In the U.S. Economy, Another Productive Change
The outlook for the U.S. economy this July 4 weekend seems decidedly uncertain, with the dollar bedraggled, financial markets in turmoil and officials in Washington lost in confusion.
But as in ages past, the real story lies beneath the surface, where healthy and historic trends continue.
The economy is undergoing changes so numerous and unusual that we can’t fully measure or explain them all just yet. Does it mean anything, for example, that there are more than 100 million computers in American workplaces and homes? That the complex “information” business of microchips, software, computers and communications is headed for $850 billion in worldwide sales next year and $1 trillion in 1996--making information bigger than autos and steel? That U.S. business will invest $275 billion in information technology this year, 45% of all its spending on plant and equipment?
This pattern has occurred before, in the decades after the Civil War, a time of great uncertainty and furious activity that is called the Gilded Age. The 1870s featured the Panic of 1873, a four-year depression, the collapse of U.S. greenback currency and a confused, even corrupt government under President Ulysses S. Grant.
Yet in that decade the U.S. economy tripled the mileage of its railroads, and it doubled it again in the 1880s. Railroad investment rose 1,000% to $10 billion and on to $20 billion by the 1890s.
The spread of the railroads made for great beginnings and painful losses: It created the cattle business, encouraged big agriculture but led to a fall in crop prices that displaced farmers, spurred the rise of cities and the surge of industry. You could go by rail from Kansas City to Los Angeles for $8--and people went.
What are the signs of this new age? New businesses are starting. Dun & Bradstreet reports that 706,000 new U.S. companies incorporated in 1993, up from 666,806 the year before and the greatest number since D&B; began keeping such records in 1979.
The surge reflects in part the downsizing of big companies and the farming out of tasks to smaller outfits that can do the work thanks to personal computers and workstations. If office employees and middle managers have been displaced, opportunity has also opened up for people who didn’t have it in former times.
“Women-owned businesses are on the rise,” says Prof. Judy Rosener of the University of California at Irvine, author of the forthcoming book “America’s Productivity Secret: Women.”
“Venture capital funds and banks are lending to women where they never did before,” she says.
Is that why interest rates are going up--demand for loans from new businesses? No, new businesses, doing more for less expense, are a big reason that interest rates remain relatively low.
Productivity is rising in America in the ‘90s, just as it rose in the 1870s. The steel mill that turns out finished steel from scrap, with the aid of computerized furnaces, represents productivity. The network that supplies abstracts of technical information instantly and efficiently to engineers and scientists, physicians and attorneys, represents productivity.
That’s why the economy really doesn’t have an inflation problem even though growth is brisk. “The computer stretches capital,” says William Finan, an economist at Technecon Analytic Research, a Washington consulting firm.
New ages tend to bring surprises. One company supplying scientific abstracts, and an example of the new age, is a 96-year-old bookbinding firm named H.W. Wilson Co., which has made its home since 1914 in a now-distressed area of New York’s South Bronx called Highbridge.
The Wilson company has been renewed by information technology. In the early ‘80s, it began putting its abstracts of technical articles and indexes for libraries--Wilson publishes the library standard Reader’s Guide to Periodical Literature--on computer disks. It has moved on to CD-ROMs and on-line services, expanding its business and its work force to 500 employees.
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And one of the networks transforming U.S. business, CompuServe, is also bringing a surprising distinction to Columbus, Ohio. The United Nations is designating global trade points in every country, choosing cities capable of becoming trade counselors to small and medium-sized companies.
And the U.S. trade point city is going to be Columbus, which even though landlocked boasts of information resources, including CompuServe--a subsidiary of the tax preparer H&R; Block--as well as Battelle Memorial Institute, which did the electrostatic copier research that launched Xerox, and Ohio State University.
In another age, Ohio cities boasted of steel; now it’s information.
Where will this new age take the U.S. economy? In the 19th Century, after the railroads opened up the country and reduced the cost of shipping, big industry emerged--the consolidation of the steel business in the 1890s, the birth of the automobile industry in the 1900s.
Today, the computer and communications industry, while transforming manufacturing and services, is still growing itself. Seven of the 10 fastest-growing companies on Inc. magazine’s annual list of 100, are network and software firms--and the other three, a retailer, a restaurant chain and a maker of medical devices, are made possible by advances in information technology.
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In the next century, information industries will map the makeup of the Earth and stars, explain the human body and perhaps the mind.
There are voyages ahead, and what we see today are good beginnings, just as 218 years ago some guys in Philadelphia made a great beginning.
New and Gilded Ages
The spread of railroads in the Gilded Ages of the 19th Century underlay great changes in America. And the dramatic spread of personal computers in the New Age 1980s and ‘90s is having a similarly profound effect.
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RAILROAD MILEAGE
in thousands:
1900: 258.8
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PERSONAL COMPUTERS SOLD
in millions
1992: 38.8
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Source: Historical statistics of the United States; DataQuest
