Technical change and US economic growth: the interwar period and the 1990s
The Global Economy in the 1990s
Multifactor productivity growth in the U.S. economy between 1919 and 1929 was almost entirely attributable to advance within manufacturing. Distributing steam power mechanically over shafts and belts required multistory buildings for economical operation. The widespread diffusion of electric power permitted a shift to single story layouts in which goods flow could be optimized around work stations powered by small electric motors. Within this framework, as well as opportunities to produce a
... ety of new products, economies of scale and learning by doing permitted rapid and across the board gains in manufacturing productivity. The sector contributed 85 percent of the 2.02 percent per year overall advance in the private nonfarm economy in this ten year period. The Depression years witnessed manufacturing MFP growth that was not as uniformly distributed as it had been during the twenties, and only half as rapid: 2.60 as opposed to 5.12 percent per year. As a consequence, and in spite of a rise in the sector's share, manufacturing accounted for only 48 percent of PNE MFP growth between 1929 and 1941. Yet overall growth in MFP was by far the highest of any comparable period in the twentieth century -2.31 percent per year. This resulted from combining a manufacturing contribution which by any standard of comparison other than that of the 1920s was world class, with spillovers from government financed infrastructural investment that enabled rapid advance in other parts of the economy, particularly transport and public utilities and wholesale and retail distribution. MFP growth between 1989 and 2000 was more than twice what it had been during the years 1973-89, but less than a third that registered between 1929 and 1941. Within manufacturing, advance was narrowly concentrated within the old SIC 35 and 36, virtually all of this attributable to information technology (IT). IT was also responsible for some MFP growth in using industries, notably wholesale and retail distribution and securities trading. This paper questions the common practice of also crediting IT with the portion of capital deepening's effect on labor productivity associated with the accumulation of specific IT capital goods. 1 In the U.S., the government and nonprofit sectors, nonfarm housing, and sometimes agriculture, are often excluded. The Bureau of Labor Statistics provides measures for the Private Domestic Economy and the Private Nonfarm economy, as well as more detailed data using a different methodology for components of the manufacturing sector. For industries at the two and three digit level, a gross output rather than value added measure is used, and purchased materials, energy, and business services are included as inputs along with capital and labor services.