Chapter 7
II. Table 1 shows index numbers for real GDP per capita for nine
major countries: U.S., Canada, Japan, Belgium, France, W. Ger¬ many, Italy, the Netherlands and the U.K. The data are indexed to 1967 = 100. Among these countries, the U.S. and the U.K. are at the bottom in growth. The growth rate summary in Table 2A shows a general deceleration of growth in the industrial world from 1950 to 1978, with the U.S. growth rate consistently lower than the others.
119
TABLE 1: REAL GROSS DOMESTIC PRODUCT PER CAPITA, OWN COUNTRY PRICE WEIGHTS
(Index: 1967= 100)
Critical Issues & Decisions
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Critical Issues & Decisions
Tables 2B and 3 show index numbers and the growth rate sum¬ mary for real GDP per employed worker, which is a measure of productivity. The U.S. growth rate in productivity is relatively slower than in GDP per capita. The productivity slowdown of the 1970s is obvious in Table 2B. Compare the rows for 1960-73 and 1973- 79. Productivity growth is markedly slower in the latter period in all of the countries shown. Belgium, France, Germany, and the Nether¬ lands show the smallest decrease. The U.S. productivity growth fell from 2.1 percent per year in the earlier period to 0.3 percent per year in 1973-79.
Tables 1 through 3, as well as the additional data on manufactur¬ ing productivity in Branson (1980), document the fact that U.S. growth in output and productivity in manufacturing since 1950 has been slower than that of the other major industrial countries. This is the case even before adjustment for the major movements in exchange rates and the terms of trade in the 1970s.
Shares of World Manufacturing Output— Calculation of shares of world manufacturing output is difficult because we have little good data for the computations. We can, however, calculate the share of a given country of the total output of a group of industrial countries known to produce perhaps 90% of the world total. Table 4 shows shares of total manufacturing output across ten major OECD countries since 1950. The method of calculation used was to convert real out¬ put by country to a common valuation using the 1967 exchange rate. The implicit assumption in this calculation is that the trend in nom¬ inal exchange rates followed relative price movements. A second way to perform the calculation would have been to use nominal output data and convert them at current exchange rates. If the assumption that exchange rates follow movements in relative prices is correct, the two calculations would be the same. But if the assump¬ tion is incorrect, the nominal cum current exchange rate calculation will distort the share data.
In Table 4 we see that the U.S. share of major industrial countries' total manufacturing output shrank from 62% in 1950 to 44% in 1977. Europe gained shares in the 1950s and 1960s, and Japan gained since 1 955.
The share data of Table 4 omit manufacturing output in the developing countries, including the Southern European OECD.
121
OWN COUNTRY PRICE WEIGHTS (Average Annual Percent Change)
Critical Issues & Decisions
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2Excluding the Saar and West Berlin in 1950 and 1955.
Employment figures for the Netherlands are Dutch estimates of work-years of employed persons.
Note: A verage annaul percentage changes are compound rates. Source: Department of Labor
Critical Issues & Decisions
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2Excluding the Saar and West Berlin in 1950 and 1955.
Employment figures for the Netherlands are Dutch estimates of work-years of employed persons.
Source: Department of Labor
Critical Issues & Decisions
TABLE 4
SHARES OF TOTAL MANUFACTURING OUTPUT IN TEN INDUSTRIAL COUNTRIES
1950-1970
COUNTRIES
1950
1955
Share of Total, %
1960 1965
1970
1975
1977
u.s.
61.9
58.1
50.5
50.1
43.6
42.5
44.0
Canada
3.5
3.4
3.3
3.5
3.4
3.7
3.6
Japan
2.1
3.5
6.3
8.0
13.1
13.2
13.4
Denmark
0.7
0.5
0.6
0.6
0.7
0.7
0.7
France
7.6
7.1
8.1
8.1
8.9
9.8
9.6
Germany
10.1
14.1
17.2
16.7
17.2
16.5
16.0
Italy
2.2
2.5
3.1
3.1
3.7
4.3
4.3
Netherlands
1.8
1.9
2.2
2.1
2.3
2.3
2.2
Sweden
2.0
1.7
1.9
1.9
1.9
2.0
1.6
U.K.
8.2
7.2
6.9
5.9
5.3
4.9
4.5
Source: Department of Labor
Critical Issues & Decisions
A major development of the 1970s, however, has been growth of output in the "newly industrializing" LDCs (NICs). This has brought them into competition with the industrialized countries in markets for manufacturing, thus raising fears of a "new protectionism."
B. Trends in Competitiveness
With manufacturing capacity and output growing relatively rapidly in Europe, Japan, and the LDCs, a significant improvement in U.S. competitiveness would have been required to hold the U.S. share of world markets. During the period from 1950 to 1970, in general, U.S. costs relative to those of its competitors, adjusted for exchange rate changes, did not decline. The result was a shrinking U.S. share of world trade in manufactures. After 1970, the deprecia¬ tion of the U.S. dollar improved U.S. competitiveness by about 23% (1970-79), and the U.S. share of world manufactures exports stabilized at about 13%.
Table 5 shows a measure of U.S. competitiveness-the ratio of U.S. to a trade-weighted average of 14 competitors' unit labor costs, adjusted for exchange rate changes. This is an index of cyclically- adjusted relative "normal" unit labor cost, computed by the IMF. In Table 5, we see a small improvement in the mid-1960s, which was eliminated by 1969 when the index stood at 151.2 compared with 152.6 in 1961. Then the depreciation of the dollar beginning with the German float of 1969 brought relative unit labor cost down to 100 by 1975 and to 93.0 by 1979.