montana Arbitration and Labor
Relations ConferenceRelations Conference
Barry BluestoneBarry Bluestone
Northeastern UniversityNortheastern University
Bozeman, MTBozeman, MT
September 23, 2004September 23, 2004

2. 0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%AverageAnnualGrowth
1800-1840
1840-1870
1870-1890
1890-1913
1913-1929
1929-1939
1939-1949
1949-1959
1959-1969
1969-1979
1979-1989
1989-1995
4.2%
5.1%
4.5%
4.1%
2.9%
0.1%
4.5%
3.9%
4.4%
3.2%
3.0%
2.3%
Long-Term Real GDP Growth in the
United States 1800-1995
Sources: David (1800-1840); Gallman (1840-1870); Maddison (1870-1929); CEA 1987 (1929-59);
Indicators" (1989-2000)
D
E
P
R
E
S
S
I
O
N
WW II
Glory Days

3. ThePost-War Glory Days
1947-1973
 RapidRapid GDP GrowthGDP Growth in the U.S.:in the U.S.:
 1950s:1950s: 3.9%3.9%
 1960s:1960s: 4.4%4.4%
 1970s:1970s: 3.2%3.2%
 RealReal Family IncomeFamily Income doublesdoubles (+104%)(+104%)
 Declining UnemploymentDeclining Unemployment
 Unemployment Rate declines toUnemployment Rate declines to 3.8%3.8% ----
1966-19691966-1969
 Rising Incomes forRising Incomes for Most FamiliesMost Families

4. $6.50
$7.00
$7.50
$8.00
$8.50
$9.00
59 64 69 74 79 84 89 94 99 4
Real Average Hourly Earnings
Total Private Sector ($1982)
1972
1982
1993
2003
1959
1972-93
- 16%
1993-03
+ 10%
1959-72
+ 34%

5. 0%
1%
2%
3%
4%
AnnualPercentChange
Lowest 20%
Lower Middle
Middle
Upper Middle
Top 20%
3.0%
2.6% 2.7% 2.7%
2.4%
How U.S. Family Income G
1947-1973

6. Why theU.S. Grew So
Fast
1947-1973

7. Y= C+I+G+X-M
 Consumer BoomConsumer Boom
 Pent up Savings & Pent up DemandPent up Savings & Pent up Demand
 Union collective bargaining gainsUnion collective bargaining gains
 Investment BoomInvestment Boom
 Conversion to Civilian ProductionConversion to Civilian Production
 Government Spending BoomGovernment Spending Boom
 State & Local Spending on Urban Renewal,State & Local Spending on Urban Renewal,
New Suburbs, New RegionsNew Suburbs, New Regions
 Cold WarCold War
 Export BoomExport Boom - Marshall Plan- Marshall Plan
 Import ImplosionImport Implosion - Legacy of WWII- Legacy of WWII

8. Wage & Security-Led Growth
 Rise of Collective Bargaining
 36% of American Workforce Unionized36% of American Workforce Unionized
 Another 1/3 or so benefit from “sympathetic”Another 1/3 or so benefit from “sympathetic”
pressurepressure
 Traditional Workplace Contract
 AIF/COLA Wage FormulaAIF/COLA Wage Formula
 ““Fringe” BenefitsFringe” Benefits
 Seniority SystemSeniority System
 Grievance SystemGrievance System
 Work Rules/Job ClassificationsWork Rules/Job Classifications
 Union Security ClauseUnion Security Clause
 Management Rights ClauseManagement Rights Clause

9. Consumption
Public
Sector
Demand
Stimulus
Pent-up
Demand
Pent-up
Savings
Investment
Productivity
Growth
Output
Growth
Wage &
Benefit
Growth
Virtuous
Cycle
Union
Collective
Bargaining
Gains
Technological
Innovation
ThePostWorldWarII
VirtuousCycle
Growth in
LaborSupply
Federal
R&D
Spending

10. TheEnd of Affluence…..
AnAgeof Diminished
Expectations

11. 0%
1%
2%
3%
4%
5%
AverageAnnualGrowthRate
1959-1969 1969-1979 1979-1989 1989-1995
4.4%
3.2%
3.0%
2.3%
Revised GDP Growth Rates
1959-1995
Declining Growth Rates

12. 3.0%
4.0%
5.0%
6.0%
7.0%
8.0%AnnualUnemploymentRate
1960s 1970's 1980's
5.3%
6.2%
7.3%
Average Unemployment Rate
United States 1960-1989
Source: Bureau of Labor Statistics, Handbook of U.S. Labor Statistics
Rising Unemployment

13. $6.50
$7.00
$7.50
$8.00
$8.50
$9.00
59 64 69 74 79 84 89 94 99 4
Real Average Hourly Earnings
Total Private Sector ($1982)
1972
1982
1993
2003
1959
1993-03
1972-93
- 16%

14. -1%
0%
1%
2%
AnnualPercentChange
Lowest 20%
Lower Middle
Middle
Upper Middle
Top 20%
-0.6%
-0.2%
0.2%
0.5%
1.3%
How Family Income Grew
1973-1995
Source: U.S. Department of Labor
Increasing Income Inequality

15. So Why Did theU.S. Growth Engine
Sputter in the1970s?
 Oil CrisisOil Crisis in the 1970sin the 1970s
 Business forced to focus onBusiness forced to focus on energy efficiencyenergy efficiency,,
not new products or new technologiesnot new products or new technologies
 Corporate MyopiaCorporate Myopia andand ArroganceArrogance in face of newin face of new
competitioncompetition
 Little emphasis onLittle emphasis on productivity, quality, andproductivity, quality, and
innovationinnovation
 Global CompetitorsGlobal Competitors stepped instepped in
 ImportsImports clobbered the economyclobbered the economy

16. 0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5% AverageAnnualGrowth
1949-1959 1959-1969 1969-1973 1973-1979 1979-1989 1989-1995
3.4%
3.1% 3.1%
1.3%
1.2%
1.1%
Labor Productivity Growth
1949-1995
1949-1973 1973-1995
Plummeting
Productivity

17. TrumanEisenhower KennedyJohnson Nixon FordCarter
2%
4%
6%
8%
10%
12%
14%
16%
Percent
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
Imports as % of GDP
Reagan BushClinton
1929 Import/GDP Ratio
Bush W.

18. TrumanEisenhower KennedyJohnson Nixon FordCarter
-500
-400
-300
-200
-100
0
100
$billions
4749515355575961636567697173757779818385878991939597990103
YEAR
U.S. Trade Balance
Exports - Imports (Goods)
Reagan BushClintonBush W.

19. So Why Did Inequality Explode?
 Skilled-Biased Technological Change
 Rise of Service-based Economy
 Industry Deregulation
 Declining Unionization
 Lean Production & Destruction of Job Ladders
 “Winner-Take-All” Labor Markets
 Growing International Trade
 Outsourcing & Capital Mobility
 Immigration
 Trade Deficits

20. Surprise, Surprise!
Prosperity Regained …
1995-2000

21. 0%
1%
2%
3%
4%
5%
AverageAnnualGrowthRate
1959-19691969-19791979-19891989-19951995-1999
4.4%
3.2%
3.0%
2.3%
4.5%
Revised GDP Growth Rates
1959-1999:III

22. 2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
AnnualUnemploymentRate
1960s 1970's 1980's 1990-95 1996-98
5.3%
6.2%
7.3%
6.4%
4.9%
Average Unemployment Rate
United States 1960-1998(II)
Source: Bureau of Labor Statistics, Handbook of U.S. Labor Statistics

23. $6.50
$7.00
$7.50
$8.00
$8.50
$9.00
59 64 69 74 79 84 89 94 99 4
Real Average Hourly Earnings
Total Private Sector ($1982)
1972
1982
1993
2003
1959
1959-72
1972-93
- 16%
1993-03
+ 10%

24. So Why did theU.S. Grow
Again?
The New Conventional Wisdom:The New Conventional Wisdom:
The Wall Street ModelThe Wall Street Model

25. Wall Street ModelWall Street Model
 Weak Trade UnionsWeak Trade Unions kept wages and prices downkept wages and prices down
 Welfare ReformWelfare Reform increased labor supply, keeping wagesincreased labor supply, keeping wages
and prices lowand prices low
 Tight monetary policyTight monetary policy kept inflation under control andkept inflation under control and
interest rates lowinterest rates low
 Deficit Reduction/Surplus GenerationDeficit Reduction/Surplus Generation raised aggregateraised aggregate
savings rate, lowering interest ratessavings rate, lowering interest rates
 Free TradeFree Trade depressed wages, forced prices down, anddepressed wages, forced prices down, and
kept inflation under controlkept inflation under control
 >>>>>>>>>>>>
All leading to a stock market boom andAll leading to a stock market boom and
new investmentnew investment

26. Rising
Stock
Prices
Subdued
Inflation
Increased
Wealth
Increased
Spending
Output
Growth
Increased
Corporate
Profit
Virtuous
Cycle
Technological
Innovation
Wall Street
Virtuous Cycle
Increased
Capital
Investment
Improved
Productivity
Subdued
Inflation
Falling
Interest
Rates
Falling
Interest
Rates
Increased
Savings
Increased
Savings

27. So Who’sresponsiblefor thenew
economic boom?
 Was itWas it BillBill ClintonClinton … who got the deficit under… who got the deficit under
control?control?
 Was itWas it Alan GreenspanAlan Greenspan … who got inflation under… who got inflation under
control?control?
 Was itWas it Ronald ReaganRonald Reagan … who got government under… who got government under
control?control?
Answer:Answer:
None of the above ....
Despite all the ballyhoo, the Wall Street Model
does NOT explain the U.S. boom in the late
1990s

28. It takesalittlebit of
history to understand
America’s
new prosperity...
Long LagsinLong Lagsin
Technology/Productivity CycleTechnology/Productivity Cycle

29. 0%
1%
1%
2%
2%
3%
3%
4%
AverageAnnualGrowthRate
1949-19591959-19691969-19731973-19771977-19811981-19891989-19931993-1999
3.4%
3.1% 3.1%
1.5%
0.8%
1.6%
1.7%
2.1%
Revised Productivity Growth St
1949-1999:III
Productivity Rebound
began in the 1980s

30. 1
1.5
2
2.5
3
3.5
4
4.5
Productivity
1 8 15 22 29 36 43 50 57 64 71 78
Time
"Learning Curves"
Introduction of New Technologie
Technology
Release 1.0
Technology
Release 2.0
Technology
Release 3.0
Actual Productivity Trend
- - - - - - - - - - -

31. 0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
LaborProductivityGrowthin%
1660 1680 1700 1720 1740 1760 1780 1800 1820 1840 1860 1880
Productivity Growth during the
British Industrial Revolution
0.4%
0.2%
0.5%
1.1%
"Initial" Phase
"Diffusion/Learning"
Phase
"Mature"
Phase
"Pre-Revolution" Phase
Source: Adapted from Jeremy Greenwood, 'The Third Industrial Revolution"
Figure 3.4

32. 0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
LaborProductivityGrowthin%
180018051810181518201825183018351840184518501855186018651870
Productivity Growth
during the U.S. Antebellum Perio
0.63%
0.30%
1.40%
"Diffusion/Learning"
Source: Adapted from Jeremy Greenwood, "The Third Industrial Revolution"

33. New Technologiesthat spurredNew Technologiesthat spurred
Economic GrowthEconomic Growth
 Steam EngineSteam Engine …. 19th C.…. 19th C.
 ElectrificationElectrification …. Early 20th C.…. Early 20th C.
 Integrated CircuitIntegrated Circuit …. Late 20th C.…. Late 20th C.
 Computer HardwareComputer Hardware
 Computer SoftwareComputer Software
 InternetInternet
 e-commercee-commerce
 But each takes decades to impactBut each takes decades to impact
productivity and growthproductivity and growth

34. Wheredid thenew technology come
from for the1990sBoom?
 The Missile RaceThe Missile Race following Sputnik (‘50s/’60s)following Sputnik (‘50s/’60s)
 TheThe Space RaceSpace Race with Russia (‘60s/’70s)with Russia (‘60s/’70s)
 FromFrom Government Spending onGovernment Spending on Defense to theDefense to the
Private SectorPrivate Sector in a Quarter Centuryin a Quarter Century
 It was hideously expensive, terribly wasteful, butIt was hideously expensive, terribly wasteful, but
in a peculiar way it paid off decades laterin a peculiar way it paid off decades later
So who’smost responsiblefor U.S. Economic Boom?
NikitaKhrushchev

35. Public Sector + PrivateSector
Working Together
 Federal GovernmentFederal Government provided Basicprovided Basic
Research fundsResearch funds
 Local, State, and Federal GovernmentLocal, State, and Federal Government
educated and trained a labor force toeducated and trained a labor force to
effectively use the new technologyeffectively use the new technology
 Private sectorPrivate sector converted basic research toconverted basic research to
applied developmentapplied development
.... and productivity soared.... and productivity soared

36. Public Investment in the1960s,
1970s, and early 1980s ......
 Basic ResearchBasic Research
 Education (after Sputnik)Education (after Sputnik)
 Public Infrastructure (InterstatePublic Infrastructure (Interstate
highways, airports, internet)highways, airports, internet)
............PAID OFF IN THE LATE 1990sPAID OFF IN THE LATE 1990s

37. Since 2000 .....

38. -200
-100
0
100
200
300
(inthousands)
Hoover
Roosevelt-Truman
Eisenhower
Kennedy-Johnson
Nixon-Ford
Carter
Reagan-Bush
Clinton
Bush W.
-177.3
89.5
33.5
168.1
117.6
210.6
196.5
235.4
-93.6
Monthly Net Job Growth
from Truman to George W. Bush

39. 0
5
10
15
20
25
30
Months
1953-541957-581960-611970-711974-751981-821990-91 2001-
Months of Continous LossMonths of Year-over-Year Los
Duration of Job Loss
Recession Years 1947-2003
?

40. -2
0
2
4
6
8
10
PercentChange
2001 2002 2003:I 2003:II 2003:III
0.3
2.4
1.4
3.3
7.2
1.9
5.4
2.1
7.0
8.1
-1.3
-0.4
-0.1 -0.1
0.1
Real GDP ProductivityEmployment
Growth, Productivity, & Employm
2001-2003:III

41. 0%
1%
2%
3%
4%
5%
6%
7%
Early 1980s' Recession
Early 1990s' Recession
Early 2000s' Recession
6.0%
3.2%
2.0%
4.6%
1.9%
2.1%
3.3%
1.9%
2.3%
1.5%
1.0%
1.4%
Less than High School GradHigh School Grads Some College College Grads
Percentage Point Chan
in Unemployment Rate
“Democratizing” Unemployment

42. Federal Outlays for Physical Capital, Research and Development, and
Education and Training: As a % of GDP
1.5
1.75
2
2.25
2.5
2.75
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Year
%ofGDP
2.7%
1.75%

43. Federal Outlays For Research and Development
As a % of GDP
0.5
0.75
1
1.25
1.5
1.75
2
2.25 1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Year
%ofGDP
2%
1%

44. Federal Outlays for Non-Defense R&D
As a % of GDP
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
Year
%ofGDP
1%
0.4%

45. Federal Outlays for Research and Development in National Defense
As a % of GDP
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
Year
%ofGDP
Reagan “Boomlet”

46. Federal Outlays For General Science R&D
As a % of GDP
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
Year
%ofGDP
.75%
.10%

47. Federal Outlays for Energy R&D
As a % of GDP
0.00%
0.02%
0.04%
0.06%
0.08%
0.10%
0.12%
0.14%
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
Year
%ofGDP
Energy Crisis
.12%
.015%

48. Federal Outlays for Transportation R&D
As a % of GDP
0.01%
0.02%
0.03%
0.04%
0.05%
0.06%
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
Year
%ofGDP
.04%
.02%

49. Federal Outlays for Natural Resources and Environment R&D
As a % of GDP
0.01%
0.02%
0.03%
0.04%
0.05%
0.06%
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
Year
%ofGDP
.02%
.05%

50. Federal Outlays for Health R&D
As a % of GDP
0.05%
0.10%
0.15%
0.20%
0.25%
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
Year
%ofGDP
.25%
.10%

51. A Model of Growth for the
21st Century

52. Regaining and Sustaining
Prosperity
 Quick stimulus in short runQuick stimulus in short run
 Public investment in basic research,Public investment in basic research,
education, homeland security, andeducation, homeland security, and
infrastructure in the long runinfrastructure in the long run

53. Restoring Social Equity
 Higher Minimum WageHigher Minimum Wage
 Labor Law Reform to Foster UnionizationLabor Law Reform to Foster Unionization
 Fair TradeFair Trade
 Invest in Public SchoolsInvest in Public Schools
 Universal Health Care CoverageUniversal Health Care Coverage
 Expand Public Goods (e.g. Transportation,Expand Public Goods (e.g. Transportation,
Day Care, Elder Care)Day Care, Elder Care)

54. Consumption
Federal
Reserve
Policy
Investment
Productivity
Growth
Output
Growth
Wage &
Benefit
Growth
Virtuous
Cycle
Union
Collective
Bargaining
Gains
Technological
Innovation
21st Century
Main Street Model
Virtuous Cycle
Growth in
Enhanced Labor
Supply
Increased
Minimum
Wage
Public
Investment in
R&D
Public
Investment in
Infrastructure
Public
Investment in
Education &
Training