Barry Bluestone Northeastern University Bozeman, MT September 23, 2004

1. Globalization, International Trade, and Outsourcing: Understanding Economic Growth and Polarization in America25th Anniversary Montana Arbitration and Labor Relations Conference Barry Bluestone Northeastern University Bozeman, MT September 23, 2004

2. Glory Days

3. The Post-War Glory Days1947-1973 • Rapid GDP Growth in the U.S.: • 1950s: 3.9% • 1960s: 4.4% • 1970s: 3.2% • Real Family Income doubles (+104%) • Declining Unemployment • Unemployment Rate declines to 3.8% -- 1966-1969 • Rising Incomes for Most Families

6. Why the U.S. Grew So Fast1947-1973

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

8. Wage & Security-Led Growth • Rise of Collective Bargaining • 36% of American Workforce Unionized • Another 1/3 or so benefit from “sympathetic” pressure • Traditional Workplace Contract • AIF/COLA Wage Formula • “Fringe” Benefits • Seniority System • Grievance System • Work Rules/Job Classifications • Union Security Clause • Management Rights Clause

10. The End of Affluence ….. An Age of Diminished Expectations

11. Declining Growth Rates

12. Rising Unemployment

14. Increasing Income Inequality

15. So Why Did the U.S. Growth Engine Sputter in the 1970s? • Oil Crisis in the 1970s • Business forced to focus on energy efficiency, not new products or new technologies • Corporate Myopia and Arrogance in face of new competition • Little emphasis on productivity, quality, and innovation • Global Competitors stepped in • Imports clobbered the economy

16. Plummeting Productivity

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

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

25. Wall Street Model • Weak Trade Unions kept wages and prices down • Welfare Reform increased labor supply, keeping wages and prices low • Tight monetary policy kept inflation under control and interest rates low • Deficit Reduction/Surplus Generation raised aggregate savings rate, lowering interest rates • Free Trade depressed wages, forced prices down, and kept inflation under control • >>>>>> All leading to a stock market boom and new investment

27. So Who’s responsible for the new economic boom? • Was it BillClinton … who got the deficit under control? • Was it Alan Greenspan… who got inflation under control? • Was it Ronald Reagan … who got government under control? 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 takes a little bit of history to understand America’s new prosperity... Long Lags in Technology/Productivity Cycle

29. Productivity Rebound began in the 1980s

33. New Technologies that spurred Economic Growth • Steam Engine …. 19th C. • Electrification …. Early 20th C. • Integrated Circuit …. Late 20th C. • Computer Hardware • Computer Software • Internet • e-commerce • But each takes decades to impact productivity and growth

34. Where did the new technology come from for the 1990s Boom? • The Missile Race following Sputnik (‘50s/’60s) • The Space Race with Russia (‘60s/’70s) • From Government Spending onDefense to the Private Sector in a Quarter Century • It was hideously expensive, terribly wasteful, but in a peculiar way it paid off decades later So who’s most responsible for U.S. Economic Boom? Nikita Khrushchev

35. Public Sector + Private SectorWorking Together • Federal Government provided Basic Research funds • Local, State, and Federal Government educated and trained a labor force to effectively use the new technology • Private sector converted basic research to applied development .... and productivity soared

36. Public Investment in the 1960s, 1970s, and early 1980s ... • Basic Research • Education (after Sputnik) • Public Infrastructure (Interstate highways, airports, internet) ......PAID OFF IN THE LATE 1990s

37. Since 2000 .....

41. “Democratizing” Unemployment

42. 2.7% 1.75%

43. 2% 1%

44. 1% 0.4%

45. Reagan “Boomlet”

46. .75% .10%

47. Energy Crisis .12% .015%

48. .04% .02%

49. .05% .02%

50. .25% .10%