Broader Industrialized Nation Problems

With three co-authors (Glyn et al. 1990), Singh refocused attention on problems emerging for some of the most highly developed nations—notably, the UK, the USA, France, Germany, Italy, and Japan. No dissection of authorship contributions was made, and the authors are listed alphabetically, but it seems clear from the focus and methodology that Singh was a leading contributor. The basic problem was this: after nations emerged from the chaos of the Second World War, they enjoyed very rapid economic growth up to the early 1970s—what the authors and the editor called ‘a golden age’. But then followed ‘a decade and a half of stagnation’ in GDP per capita and productivity growth, among other things. To explain what happened, the authors offer an analytic tour de force combining historical analysis, an abundance of quantitative data, and insight into the underlying institutions, both micro (e.g. trade union activities) and international (e.g. the role of international monetary authorities).

The authors begin with the kind of rich model one might expect from economists inheriting the tradition of Maynard Keynes. Put far too simply, fiscal and monetary policies determine output, which affects profitability, which motivates investment, which drives productivity, which (along with trade union strength) affects wages, with strong feedback effects from productivity and wage-setting to profits. They then move to what is best described as an ‘open economy’ analysis, taking into account inter alia the abandonment of tight world currency linkages to the US dollar, floating exchange rates, the oil price shocks of 1973 and 1979, and vanishing trade surpluses and then rising trade deficits for many key nations. The concatenation of these events in the late 1960s and early 1970s is emphasized by the authors as instigators to the profit, productivity, and real wage stagnation that followed, although they point out that there were advance clues of ebbing productivity rates even before 1973.

In this broad framework, productivity plays a central role. Herein lies my principal cavil at what is otherwise a compelling work. There is no mention in the paper of Robert Solow’s pioneering (1957) article, which showed that productivity growth was only weakly dependent upon capital-labour changes and was instead largely (i.e. 81-88%) associated with a residual that Solow called ‘technical change’. That bombshell gave rise, at least in the USA, to a landmark 1960 conference (Nelson 1962) and then to an explosion of studies by economists on how research, development, and innovation generate technical change, none of which is cited in the Glyn et al. chapter. I was a participant in the 1960 conference and the inter-university committee that emerged from it. A decade later, with Singh et al. and many other economists, I was baffled by the productivity growth decline that became so evident in the 1970s. There were visible precursors. Constant-dollar industrial basic research spending in the USA peaked in 1966 and then fell, resuming its growth only in 1976. US patenting peaked in 1971 and then declined 27%. Moreover, what had been vigorous growth of inflation-adjusted corporate R&D paused in 1969 and then grew only slowly and erratically until 1976. What I learned from several years of research (Scherer 1984: Section IV) was that productivity growth was indeed strongly dependent upon R&D and that the stagnation of the 1970s was significantly traceable to R&D cutbacks. Consistent with the inferences by Glyn et al. (1990), I found that the reductions in corporate R&D were in turn associated with an identifiable fall in profitability. My research findings were inconsistent with the authors’ suggestion (ibid.: 99) that other nations were simply ‘duplicating’ American technological innovations more quickly. To the contrary, other nations surged ahead of the USA technologically in many industrial fields, generating what was in effect an oligopolistic R&D race (see also Scherer 1992).

The authors focus their stagnation analysis mainly on the years 1973-1981 and conclude (publishing their contribution in 1990) with a gloomy prospectus for years that follow. In fact, at least in the USA, productivity growth and economic growth more generally rebounded in the late 1980s after the Federal Reserve Board eased its monetary policy, the dollar declined after a surge induced by high interest rates, the OPEC price front collapsed, and importantly, technological opportunities were restocked by advances inter alia in microelectronics, fibre optics, and molecular biology. A new ‘golden age’ seemed to be dawning. But it came to an abrupt end with the crash of 20082009 and spread persistently across much of the industrialized world. Where we go from there remains as much a mystery as the growth slump of the 1970s was in its heyday.