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One Economist Sees US Productivity Glass as Half Full

NOT all experts on American competitiveness are full of gloom. The prime example is William Baumol, a Princeton University economist, who says: ``Most of the people who say we are doing very badly have only looked at partial evidence. If you probe more deeply, the significance is not what they make of it.''

For example, Professor Baumol admits that the United States productivity growth has fallen dramatically. The average annual growth of productivity was 2.4 percent from 1950 to 1969, 2.1 percent from 1969 to 1973, and only 1 percent since then. But Baumol sees this as a return toward historical rates and a trend shared by other industrial nations. Japanese productivity growth rates have fallen by about the same percentage as those of the US, he notes.

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Further, he cites statistics to indicate that the US share of the total industrial output of the 24 member countries of the Organization for Economic Cooperation and Development has risen, not fallen - from 36 percent in 1973 to 39 percent in 1986.

Richard Lester, executive director of the Massachusetts Institute of Technology's Commission on Industrial Productivity, regards such analysis by Baumol as politically ``not particularly helpful.'' He fears it will ``dull people's incentives to do things which even he may agree have to be done.''

Kent Hughes, president of the Council on Competitiveness, regards Baumol's observations as a ``snapshot'' of America's relative strength. A movie of the last 20 years, he says, would identify one troubling trend after another.

Baumol counters: ``I am careful not to claim that there is any guarantee that the Japanese will stay behind us. The Japanese are doing relatively well and catching up. The Germans and the French are falling behind. But we are No. 1 in manufacturing for the moment. Yes, we should worry. But we should not get hysterical.''

Baumol also points out that the US economy is not ``deindustrializing'' more than other industrial nations. ``We are turning into a service economy,'' he says. This is the ``same phenomenon'' that occurred earlier when those engaged in farming declined from 90 percent of the US population in the 1800s, barely feeding the US, to 2.5 percent now, producing huge surpluses.

Indeed, US labor is moving into services less rapidly than its trading partners. While the US ratio of services to industry employment grew 10 percent between 1965 and 1980, West Germany's rose 19 percent, and Japan's climbed 31 percent, says Baumol.

There is no question that the US has lost its competitive edge in some industries, such as consumer electronics, automobiles, and steel, he says. ``But look at how many industries there are in which we still lead.'' The Japanese divide industry into 13 groups. Of these, they lead in three, the Germans in one, and the US in nine, says Baumol.

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Fred Branfman, director of Rebuild America, is not impressed. He cites statistics compiled by DRI/McGraw-Hill which show that Japan out-invested the US in plant and equipment by $36 billion in 1989, and is projected to out-invest the US by $60 billion this year.

``This is the greatest crisis since the Great Depression,'' he says.

A Commerce Department study released earlier this year, Mr. Branfman says, indicates that in competition with Japan in 12 emerging technologies, the US is ``losing badly'' in four, ``losing'' in six, ``holding'' in two, and gaining in zero.

Baumol himself advocates that the US take action to boost productivity to keep it No. 1. If the US does not exceed its historical productivity growth, five other countries (Japan, Germany, Austria, France, and Norway) could have a higher output per capita by 2020, he calculates.

First, he urges, the US should start doing a better job of educating the children of minority groups. Most have lower than average performance in standard tests.

``They will constitute 50 percent of the labor force in a short time,'' he notes. ``We owe it to them and to ourselves.''

Second, he maintains that the US is not doing ``nearly enough'' to facilitate and encourage the adoption of technology from abroad. Most countries do try to help their own industries keep abreast of foreign technological developments. ``We do virtually nothing,'' he says. Yet much technology is being advanced in the other nearly two dozen industrial democracies, including Japan.

Third, Baumol suggests that there be some restraint on nonproductive activities, such as the multiplication of lawsuits and growth in financial manipulation. The time and the talent invested in these activities constitute a drain on the stock of productive entrepreneurial talent available to the economy, he contends.

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