Don't Bash Japan: To Compete, Invest

FOR the first time since the Depression, America's role in the world economy is a major election issue. The United States needs jobs. Competition from abroad clearly has been a problem. From the right and the left, political hucksters are responding to this challenge by talking about closing the US to foreign goods and investment. Such simplistic notions would hurt many more American workers than they would help.

Much of the anger, of course, is focused on Tokyo. The Japanese are past masters at shoveling out exports and restricting imports. This creates obvious difficulties all over the world. Japan bashing is as popular in Europe today as it is in the US.

American workers have a similar stake in selling their products overseas. In fact, the US economy is more competitive in the global bazaar than the sound bites on the nightly news would have you believe. America runs neck and neck with Germany as the world's largest exporter. Since 1985, real US exports have risen at an annual rate of over 10 percent.

American producers currently export about 20 percent of their output. The principal items are capital equipment (computers and jet aircraft), industrial supplies and materials, autos, consumer goods, and farm products. If recent trends continue, exports could account for close to 50 percent of output by the year 2000.

Another popular theme in the presidential campaign is a claim that the US is losing good-paying blue-collar jobs. The purported culprits are (a) foreign competition and (b) the long-term shift to services. This notion has about as much validity as the idea that the US can't compete. In fact, the US has neither lost nor gained blue-collar jobs. From 1959 to 1991, the number of nonfarm jobs rose by 56 million. Production workers in the goods sector accounted for only 1.6 percent of this huge gain. Over the

same span, real after-tax income per capita jumped 94 percent. The real value of output by workers in mining, manufacturing, and construction went up 2.4 times.

What has changed is productivity. Real output per production worker in the goods sector was $142,000 in the third quarter of 1991, up from $70,000 in 1959. Since 1982, output per blue-collar worker has gone up at a rate of 2.4 percent. Taking manufacturing by itself, the rate of gain was 3.4 percent.

From these facts, it is plain that gains in US living standards have little or nothing to do with the number of blue-collar jobs. What is important is workers' ability to create valuable products that other people want to buy - at home or abroad.

Conventional wisdom to the contrary, the widely publicized downsizing at General Motors that may eliminate up to 74,000 jobs is not primarily a function of problems in the overall US economy. Rather, it shows deep-seated difficulties inside the nation's largest manufacturer. GM has failed to counter the rapid expansion of the new "transplants new, efficient, and partially nonunion factories built in the US by Japanese firms. In Washington D.C., the reaction to GM's announcement was a call to arms against

the Japanese. Politicians seem to think they can boost the economy and revive GM by restricting auto imports.

Not true. Imports are already dropping. Blocking foreign automakers from selling in the US would tax mostly low-wage consumers to subsidize wages of overpaid auto workers, raise prices, and deprive US buyers of quality products.

Americans will only prosper when they learn to save and invest rather than consume and borrow. Productivity growth in manufacturing has been excellent over the past decade. But overall productivity performance has been poor, economic growth has slowed, and real income per worker has been stagnant.

Improved living standards require increased investment. Increased investment requires increased saving. The principal source of funding for productive investment is corporate cash flow. America has many problems, but none so serious that they cannot be helped with a healthy dose of profits, investment, productivity, and growth. The nation will achieve none of these goals by closing its borders to international commerce.