BUSINESS

An economic giant awakes

The U.S. recession is finally becoming history

CARL MOLLINS March 28 1994
BUSINESS

An economic giant awakes

The U.S. recession is finally becoming history

CARL MOLLINS March 28 1994

An economic giant awakes

BUSINESS

The U.S. recession is finally becoming history

CARL MOLLINS

When Apple Computer Inc. launched its high-speed Power Macintosh personal computers last week from its head office in Cupertino, Calif., it did so with a powerful investment of confidence in the accelerating U.S. economy. The company also demonstrated its belief that American business buoyancy will help to refloat the laggard economies of U.S. trading partners, Canada among them, which are also targets of Apple’s sales drive. Company executives say that the timing of the launch was governed primarily by “the engineering cycle”—the market readiness of the Power Macs after three years of development. But an advertising campaign to promote the new product at a multimillion-dollar cost (Apple declines to be more specific) reflects the torrid pace of the U.S. market’s recovery, says Frank O’Mahony, manager of Apple’s corporate public relations. “We wouldn’t have swung at it so strongly,” O’Mahony said in an interview, “had we not felt that the market could sustain this kind of campaign.”

REPORT FROM WASHINGTON

That high-priced vote of confidence is just one indicator among a spate of recent signals that the world’s biggest and most influential economy is surfacing at last from the undertow that followed the 1990-1991 U.S. recession. In quick succession, federal economy watchers reported strong growth in production in the final three months of 1993 (at a real annual rate of 7.5 per cent) and, after a flurry of worry about potential inflation, they found comforting signs: a modest annual increase of 2.5 per cent in February consumer prices along with indications of firm but more moderate expansion of the national economy early this year. On the eve of last week’s seven-nation Detroit summit on employment, President Bill Clinton boasted in a radio address that “America is doing the best job of creating new jobs, and we should be proud.” Even so, some economic Cassandras have provoked debate by pointing to stubborn unemployment, rising poverty and what they denounce as a misdirected U.S. policy to fault foreign trade partners for much of what still ails America.

Even Clinton concedes that “too many Americans haven’t yet felt the benefits of recovery.” Chief among those are the army of 8.5 million people (6.5 per cent of the labor force in February) who lack jobs and millions more in parttime and low-wage work. Although the number of employed Americans has grown in a year by

about two million to exceed 122 million, the President’s Council of Economic Advisers observed in a report to Congress last month that “there has been widespread concern about the pace of job growth.” From the time that the U.S. recession technically ended three years ago to the end of 1993, the council reports, employment grew by barely more than two per cent. That contrasts with a pace of more than 10 per cent in employment growth I during the same length of time following the 1981-1982 recession and an average expansion of 8.8 per cent in the same time span following the seven previous slumps. Total pro■ duction in the current post-recession period I expanded at little more than half the average I rate in previous recoveries. But the council I concludes that the pace of job creation should accelerate with a higher growth rate in pro! ductive output this year.

subsidiary of Northern Telecom of Canada from competing for sales in Saudi Arabia.

Criticism of Washington’s trade policy towards U.S. trading partners is directed from both the conservative and liberal wings of U.S. politics. It has been attacked on one hand by Wall Street Journal editorialists as an unjustified approach that incurs the danger of a trade war. It is assailed on the other hand by people who, like Heilbroner, are disillusioned with Clinton’s economic policies after supporting a new President who committed himself at the outset to “bold experimentation” in government and “to shape change, lest it engulf us.” The most sweeping assault is delivered in a just-published book, Peddling Prosperity, by Paul Krugman, an economics expert at the Massachusetts Institute of Technology and currently a visiting professor at Stanford University in California. Krugman marshals the lessons of economic history and assessments of current and recent U.S. policies in an argument against Clintonomics, and he characterizes several Clinton administration figures as disappointments who “delivered the policies of a great and sophisticated nation repeatedly into the hands of the peddlers of economic snake oil.”

He lumps them together with Clinton as “strategic traders,” people who contend that the practice of economic management has been transformed by the programs to meet “global competitiveness.” Globalization is as old as 19thcentury Britain’s mercantilism, Krugman observes, and he dismisses the idea that competition among countries 2 in trade is crucial “or even means any§ thing.” But the notion may lead to a § trade war, he warns, and in a passage I written 10 months ago conjures up an ° imaginary dispute between the U.S. and Japanese governments that uncannily foretells the dispute that developed last month. “Ultimately, the rhetoric of competitiveness will be destructive,” Krugman predicts, “because it can all too easily lead to bad policies and to a neglect of real issues.”

The real issues are essentially domestic, Krugman argues, and they involve inadequate productivity growth and one consequence, poverty. Everything else is of secondary importance, including the budget deficit, while “America’s alleged problem of international competitiveness is almost completely a non-issue.” The economist concedes that nobody knows how to cure the central problems. But he proposes a series of steps that include higher taxes, the elimination of business subsidies, serious reform of health care and a series of improved public-assistance programs for the poor.

Krugman’s ideas would not assure Apple of meeting the target of its current campaign, which is to double its share of the global computer market to 20 per cent in two years. But Apple, like its major competitors and other corporations competing abroad, at least has the wherewithal to make a good try. □

as part of a pattern whereby most growth is in business, finance and personal service industries. Services already employ about threequarters of the workforce in the United States, as well as in Canada and other advanced economies. But the council rejects a common contention that much of the new or recently regained employment is in “bad jobs”—low-paying and temporary work in such services as retail shops and restaurants—instead of in such “good jobs” as manufacturing. It says that almost half of the added U.S. employment in 1993 occurred in managerial and professional occupations.

Heilbroner, who argued in his radio series and in a published version of it that governments must police capitalism to preserve its benefits and protect society against its excesses, said in an interview last week that the Clinton administration should act to relieve the damage done by the restructuring of the econ-

Still, what worries critics of federal policy is

that, despite the promise of new retraining programs and longterm plans to improve basic education, little is being done for people shut out of the economy by revolutionary changes in its structure. Those changes result from a steady shift towards white-collar work, as well as the labor-saving automation by computers of both the new service industries and what remains of traditional goods-making employment. And that is why, says economist Robert Heilbroner, a professor at the New School for Social Research in New York City, ‘There is a recovery, but we’re not getting anywhere.”

A central problem, says Heilbroner, who delivered CBC Radio’s Massey Lectures on ‘Twenty-first Century Capitalism” in late 1992, is “structural unemployment and automation.” Indeed, the President’s council reports, for example, that U.S. manufacturing employment continued to shrink last year by 180,000 jobs,

omy. What is needed, he said, is a major national program on the scale of Franklin Roosevelt’s New Deal during the Great Depression of the 1930s. Along with organizing a system to deal with “the undereducation of the American workforce,” he said, “there should be government spending on infrastructure”—the construction and renovation of transport and communications systems and other make-work projects.

That viewpoint finds many foes in official Washington. The Democrat Clinton, like his Republican predecessors in the White House, is committed to reduce the federal budget deficit and curb federal activity. He is also determined to reduce the U.S. deficit in international trade, by strong-arm methods if necessary. He demonstrated that in a public showdown with Japan last month, and in his revival of a provision to impose sanctions on any country judged to be trading unfairly by U.S. standards. Canadian exporters have felt the blunt end of Clinton’s policy in American efforts to curb imports of lumber and wheat, and in a Washington ruling last week to inhibit a U.S.