Barry Bluestone and Bennett Harrison's Growing Prosperity
Baker, Dean
BARRY BLUESTONE and Bennett Harrison* are two icons that progressive economists of my generation looked to for inspiration. Their 1982 book, The Deindustrialization of America, was mandatory...
...If the GDP growth rate fell by one percentage point because people chose to take part or all of the benefits of higher productivity in the form of more vacation and shorter workweeks, there is no reason that we should be troubled by this growth slowdown...
...More than 30 percent of firms in a recent Federal Reserve Board Survey reported paying some part of their workforce with stock options...
...On the supply side, the failure of the federal government to invest adequately in infrastructure, research and development, and education and training risks cutting off the basis of the current prosperity...
...Only after the crash will it be possible to determine the extent to which the financial system is crippled...
...The big gainers in the Wall Street Model are the professionals and top executives, who don't have to worry about competing with low-wage workers in developing nations...
...In the former view, government plays a limited role in the economy...
...Trade deals such as the North American Free Trade Agreement (NAFTA) play an important role in this model, because competition from imports helps to keep inflation under control...
...On the demand side, a 50 percent decline in stock prices implies a ten trillion dollar loss in wealth...
...Many other forms of creative bookkeeping will come to light after a market crash has made them impossible to sustain...
...For example, every organization with a defined benefit pension plan (mostly large industrial corporations, but also unions and many state and local governments), will suddenly have to start making annual contributions, after years of letting appreBOOKS ciating stock prices take care of their obligations...
...The central theme of the * Tragically, Bennett Harrison died before the publication of this book...
...This vision sees the keys to prosperity as low inflation, low interest rates, high saving, flexible labor markets, and free trade...
...book is the contrast between two visions of the economy...
...Similarly, the declining value of the minimum wage hurts millions of the nation's poorest workers...
...This issue frequently arises in discussions of Europe and Japan, in which reporters warn of a dire future because of declining populations...
...While business investment remains healthy, consumers account for the bulk of demand in the economy...
...If the current crusade to pay down the debt doesn't stop, in the post-crash world, we are likely to experience a depression...
...Without adequate support, the supply of innovations is likely to trail off...
...I can accept that higher productivity growth is better, other things (such as the environment) being equal, but there is no reason that we should value growth that is simply attributable to more labor hours...
...It was a vivid description of the problems that led many of us to become economists...
...If we eliminated Hewlett-Packard's patent, its inkjet printer would be every bit as much a public good as the mathematical equation...
...They argue that these new forms of work organization, which reduce hierarchy and provide workers with real decision-making power and responsibility, will both increase productivity and improve the quality of work life...
...The stock market, using any plausible projection of future profit growth, is hugely over-valued...
...THE SUPPLY-SIDE implications may be equally significant...
...Rather, it is a more serious perspective that sees the end of the period of productivity slowdown that began in 1973...
...Bluestone and Harrison note the consumption boom of recent years, but they argue that it cannot be sustained, because it is heavily driven by debt...
...Although it's true that the last three years have produced broad-based wage gains for most of the workforce, there is little reason to believe that these gains will be sustained...
...in the Main Street Model they foster productivity growth and increasing worker security...
...Although Bluestone and Harrison clearly know better (and say so at points in the book), they often speak of economic growth as an end in itself...
...In other words, the patented process used to make the Hewlett-Packard inkjet could be copied at no cost in the absence of the government-enforced monopoly provided by patent protection...
...I agree with 90 percent of the argument in Growing Prosperity...
...He is also the author of the Economic Reporting Review, a weekly on-line commentary (www.fair.org ). 114 n DISSENT / Summer 2000...
...More rapid productivity growth should allow the bulk of the population to sustain significant improvements in living standards...
...They also point out that government funding has been a major factor in many of the key inventions of recent years, such as the Internet...
...Furthermore, as technology develops, it is becoming extremely difficult to even enforce copyright law in many areas...
...For the decade as a whole, productivity growth averaged 0.5 percentage points more than in the eighties, and 0.2 percentage points less than the seventies...
...Weaker unions and the threat of low-wage competition in developing nations depress wages for most of the workforce...
...Bluestone and Harrison are believers in the "new economy...
...We will have to wait to see who turns out to be right on this one...
...There are a few issues where I have differences with Bluestone and Harrison...
...Growth is limited on both the demand DISSENT / Summer 2000 n III BOOKS and supply side...
...A world with weaker unions and a more insecure workforce is not what we would like to pass onto our children...
...The large budget surplus and rising trade deficit, by reducing demand, subtract from growth...
...This book is a worthy successor to it...
...Bluestone and Harrison cite recent research that shows the importance of these forms of public investment to growth...
...First, I remain skeptical about claims that we have a new economy...
...Their 1982 book, The Deindustrialization of America, was mandatory reading in graduate school...
...By comparison, patents and copyrights often raise the price of products by several hundred percent or more...
...In the Wall Street Model, unions are an obstruction to flexibility in the labor market...
...In addition, because the Federal Reserve Board stands ready to step in with higher interest rates at the first sign of inflation, the prospects for future business investment may not be that good either...
...Bluestone and Harrison believe that computerization and other new technologies have increased the economy's potential output, and that we can now expect to see rates of productivity growth close to those experienced in the golden age from 1947 to 1973...
...In addition, by allowing workers to secure wage gains, unions ensure that demand keeps pace with output...
...The alternative perspective is the "Main Street Model," which views the main factors supporting growth as investments in infrastructure, research and development, and education and training...
...The example is less important than the failure to do serious thinking about the appropriateness of current intellectual property laws for the twenty-first century...
...If these stock options prove worthless, it is not clear how workers will respond...
...That leaves consumers and business investment as the engines of growth...
...This implies a falloff in consumption expenditures of three hundred to four hundred billion dollars...
...It is hard to get a good view of the economic landscape from inside a bubble...
...For example, prescription drugs often sell for ten or twenty times their cost of production because of patent protection...
...In addition to the impact of the ensuing recession on the budget, current projections assume more than $90 billion a year in revenue from taxes on capital gains...
...Much of the strong growth of the last four years is simply a recovery from the extraordinarily weak growth earlier in the nineties...
...It is not clear how the labor supply decision of a computer engineer will be affected by the realization that her stock options are now worthless...
...The first is the "Wall Street Model...
...Recorded music, which could otherwise be available free over the Internet, instead sells for $10 to $15 on CDs because of copyright protections...
...Since promoting innovation and creative work is clearly important to Bluestone and Harrison, it's worth examining whether there DISSENT / Summer 2000 n 113 BOOKS are more efficient ways to support this work than the current patent and copyright system...
...The minimum wage appears in the same light, providing lowwage workers with more incentive to work and employers with greater incentive to train workers...
...Bluestone and Harrison are clearly right that the equity implications of the Wall Street Model are unacceptable...
...Bluestone and Harrison also argue for highperformance work systems...
...Patent and copyrights date back to the sixteenth century...
...Like Bluestone and Harrison, I do not believe that the Wall Street Model can sustain growth...
...This book has much to offer...
...Even before the crash, the case for a solid upturn in productivity growth isn't entirely compelling...
...If her base pay was fifty thousand dollars a year, but she thought she was getting hundreds of thousands each year in stock options, will she continue to work for the base salary...
...Trade economists get extremely upset over tariffs that could raise the price of a twenty-dollar pair of jeans by two dollars...
...The adjustment here, a 20 percent 112 n DISSENT / Summer 2000 to 30 percent decline in the dollar, will also create real problems for the Wall Street Model...
...This cannot be easily replaced by other sources of demand...
...Its main duty is to balance the budget, or ideally, to run a surplus...
...People in the United States work far more on average than people in any other industrialized nation...
...It is also worth noting that our vaunted budget surplus is not likely to survive the crash...
...Bringing wages in this sector back down to earth may require a long adjustment process...
...The world will look very different when it comes back down to earth, with a decline of 50 percent or more...
...The implications of a market correction will be dramatic...
...There are still grounds for being skeptical about the productivity upturn...
...But these points are quibbles...
...Or, alternatively, we can allow patents on mathematical equations...
...In reality, a declining population may slow overall GDP growth, but can actually lead to more rapid growth in per capita GDP, the real measure of wealth...
...More important than the debate over productivity is the issue of growth itself...
...0 NE LAST pet peeve: Bluestone and Harrison have a brief discussion of research and innovation in which they distinguish between a Hewlett-Packard inkjet printer as a private good, because it is subject to patent protection, and a mathematical equation as a public good because anyone can use it...
...DEAN BAKER is the co-director of the Center for Economic and Policy Research...
...Just because they may have been the best way to finance innovation and creative work then does not mean that they still are the best way...
...The Federal Reserve Board has the responsibility to keep the rate of inflation low, regardless of the cost in unemployment...
...In its attempt to use economics to create a better society it might even motivate another generation of progressive students to become economists...
...The Wall Street Model is the path currently being pursued by Bill Clinton and Alan Greenspan...
...Standard economic theory shows that the economic costs associated with patent and copyright protection dwarf the costs they attribute to protectionist trade measures...
...By contrast, the Main Street Model places more emphasis on using federal money for public investment...
...Their new economy is not the grand vision of limitless growth and a 36,000 Dow touted by some of the more exuberant writers in the business press...
...From the standpoint of equity, the Wall Street Model is a complete failure...
...For example, the main victims of the Federal Reserve Board's anti-inflation policy are low- and moderateincome workers, who live in fear of losing their jobs, even if they don't actually end up unemployed...
...This distinction is peculiar, because it is only the patent that makes one of these private and the other public...
...There is likely to be a whole range of accounting and financial sins that will be exposed in the deflation of the bubble...
...Certainly there will be a large impact in the high-tech and Internet sectors, where for many highly skilled workers stock options are the bulk of their compensation...
...The current trade deficit is also clearly unsustainable...
...The Wall Street Model, according to Bluestone and Harrison, is ultimately unacceptable because it leads to slow growth and greater inequality...
...But Growing Prosperity does not take this outcome for granted...
...This source of revenue will largely evaporate in the post-crash world...
...His death at an early age is a great loss, not only to his family and friends, but to people working for progressive change everywhere...
...Although that book painted a pessimistic picture of the country's near-term prospects, the view presented here is far more optimistic...
...There are measurement issues that bring even the strong growth of the last four years into question...
Vol. 47 • July 2000 • No. 3
