Field powerpoint

Technological Change andTechnological Change and
Economic Growth: theEconomic Growth: the
Interwar Years and theInterwar Years and the
1990s1990s
Alexander J. FieldAlexander J. Field
afield@scu.eduafield@scu.edu
All Ohio Eocnomic History SeminarAll Ohio Eocnomic History Seminar
Ohio State UniversiytyOhio State Universiyty
April 30, 2004April 30, 2004

The Most Technologically ProgressiveThe Most Technologically Progressive
Decade of the CenturyDecade of the Century
 Field,Field, American Economic ReviewAmerican Economic Review (2003)(2003)
 Hint #1: It’s not what you think …Hint #1: It’s not what you think …
 Hint #2: It wasn’t the 1990s...Hint #2: It wasn’t the 1990s...
 Hint #3: It wasn’t the 1920s…Hint #3: It wasn’t the 1920s…

The Main ArgumentThe Main Argument
 The years 1929-1941 were, in the
aggregate, the most technologically
progressive of any comparable
period in U.S. economic history.

Y = real output
N= labor hours
K=capital input
Y/N = Labor Productivity
y – n = Labor Productivity growth
(lower case letters = compound annual average rates of growth)
Y = A Kβ
N1-β
= Production function (Cobb Douglas, crts)
A = Y/(Kβ
N1-β
) = Multifactor Productivity
a = y – βk – (1-β)n = Growth Rate of MFP
y - n = a + β (k - n) = Growth rate of labor productivity
Labor and Multifactor ProductivityLabor and Multifactor Productivity
Growth FormulasGrowth Formulas

Disclaimers - 1Disclaimers - 1
 What we measure in the residual contains notWhat we measure in the residual contains not
only serendipitous or accidental discovery ofonly serendipitous or accidental discovery of
useful knowledge, but a variety of relateduseful knowledge, but a variety of related
influences, including, but not limited to:influences, including, but not limited to:
• The outcomes of focused research and developmentThe outcomes of focused research and development
activitiesactivities
• The influence of scientific and educationalThe influence of scientific and educational
infrastructuresinfrastructures
• Economies of scale and network effectsEconomies of scale and network effects
• Learning by doingLearning by doing
• Reallocation of economic activity from sectors with lowReallocation of economic activity from sectors with low
to higher value added per workerto higher value added per worker
• New organizational blueprints or managerial practicesNew organizational blueprints or managerial practices

Disclaimers - 2Disclaimers - 2
 Under certain conditions, the residual willUnder certain conditions, the residual will
underestimate the impact of technological changeunderestimate the impact of technological change
because of linkages between such change and thebecause of linkages between such change and the
rate of saving and capital accumulationrate of saving and capital accumulation
• Biased technical change that increases the return toBiased technical change that increases the return to
capital or to highly educated labor may shift income tocapital or to highly educated labor may shift income to
households with higher saving propensities, increasinghouseholds with higher saving propensities, increasing
the aggregate saving ratethe aggregate saving rate
• Technical change that increases the real after tax returnTechnical change that increases the real after tax return
to capitalto capital maymay elicit larger flows of savingelicit larger flows of saving
• Innovations that reduce the relative price of capitalInnovations that reduce the relative price of capital
goods will, for a given saving rate measured at basegoods will, for a given saving rate measured at base
period prices, be associated with a larger real volume ofperiod prices, be associated with a larger real volume of
investmentinvestment

Abramovitz – David (1999)Abramovitz – David (1999)
CAAGR of MFPCAAGR of MFP
1890-19051890-1905
1905-291905-29
1929-481929-48
1948-661948-66
1966-891966-89
1.281.28
1.381.38
1.541.54
1.311.31
.04.04

Gordon (2000b)Gordon (2000b)
CAAGR of MFPCAAGR of MFP
1870-18911870-1891
1891-19131891-1913
1913-19281913-1928
1928-19501928-1950
1950-19641950-1964
1964-19721964-1972
1972-19791972-1979
1979-19881979-1988
1988-19961988-1996
.39.39
1.141.14
1.421.42
1.901.90
1.471.47
.89.89
.16.16
.59.59
.79.79

Conventional WisdomConventional Wisdom
The measured peak in MFP growthThe measured peak in MFP growth
rates between 1929 and 1948 isrates between 1929 and 1948 is
principally the consequence of theprincipally the consequence of the
production experience of World Warproduction experience of World War
II: a persisting benefit of theII: a persisting benefit of the
enormous cumulated output as wellenormous cumulated output as well
perhaps of spinoffs from war relatedperhaps of spinoffs from war related
R and D.R and D.

New ArgumentNew Argument
 Peak MFP growth between 1929 and 1948 isPeak MFP growth between 1929 and 1948 is
primarily attributable to an exceptionalprimarily attributable to an exceptional
concatenation of technical and organizationalconcatenation of technical and organizational
advances across a broad frontier of the Americanadvances across a broad frontier of the American
economy prior to full scale war mobilizationeconomy prior to full scale war mobilization
 Governmental and university funded research, asGovernmental and university funded research, as
well as the maturing of a privately funded R andwell as the maturing of a privately funded R and
D system that began with Edison at Menlo ParkD system that began with Edison at Menlo Park
played a roleplayed a role
 So too in some sectors, such as railroads, did theSo too in some sectors, such as railroads, did the
“kick in the pants” of cut off of easy credit“kick in the pants” of cut off of easy credit
availability and declines in demandavailability and declines in demand

Why do we credit World War 2 withWhy do we credit World War 2 with
establishing the foundations forestablishing the foundations for
postwar prosperity?postwar prosperity?
 Sheer volume of output between 1942 and 1945 is exceptionalSheer volume of output between 1942 and 1945 is exceptional
 Remarkable successes in such sectors as airframes andRemarkable successes in such sectors as airframes and
shipbuildingshipbuilding
• Between 1942:1 and 1944:4 airframe production
increased by a factor of six, and labor productivity grew by 160
percent. This is a compound annual average growth rate of output per
hour of 34.7 percent
In shipbuilding: in one ten-month period alone, the
number of hours required to build a Victory ship
fell by half (U.S. Bureau of Labor Statistics,
1946, pp. 897–98). On an annualized basis, this is a growth in output
per hour of 83 percent a year

Why we should be skepticalWhy we should be skeptical
 Overall increase in labor productivity in munitions sectorOverall increase in labor productivity in munitions sector
between 1939 and 1945 was 25 percent – far belowbetween 1939 and 1945 was 25 percent – far below
standout sectors (Brackman and Gainsbrugh, 1949). Thisstandout sectors (Brackman and Gainsbrugh, 1949). This
is a growth in output per hour of 3.71 percent per year,is a growth in output per hour of 3.71 percent per year,
respectable, but hardly surprising given the more than $10respectable, but hardly surprising given the more than $10
billion of public sector capital invested in the defense sectorbillion of public sector capital invested in the defense sector
 Short period of full scale war production: roughly threeShort period of full scale war production: roughly three
and a half yearsand a half years
 Spillovers – which direction?Spillovers – which direction?
 War drained skilled labor, managers, and capital fromWar drained skilled labor, managers, and capital from
civilian sector. Output per hour stagnated in 1942-44 incivilian sector. Output per hour stagnated in 1942-44 in
the civilian sectorthe civilian sector
 Swollen productivity numbers are partly the result of aSwollen productivity numbers are partly the result of a
temporary shift of output to sectors with traditionally hightemporary shift of output to sectors with traditionally high
ratios of value added per worker – could not persistratios of value added per worker – could not persist

Why 1941?Why 1941?
 1937 – unemployment 14.3 percent1937 – unemployment 14.3 percent
 1940 - unemployment even higher – 14.61940 - unemployment even higher – 14.6
percentpercent
 1941 unemployment is 9.9 percent (61941 unemployment is 9.9 percent (6
percent according to Darby)percent according to Darby)
 Only 2.5 percent of cumulated warOnly 2.5 percent of cumulated war
spending 1941-1945 had been undertakenspending 1941-1945 had been undertaken
by the end of 1941by the end of 1941
 1941 is the closest we come to recovery1941 is the closest we come to recovery
before full scale war mobilizationbefore full scale war mobilization

United States, Private Non-Farm EconomyUnited States, Private Non-Farm Economy
CAAGR of MFP, 1919-1948CAAGR of MFP, 1919-1948
1919-19291919-1929
1929-19411929-1941
1941-19481941-1948
SolowSolow
.78%.78%
2.36%2.36%
.89%.89%
KendrickKendrick
2.02%2.02%
2.31%2.31%
1.29%1.29%

Solow (1957)Solow (1957)
 “there does seem to be a break at
about 1930. There is some evidence
that the average rate of progress in
the years 1909–29 was smaller than
that from 1930–49” (Solow, 1957, p.
316)

Kuznets and War PlanningKuznets and War Planning
 Simon Kuznets needed to estimate the potentialSimon Kuznets needed to estimate the potential
output of the U.S. economy to determine waroutput of the U.S. economy to determine war
production plans consistent with planned forceproduction plans consistent with planned force
levels and civilian consumption.levels and civilian consumption.
 His estimates came in considerably higher thanHis estimates came in considerably higher than
most had expected, leading the military tomost had expected, leading the military to
multiply their production targets and forcingmultiply their production targets and forcing
Kuznets and others to fight a rear guard action toKuznets and others to fight a rear guard action to
bring them down to a realistic levelbring them down to a realistic level
 The outward shift of the production possibilityThe outward shift of the production possibility
frontier during the Depression years -- largelyfrontier during the Depression years -- largely
unrecognized until then -- was the principalunrecognized until then -- was the principal
reason potential output in 1942 was so muchreason potential output in 1942 was so much
higher than had been anticipated.higher than had been anticipated.

Sectoral EvidenceSectoral Evidence
 R and D employment in manufacturingR and D employment in manufacturing
 Time path of key innovationsTime path of key innovations
• KleinknechtKleinknecht
• SchmooklerSchmookler
• MenschMensch
 MFP growth in telephone, railroads,MFP growth in telephone, railroads,
electric utilitieselectric utilities
 Build out of surface road system: networkBuild out of surface road system: network
effects – impact on productivity growth ineffects – impact on productivity growth in
trucking and warehousingtrucking and warehousing

R and D employment in USR and D employment in US
ManufacturingManufacturing
 1927: 6,2741927: 6,274
 1933: 10,9181933: 10,918
 1940: 27,7771940: 27,777
Source: National Research Council data;Source: National Research Council data;
Mowery and Rosenberg, 2000Mowery and Rosenberg, 2000

Kleinknecht (1987)Kleinknecht (1987)
0
5
10
15
20
25
30 1850-59
1860-69
1870-79
1880-89
1890-99
1900-09
1910-19
1920-29
1930-39
1940-49
1950-59
1960-69
Product
Process
Instrument
Other
Total

Basic Innovations, 1900-1959
0
10
20
30
40
50
60
70
1900-1904
1905-1909
1910-1914
1915-1919
1920-1924
1925-1929
1930-1934
1935-1939
1940-1944
1945-1949
1950-1954
1955-1959
Schmookler
Mensch

The Irony of Secular StagnationThe Irony of Secular Stagnation
 At precisely the moment when Alvin Hansen andAt precisely the moment when Alvin Hansen and
others were developing theories of secularothers were developing theories of secular
stagnation, the U.S. economy was experiencingstagnation, the U.S. economy was experiencing
its greatest technological efflorescence, a periodits greatest technological efflorescence, a period
of creativity which, in the aggregate, remainsof creativity which, in the aggregate, remains
unmatched to this day.unmatched to this day.
 His Harvard colleague, Joseph Schumpeter had aHis Harvard colleague, Joseph Schumpeter had a
better fix on what was going on, although hebetter fix on what was going on, although he
misjudged the terrain on the road to socialism.misjudged the terrain on the road to socialism.
 Schumpeter’s homage to “creative destruction”Schumpeter’s homage to “creative destruction”
was developed against the backdrop of what inwas developed against the backdrop of what in
fact has turned out to be the most technologicallyfact has turned out to be the most technologically
dynamic epoch of the twentieth century.dynamic epoch of the twentieth century.

CAAGR of MFP, 1919-1948CAAGR of MFP, 1919-1948
TelephoneTelephone ElectricElectric
UtilitiesUtilities
RailroadsRailroads
1919-19291919-1929
1929-19411929-1941
1941-19481941-1948
1.60%1.60%
2.01%2.01%
0.53%0.53%
2.51%2.51%
5.55%5.55%
5.87%5.87%
1.63%1.63%
2.91%2.91%
2.56%2.56%

Table 4: Compound Annual Average Growth Rates of Net Stock of Street
and Highway Capital, United States, 1925-2000
 1925-1929 6.00%
 1929-1941 4.32%
 1941-1948 0.08%
 1948-1973 4.15%
 1973-2000 1.63%

Street/Highway Capital as % ofStreet/Highway Capital as % of
Private Fixed CapitalPrivate Fixed Capital
Street/Hway K Private Fixed K
 1929 $16,415 $253,987 6.46%
 1941 $30,861 $289,487 10.66%
 1948 $47,892 $582,248 8.22%
 1973 $290,389 $2,698,194 10.76%
 2000 $1,423,833 $21,464,786 6.63%

Two Waves of GovernmentTwo Waves of Government
Investment: the 1930 and theInvestment: the 1930 and the
1940s1940s
 Both decades experienced substantialBoth decades experienced substantial
government investment in physical capitalgovernment investment in physical capital
 1930s: Infrastructure1930s: Infrastructure
 1940s: Over $10 billion of GOPO capital in1940s: Over $10 billion of GOPO capital in
manufacturing, much of it equipment, especiallymanufacturing, much of it equipment, especially
machine toolsmachine tools
 The 1930s investment generated spillovers thatThe 1930s investment generated spillovers that
augmented PNE MFP growth, particularly inaugmented PNE MFP growth, particularly in
trucking and warehousing, and, throughtrucking and warehousing, and, through
complementarities, in railroads.complementarities, in railroads.
 The 1940s investment was associated withThe 1940s investment was associated with
decliningdeclining MFP growth in manufacturing and forMFP growth in manufacturing and for
the economy as a whole.the economy as a whole.
 What does this imply for the generality of theWhat does this imply for the generality of the
equipment hypothesis?equipment hypothesis?

Summary – Field (2003)Summary – Field (2003)
 The 1930s were characterized by productivity
advance across a broad frontier of the U.S.
economy. The expansion of potential output
between 1919 and 1941 laid the foundation for
postwar prosperity, at the same time that it
enabled successful prosecution of the war.
 In the light of this finding we need to rethink ourIn the light of this finding we need to rethink our
understanding of the defining contours andunderstanding of the defining contours and
determinants of U.S. economic growth in thedeterminants of U.S. economic growth in the
twentieth century.twentieth century.

Field (2004)Field (2004)
 Compares 1929-41 with 1919-29 on theCompares 1929-41 with 1919-29 on the
one hand, and 1995-2000 on the otherone hand, and 1995-2000 on the other
 Disaggregates, by broad sector,Disaggregates, by broad sector,
contributions to MFP growth in thesecontributions to MFP growth in these
different periodsdifferent periods
 Reassesses IT’s impact on economicReassesses IT’s impact on economic
growth in the 1990s, as well as thegrowth in the 1990s, as well as the
broader utility of the GPT concept withbroader utility of the GPT concept with
which it is closely associated.which it is closely associated.

Main ArgumentsMain Arguments
 MFP Growth in the 1920s was almost entirely aMFP Growth in the 1920s was almost entirely a
story about manufacturingstory about manufacturing
 In the 1930s, manufacturing’s contributionIn the 1930s, manufacturing’s contribution
declined, although remaining high in absolutedeclined, although remaining high in absolute
terms. Transport and Public Utilities played aterms. Transport and Public Utilities played a
much more important role. The same was true tomuch more important role. The same was true to
a lesser extent of distribution.a lesser extent of distribution.
 Although MFP growth between 1995 and 2000Although MFP growth between 1995 and 2000
was triple what it had been during 1973-95, itwas triple what it had been during 1973-95, it
was less than half what it was between 1929 andwas less than half what it was between 1929 and
1941.1941.
 The IT revolution was responsible for about twoThe IT revolution was responsible for about two
thirds of MFP growth, and about a third of laborthirds of MFP growth, and about a third of labor
productivity growth between 1995 and 2000productivity growth between 1995 and 2000

CAAGR of MFP, PNE,CAAGR of MFP, PNE,
United States, 1919-2000United States, 1919-2000
1919-19291919-1929 2.022.02
1929-19411929-1941 2.312.31
1941-19481941-1948 1.291.29
1948-19731948-1973 1.901.90
1973-19891973-1989 .34.34
1989-20001989-2000 .78.78
1973-19951973-1995 .38.38
1995-20001995-2000 1.141.14
Sources: 1919-48: Field (2003); Kendrick (1961)Sources: 1919-48: Field (2003); Kendrick (1961)
1948-2000: Bureau of Labor Statistics: www.bls.gov1948-2000: Bureau of Labor Statistics: www.bls.gov

CAAGR of Labor Productivity,CAAGR of Labor Productivity,
1919-19291919-1929 2.272.27
1929-19411929-1941 2.352.35
1941-19481941-1948 1.711.71
1948-19731948-1973 2.882.88
1973-19891973-1989 1.331.33
1989-20001989-2000 1.971.97
1973-19951973-1995 1.401.40
1995-20001995-2000 2.432.43
Sources: 1919-48: Kendrick (1961), Table A-23.Sources: 1919-48: Kendrick (1961), Table A-23.
1948-2000: Bureau of Labor Statistics: www.bls.gov1948-2000: Bureau of Labor Statistics: www.bls.gov

Labor Productivity GrowthLabor Productivity Growth
 Roughly comparable over 1919-29, 1929-Roughly comparable over 1919-29, 1929-
41, and 1995-2000.41, and 1995-2000.
 The 1930s were exceptional becauseThe 1930s were exceptional because
advance took place in the virtual absenceadvance took place in the virtual absence
of capital deepeningof capital deepening
 The 1948-73 period remains the goldenThe 1948-73 period remains the golden
age of living standard improvement,age of living standard improvement,
because of the combined effects ofbecause of the combined effects of
respectable MFP growth and robust ratesrespectable MFP growth and robust rates
of capital deepening.of capital deepening.

Labor Quality - 1Labor Quality - 1
 How much of the growth in output per hour between 1929-How much of the growth in output per hour between 1929-
41 is attributable to labor quality improvement?41 is attributable to labor quality improvement?
 Margo (1991, 1993) has emphasized selective retention ofMargo (1991, 1993) has emphasized selective retention of
higher quality workers as employment drops in a recessionhigher quality workers as employment drops in a recession
 Not relevant for peak to peak comparisons; theseNot relevant for peak to peak comparisons; these
composition effects would have been unwound as economycomposition effects would have been unwound as economy
returned to full employmentreturned to full employment
 1941 is much closer to full employment than 1940 or 1937,1941 is much closer to full employment than 1940 or 1937,
but still had 9.9 percent unemployment, vs. less than 4but still had 9.9 percent unemployment, vs. less than 4
percent in 1929percent in 1929
 In retrospect it would have been helpful for my researchIn retrospect it would have been helpful for my research
had Japan delayed attack on Pearl Harbor for another 8 tohad Japan delayed attack on Pearl Harbor for another 8 to
12 months, so the U.S. economy could have continued its12 months, so the U.S. economy could have continued its
then rapid movement toward full employment before fullthen rapid movement toward full employment before full
scale war mobilization took placescale war mobilization took place

Labor Quality 2Labor Quality 2
 Goldin (1998) has emphasized rapid rise in highGoldin (1998) has emphasized rapid rise in high
school graduation rates in the 1930s.school graduation rates in the 1930s.
 R and D employment data for manufacturing andR and D employment data for manufacturing and
Margo’s analyses reflect strong demand forMargo’s analyses reflect strong demand for
managerial, scientific, and technical personnelmanagerial, scientific, and technical personnel
during this periodduring this period
 Opportunity cost of high school attendanceOpportunity cost of high school attendance
dropped as probability of a non high school graddropped as probability of a non high school grad
being unemployed rosebeing unemployed rose
 Build out of surface road network facilitated highBuild out of surface road network facilitated high
school attendanceschool attendance
 Influx of human capital fleeing Hitler’s EuropeInflux of human capital fleeing Hitler’s Europe

Labor Quality 3Labor Quality 3
 Labor Quality did rise between 1929 and 1941, but changesLabor Quality did rise between 1929 and 1941, but changes
in labor supply were probably not a major or dominantin labor supply were probably not a major or dominant
influence on growth in output per hourinfluence on growth in output per hour
 If we calculate rate of growth of output per hour betweenIf we calculate rate of growth of output per hour between
1929-41 using adjusted hours, where adjusted hours take1929-41 using adjusted hours, where adjusted hours take
into account labor quality improvement, increase in outputinto account labor quality improvement, increase in output
per hour is 6 percent lessper hour is 6 percent less
 If selective retention were the dominant influence onIf selective retention were the dominant influence on
growth as we came out of recession, we should have had agrowth as we came out of recession, we should have had a
larger increment to output per hour moving from 19.1 tolarger increment to output per hour moving from 19.1 to
14.6 percent unemployment between 1938 and 1940 than14.6 percent unemployment between 1938 and 1940 than
we did moving from 14.6 to 9.9 percent unemploymentwe did moving from 14.6 to 9.9 percent unemployment
1940 to 1941. But the reverse was true.1940 to 1941. But the reverse was true.

1929-41 Manufacturing MFP1929-41 Manufacturing MFP
CalculationCalculation
 Output: 3.81 percent/yearOutput: 3.81 percent/year
 Hours: 1.35 percent/yearHours: 1.35 percent/year
 Capital: .85 percent/yearCapital: .85 percent/year
 MFP: 2.60 percent/yearMFP: 2.60 percent/year
 Hours and output data from Kendrick; capital input dataHours and output data from Kendrick; capital input data
from BEA Fixed Asset Table 4.2from BEA Fixed Asset Table 4.2

1941-48 Manufacturing MFP1941-48 Manufacturing MFP
CalculationCalculation
 Output: 2.20 percent/yearOutput: 2.20 percent/year
 Hours: 2.17 percent/yearHours: 2.17 percent/year
 Capital: 4.02 percent/yearCapital: 4.02 percent/year
 MFP: -.52 percent/yearMFP: -.52 percent/year
 Hours and output data from Kendrick; capital input dataHours and output data from Kendrick; capital input data
from BEA Fixed Asset Table 4.2from BEA Fixed Asset Table 4.2

CAAGR of MFP, Manufacturing,CAAGR of MFP, Manufacturing,
1919-19291919-1929 5.125.12
1929-19411929-1941 2.602.60
1941-19481941-1948 - .87- .87
1948-19731948-1973 1.521.52
1973-19951973-1995 .66.66
1995-20001995-2000 2.092.09
Sources: Field (2004), Kendrick, (1961); Bureau of Economic Analysis FixedSources: Field (2004), Kendrick, (1961); Bureau of Economic Analysis Fixed
Asset Table 4.2; Bureau of Labor Statistics, Series MPU300003 (B).Asset Table 4.2; Bureau of Labor Statistics, Series MPU300003 (B).

Manufacturing, 1919-1929Manufacturing, 1919-1929
 Share of PNE (1929): .333Share of PNE (1929): .333
 CAAGR, MFP(1919-29): 5.12%CAAGR, MFP(1919-29): 5.12%
 Cont to PNE MFP Growth: 1.71%Cont to PNE MFP Growth: 1.71%
 PNE MFP Growth (1919-29): 2.01%PNE MFP Growth (1919-29): 2.01%

Manufacturing’s Share:Manufacturing’s Share: 85%85%

1919-
1929
1929-
1948
1949-
1973
1973-
2000
1973-
1995
1995-
2000
Manufacturing 5.12 1.71 1.52 0.93 0.66 2.09
Durable goods.................................. 5.06 1.43 1.48 1.57 1.19 3.27
Lumber and wood products..................... 2.49 1.42 1.67 0.65 0.98 -0.78
Furniture and fixtures....................... 4.14 2.00 0.60 0.74 0.69 0.96
Stone, clay, and glass products.............. 5.57 2.09 1.09 0.51 0.49 0.57
Primary metal industries..................... 5.36 1.30 0.39 -0.12 -0.36 0.95
Fabricated metal products.................... 4.51 1.36 0.54 0.20 0.19 0.26
Industrial, Commercial Machinery 2.82 1.62 0.71 2.93 2.31 5.65
Electric and electronic equipment............ 3.45 2.55 2.07 3.85 3.09 7.18
Transport Equipment 8.07 0.39 1.47 0.18 0.05 0.72
Instruments and related products............. 4.47* 2.36* 1.75 0.97 1.07 0.54
Miscellaneous manufacturing ....... 1.55 0.47 0.33 1.10
MFP Growth, Durable Manufacturing

Nondurable goods............................... 4.89 2.22 1.32 0.14 0.06 0.47
Food and kindred products.................... 5.18 1.47 0.67 0.26 0.39 -0.31
Tobacco products............................. 4.28 4.19 -0.62 -3.71 -2.92 -7.19
Textile mill products........................ 2.90 3.28 2.29 2.23 2.32 1.87
Apparel and other textile products........... 3.90 0.63 0.72 1.00 0.91 1.41
Paper and allied products.................... 4.54 2.33 1.58 -0.11 -0.31 0.74
Printing and publishing...................... 3.67 1.43 0.48 -0.73 -0.94 0.22
Chemicals and allied products................ 7.15 3.36 2.51 -0.25 -0.42 0.51
Petroleum and coal products.................. 8.23 1.70 0.82 0.03 -0.14 0.77
Rubber and miscellaneous plastics products... 7.40 2.07 0.96 0.64 0.42 1.60
Leather and leather products................. 2.88 1.71 0.02 0.58 0.21 2.23
MFP Growth, NonDurable Manufacturing
1919-29 1929-48 1949-73 1973-2000 1973-95 1995-2000

 CAAGR, MFP (1929-41): 2.60%CAAGR, MFP (1929-41): 2.60%
 Cont to PNE MFP Growth: 1.11%Cont to PNE MFP Growth: 1.11%
 Manufacturing’s Share:Manufacturing’s Share: 48%48%

 Cont to PNE MFP Growth: .45%Cont to PNE MFP Growth: .45%
 Manufacturing’s Share:Manufacturing’s Share: 39%39%

Transport and Public Utilities 1919-Transport and Public Utilities 1919-
19291929
 Sector’s Share:Sector’s Share: 13%13%

19411941
 Sector’s Share:Sector’s Share: 25%25%

19411941
 26 percent of sector MFP growth26 percent of sector MFP growth
comes from railroadscomes from railroads
 40 percent of sector MFP growth40 percent of sector MFP growth
comes from trucking & warehousingcomes from trucking & warehousing
 10 percent of total private non farm10 percent of total private non farm
MFP growth comes from trucking &MFP growth comes from trucking &
warehousingwarehousing

Table 7
MFP Growth, Transportation and Public Utilities, 1929-1941
Share of Share Share of Subsector Subsector
NI*100 of Covered MFP Contribution
1941(1948) T & PU Subsectors Growth MFP Growth
1929-41
Railroad transportation...................... 3.27 0.372 0.420 2.91 1.22
Local and interurban passenger transit.. 0.66 0.075 0.084 3.02 0.25
Trucking and warehousing..................... 1.03 0.117 0.132 13.57 1.80
Water transportation......................... 0.42 0.048 0.054 1.47 0.08
Transportation by air........................ 0.18 0.021 0.023 14.69 0.34
Pipelines, except natural gas................ 0.10 0.012 0.013 4.48 0.06
Transportation services...................... 0.13 0.014
Telephone and telegraph..................... 1.30 0.148 0.167 2.02 0.34
Radio and television......................... 0.10 0.011
Electric, gas, and sanitary services... 1.61 0.183 0.104 5.55 0.57
8.81
TOTAL 4.67

Wholesale and Retail TradeWholesale and Retail Trade
1919-19291919-1929
 CAAGR, MFP(1919-29): .80%CAAGR, MFP(1919-29): .80%
 Trade’s Share MFP Growth:Trade’s Share MFP Growth: 8%8%

1929-19411929-1941
 Trade’s Share MFP Growth:Trade’s Share MFP Growth: 18%18%

1995-20001995-2000
 CAAGR, MFP(1995-00): .70 %CAAGR, MFP(1995-00): .70 %
 Trade’s Share MFP Growth:Trade’s Share MFP Growth: 14 %14 %

Let’s Remove Religion from theLet’s Remove Religion from the
Analysis of Productivity TrendsAnalysis of Productivity Trends
 Late 1990s: New economy skeptics and true believersLate 1990s: New economy skeptics and true believers
 The move from skeptic to believer as a matter of “GettingThe move from skeptic to believer as a matter of “Getting
Religion”; akin to a process of spiritual conversionReligion”; akin to a process of spiritual conversion
 Use of vignettes and anecdotesUse of vignettes and anecdotes
 Is this really the way to discipline our conclusions withIs this really the way to discipline our conclusions with
data?data?
 Focus on what the data actually reveal, rather than whatFocus on what the data actually reveal, rather than what
they might reveal in the future, or we hope they will revealthey might reveal in the future, or we hope they will reveal
in the futurein the future
 With the marked acceleration in both MFP and laborWith the marked acceleration in both MFP and labor
productivity growth 1995-2000, one can no longer claimproductivity growth 1995-2000, one can no longer claim
the statistical apparatus is incapable of picking up effects ofthe statistical apparatus is incapable of picking up effects of
IT.IT.

Reckoning The Impact of IT onReckoning The Impact of IT on
Labor Productivity GrowthLabor Productivity Growth
Conventional Framework: 3 partsConventional Framework: 3 parts
1.1. MFP growth within IT producing sectorMFP growth within IT producing sector
2.2. MFP growth within IT using sectorsMFP growth within IT using sectors
(spillovers)(spillovers)
3.3. That portion of the impact of capitalThat portion of the impact of capital
deepening on labor productivity growthdeepening on labor productivity growth
associated with the accumulation of ITassociated with the accumulation of IT
capital goodscapital goods

Why Include the Third Component?Why Include the Third Component?
 In the absence of IT, saving flows would have beenIn the absence of IT, saving flows would have been
congealed in a slightly inferior range of capital goods.congealed in a slightly inferior range of capital goods.
 Social Savings Analogy. Debate between Rostow on theSocial Savings Analogy. Debate between Rostow on the
one hand and Fishlow and Fogel on the other. Fogel andone hand and Fishlow and Fogel on the other. Fogel and
Fishlow imagined worlds in all respects similar save theFishlow imagined worlds in all respects similar save the
availability of railway technology.availability of railway technology.
 Fogel: Because of the railroad, GDP was higher in 1890.Fogel: Because of the railroad, GDP was higher in 1890.
But not that much higherBut not that much higher: the availability of the technology: the availability of the technology
made a difference of 4 percentmade a difference of 4 percent
 Over a 25 year period, what kind of an annual increment toOver a 25 year period, what kind of an annual increment to
MFP growth does one need to produce a 4 percent increaseMFP growth does one need to produce a 4 percent increase
in GDP?in GDP?
 .15 percentage points.15 percentage points
 In MFP terms, that’s the railroad’s contributionIn MFP terms, that’s the railroad’s contribution

Rostow ReduxRostow Redux
 Would it be reasonable for supporters ofWould it be reasonable for supporters of
the “indispensability” thesis to object thatthe “indispensability” thesis to object that
Fogel’s estimate vastly underestimated theFogel’s estimate vastly underestimated the
contribution of the railroad to laborcontribution of the railroad to labor
productivity growth and US standards ofproductivity growth and US standards of
living because it failed to take into accountliving because it failed to take into account
that portion of labor productivity growththat portion of labor productivity growth
attributable to the (substantial) fraction ofattributable to the (substantial) fraction of
capital deepening associated with thecapital deepening associated with the
accumulation of railway permanent way,accumulation of railway permanent way,
bridges, tunnels, roundtables, stations,bridges, tunnels, roundtables, stations,
locomotives, and rolling stock?locomotives, and rolling stock?

Solow AgainSolow Again
 It remains worthwhile distinguishingIt remains worthwhile distinguishing
between the effects on laborbetween the effects on labor
productivity of thrift and innovationproductivity of thrift and innovation
 There is little evidence that savingThere is little evidence that saving
rates accelerated in the presence ofrates accelerated in the presence of
the IT revolutionthe IT revolution

Sources and Uses of SavingSources and Uses of Saving
S = I + (G-T) + (X-M)S = I + (G-T) + (X-M)
Private Domestic Saving funds Private Domestic Capital Accumulation, thePrivate Domestic Saving funds Private Domestic Capital Accumulation, the
Government Deficit, and capital accumulation outside of the CountryGovernment Deficit, and capital accumulation outside of the Country
I = S + (T-G) + (M-X)I = S + (T-G) + (M-X)
Private Domestic Capital Accumulation must be funded by the sum ofPrivate Domestic Capital Accumulation must be funded by the sum of
private domestic saving, government saving, and the capital accountprivate domestic saving, government saving, and the capital account
surplus (inflows of foreign saving).surplus (inflows of foreign saving).

End of Century Tangible CapitalEnd of Century Tangible Capital
AccumulationAccumulation
 Whatever one can say about the rising importance ofWhatever one can say about the rising importance of
human capital formation in the twentieth century, ahuman capital formation in the twentieth century, a
distinguishing feature of the 1995-2000 was a rise indistinguishing feature of the 1995-2000 was a rise in
tangible capital accumulation, with a heavy emphasis ontangible capital accumulation, with a heavy emphasis on
short lived equipment.short lived equipment.
 Capital services growth accelerated from 3.94 percent perCapital services growth accelerated from 3.94 percent per
year (1973-95) to 5.38 percent per year (1995-2000).year (1973-95) to 5.38 percent per year (1995-2000).
 The capital deepening that made this possible requiredThe capital deepening that made this possible required
capital accumulation that had to be financed.capital accumulation that had to be financed.
 As growth of IT capital services accelerated from .41 toAs growth of IT capital services accelerated from .41 to
1.03 percent per year, growth of non IT capital services1.03 percent per year, growth of non IT capital services
essentially halted, dropping from .30 to .06 percent peressentially halted, dropping from .30 to .06 percent per
year.year.
 Inflow of foreign saving represented a slowing of capitalInflow of foreign saving represented a slowing of capital
services growth outside of the country.services growth outside of the country.

1995 2000 Change Change
in uses insources
Gross Private Domestic Investment 1,143.8 1,755.4 611.6
Gross Government Investment 238.2 319.8 81.6
Personal Saving 302.4 201.5 -100.9
Retained Business Earnings 203.6 152.6
Depreciation Allowances 743.6 1,017.9
Gross Business Saving* 963.6 1,170.5 206.9
Gross Government Saving -8.5 435.8 444.3
Capital Account Surplus 98.0 395.8 297.8
Statistical Discrepancy 26.5 -128.5 -155.0
TOTALS 693.2 693.1
Sources and Uses of Saving, US, 1995-2000

Table 13
MFP Contribution to Labor Productivity Growth and Acceleration,
1995-2000
Labor Productivity Growth, 1995-2000a
2.46
MFPa
1.14
Capital deepening a
1.05
Labor Composition a
.26
Labor Productivity Growth Acceleration, 1995-2000 vs. 1973-95b
1.09
MFP b
.76
Capital Deepening b
.32
Labor Composition b
-.01
a
percent per year
b
percentage points
Note: Components do not sum exactly to aggregates due to rounding
errors.

Table 16
Sectoral Contributions to MFP growth, 1995-2000
Share of PNE Sectoral MFP
Growth
Contribution
to PNE MFP
Growth
Share of PNE
MFP Growth
Manufacturing .214 2.08 .45 .39
Trade .223 .70 .16 .14
Other .563 .94 .53 .47
TOTAL 1.00 1.14
Sources: Sectoral Shares: see Table 3
Note: Private Nonfarm economy excludes nonfarm housing, health, agriculture, and government, which leaves 72.4 percent of value added.
MFP growth Manufacturing: see Table 5
MFP growth Trade: see text

IT’s ContributionIT’s Contribution
 Credit IT with all MFP growth inCredit IT with all MFP growth in
ManufacturingManufacturing
 Credit IT with one third of MFP growth inCredit IT with one third of MFP growth in
the rest of the economythe rest of the economy
 .68 of 1.14 percent per year (about 60.68 of 1.14 percent per year (about 60
percent) of MFP growth between 1995 andpercent) of MFP growth between 1995 and
2000 attributable to IT2000 attributable to IT
 28 percent of labor productivity growth28 percent of labor productivity growth
1995-2000 is attributable to the IT1995-2000 is attributable to the IT
revolution (.68/2.46 percent per year)revolution (.68/2.46 percent per year)

The Equipment HypothesisThe Equipment Hypothesis
 De Long and Summers (1991)De Long and Summers (1991)
• Cross country regressions using 1960-85 data show aCross country regressions using 1960-85 data show a
relationship between share of equipment investment inrelationship between share of equipment investment in
GDP and the growth of output per workerGDP and the growth of output per worker
 Auerbach, Hasset, and Oliner (1994)Auerbach, Hasset, and Oliner (1994)
• Criticize econometrics, question whether conclusion isCriticize econometrics, question whether conclusion is
applicable to USapplicable to US
 Field (2004)Field (2004)
• The drop in relative prices of equipment, and increase inThe drop in relative prices of equipment, and increase in
equipment’s share of capital formation in the USequipment’s share of capital formation in the US
coincides with a long term decline in the rate of MFPcoincides with a long term decline in the rate of MFP
advance from its high rates in the interwar period to itsadvance from its high rates in the interwar period to its
virtual disappearance in the last quarter of the centuryvirtual disappearance in the last quarter of the century
• Is 1995-2000 an aberration, or a fundamental turningIs 1995-2000 an aberration, or a fundamental turning
point in US. productivity history?point in US. productivity history?

Multifactor Productivity Growth Rate, Private Non-Farm
Economy, United States, 1919-2000
0
0.5
1
1.5
2
2.5
1919-1929 1929-1941 1941-1948 1948-1973 1973-1989 1989-2000
Series1

GPT’sGPT’s
 Distinguish between the proposition that it sometimesDistinguish between the proposition that it sometimes
takes a long time for the productivity benefits of newtakes a long time for the productivity benefits of new
technological complexes to be reaped, and the usefulnesstechnological complexes to be reaped, and the usefulness
of the concept of a GPTof the concept of a GPT
 Potential multiplicity of candidates: Steam, electricity, ITPotential multiplicity of candidates: Steam, electricity, IT
are most frequently identified, but chemical engineering,are most frequently identified, but chemical engineering,
the internal combustion engine, radio transmission and thethe internal combustion engine, radio transmission and the
assembly line have also been mentioned.assembly line have also been mentioned.
 Identification of one or several GPT’s often offers anIdentification of one or several GPT’s often offers an
appealing narrative hook, but the criteria for designatingappealing narrative hook, but the criteria for designating
them are not universally agreed upon, in spite of continuingthem are not universally agreed upon, in spite of continuing
efforts to nail them down.efforts to nail them down.
 Why isn’t the railroad also a GPT?Why isn’t the railroad also a GPT?
 Gordon (2004) suggests that use by both households andGordon (2004) suggests that use by both households and
industry is a criterion. This works for electricity and theindustry is a criterion. This works for electricity and the
internal combustion engine. But steam?internal combustion engine. But steam?

GPTsGPTs
 Bessemer and Siemens Martin processes wereBessemer and Siemens Martin processes were
industry specific, and would clearly not passindustry specific, and would clearly not pass
muster as GPTs. They offered, to use David’smuster as GPTs. They offered, to use David’s
words, “complete, self-contained andwords, “complete, self-contained and
immediately applicable solutions.” This was notimmediately applicable solutions.” This was not
the case for the product whose production theythe case for the product whose production they
enabled. Does that make steel a GPT? It tookenabled. Does that make steel a GPT? It took
Carnegie and others time to persuade users theyCarnegie and others time to persuade users they
should make skyscrapers, plate ships, andshould make skyscrapers, plate ships, and
replace rails with it. Cheap steel in turnreplace rails with it. Cheap steel in turn
encouraged complementary innovations such as,encouraged complementary innovations such as,
in the case of taller buildings, elevators.in the case of taller buildings, elevators.

GPTsGPTs
 If one follows the impact of product and processIf one follows the impact of product and process
innovations far enough through the input-output table, oneinnovations far enough through the input-output table, one
will eventually find products or technological complexeswill eventually find products or technological complexes
used as inputs in many other sectors, with the potential toused as inputs in many other sectors, with the potential to
generate spillover effects in using sectors. Thesegenerate spillover effects in using sectors. These
processes, products, or complexes are the consequence ofprocesses, products, or complexes are the consequence of
many separate breakthroughs as well as learning by doing,many separate breakthroughs as well as learning by doing,
much of which has been sector specific. IT for example,much of which has been sector specific. IT for example,
has required advances in sector specific semiconductorhas required advances in sector specific semiconductor
manufacturing, and the thin film technology andmanufacturing, and the thin film technology and
mechanical engineering that underlies most mass storage,mechanical engineering that underlies most mass storage,
let alone software.let alone software.
 Because of the potential for multiplying GPT candidaciesBecause of the potential for multiplying GPT candidacies
and the lack of an authoritative tribunal applying uniformand the lack of an authoritative tribunal applying uniform
rules passing judgment about which ones qualify, economicrules passing judgment about which ones qualify, economic
and technological history may be better off without theand technological history may be better off without the
concept.concept.

ConclusionsConclusions
 IT was responsible for about 60IT was responsible for about 60
percent of MFP growth and about 28percent of MFP growth and about 28
percent of labor productivity growthpercent of labor productivity growth
between 1995 and 2000between 1995 and 2000

 MFP Growth in the 1920s was 15 percent lower than theMFP Growth in the 1920s was 15 percent lower than the
benchmark 1929-41 period. During the 1920s it wasbenchmark 1929-41 period. During the 1920s it was
almost entirely a story about progress in manufacturing,almost entirely a story about progress in manufacturing,
although advance was broadly experienced throughout thealthough advance was broadly experienced throughout the
sector, in contrast with the 1990ssector, in contrast with the 1990s
 In the 1930s, manufacturing’s contribution declined,In the 1930s, manufacturing’s contribution declined,
although remaining high in absolute terms. Transport andalthough remaining high in absolute terms. Transport and
Public Utilities played a much more important role. ThePublic Utilities played a much more important role. The
same was true to a lesser extent of distribution. Thesesame was true to a lesser extent of distribution. These
latter effects reflect a roughly three decade long delaylatter effects reflect a roughly three decade long delay
between the invention of the internal combustion enginebetween the invention of the internal combustion engine
and the full reaping of its productivity benefits in usingand the full reaping of its productivity benefits in using
sectors.sectors.
 MFP growth in 1995-2000 was three times what it had beenMFP growth in 1995-2000 was three times what it had been
during the anemic years 1973-1995, but less than half theduring the anemic years 1973-1995, but less than half the
rate clocked between 1929 and 1941.rate clocked between 1929 and 1941.

 In accounting for the expansion of potentialIn accounting for the expansion of potential
output, there is no single process, product, oroutput, there is no single process, product, or
technological complex for the 1930s aroundtechnological complex for the 1930s around
which one can build a compelling narrative.which one can build a compelling narrative.
 What was exceptional about 1929-41,What was exceptional about 1929-41,
distinguishing the period from the other twodistinguishing the period from the other two
examined in this paper, was the broad frontierexamined in this paper, was the broad frontier
across which technological progress wasacross which technological progress was
advancing.advancing.
 In contrast, MFP advance 1995-2000 wasIn contrast, MFP advance 1995-2000 was
narrowly concentrated within a decliningnarrowly concentrated within a declining
manufacturing sector in SIC 35 and 36, andmanufacturing sector in SIC 35 and 36, and
within the using sectors in wholesale and retailwithin the using sectors in wholesale and retail
trade and securities trading.trade and securities trading.

A Century of TechnologicalA Century of Technological
ExpositionsExpositions
 1893 –Chicago1893 –Chicago
• Columbian Exposition – The White CityColumbian Exposition – The White City
• AC current for illumination, but still powered by coal andAC current for illumination, but still powered by coal and
steamsteam
 1939-40 – New York1939-40 – New York
• GM’s Futurama – Norman Bel Geddes’ wildly popular andGM’s Futurama – Norman Bel Geddes’ wildly popular and
largely accurate vision of the US in 1960largely accurate vision of the US in 1960
• DemocracityDemocracity
 1964-65 – New York1964-65 – New York
• Failure of the new Futurama – either to inspire or toFailure of the new Futurama – either to inspire or to
accurately forecastaccurately forecast
 1996 – Anaheim1996 – Anaheim
• A Retro TomorrowlandA Retro Tomorrowland

Is Comdex a Substitute?Is Comdex a Substitute?
 The last “successful” North American world’s fair was ExpoThe last “successful” North American world’s fair was Expo
’67 at Montreal, and the first (and last Asian fair Expo ’70’67 at Montreal, and the first (and last Asian fair Expo ’70
was also a successwas also a success
 Subsequent fairs (Spokane - 1974, Knoxville - 1982, NewSubsequent fairs (Spokane - 1974, Knoxville - 1982, New
Orleans - 1984, Vancouver - 1986, and Seville -1992) haveOrleans - 1984, Vancouver - 1986, and Seville -1992) have
been more narrowly themed. Who now remembers them?been more narrowly themed. Who now remembers them?
The fading impact of these international expositionsThe fading impact of these international expositions
coincides roughly with the collapse of the residualcoincides roughly with the collapse of the residual
beginning in the 1970s.beginning in the 1970s.
 World’s fairs emerged out of commercial fairs, and in theWorld’s fairs emerged out of commercial fairs, and in the
1990s trade shows such as Comdex generated some of the1990s trade shows such as Comdex generated some of the
same kind of excitement as had earlier internationalsame kind of excitement as had earlier international
expositions, but they were much more narrowly focused,expositions, but they were much more narrowly focused,
reflecting the relatively narrow based of technical advancereflecting the relatively narrow based of technical advance
in recent years, and have not been targeted at the generalin recent years, and have not been targeted at the general
public.public.

Table 9
Sectoral Contributions to Multifactor Productivity Growth Within the Private Nonfarm Economy
United States, 1929-1941
Sectoral Sector's
1941 Share of 1941 Share of Private MFP Growth Contribution to Aggregate
National Income Nonfarm Economy 1929-1941 (PNE) MFP Growth
Manufacturing 31.86 42.57 2.91 1.239
Transport and Public Utilities 9.21 12.30 4.48 0.551
Wholesale and Retail Trade 16.70 22.31 1.81 0.404
Other Sectors
(net) 17.08 22.82 0.51 0.116
Min
ing 2.30
Construction 4.03
Finance, Insurance, Real Estate
(see note a) 4.78
Other Services (see note b) 5.97
TOTAL 74.85 100.00 2.310

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