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Extractive summaries of and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 292 | April 14-20, 2023

The lessons from America’s astonishing economic record

The Economist | April 13, 2023

Listen to the Extractive Summary of the Article

If there is one thing that Americans of all political stripes can agree on, it is that the economy is broken. Yet the anxiety obscures a stunning success story—one of enduring but underappreciated outperformance. America remains the world’s richest, most productive and most innovative big economy. By an impressive number of measures, it is leaving its peers ever further in the dust.

Start with the familiar measure of economic success: GDP. In 1990 America accounted for a quarter of the world’s output, at market exchange rates. Thirty years on, that share is almost unchanged, even as China has gained economic clout. America’s dominance of the rich world is startling. Today it accounts for 58% of the G7’s GDP, compared with 40% in 1990. Adjusted for purchasing power, only those in über-rich petrostates and financial hubs enjoy a higher income per person. Average incomes have grown much faster than in Western Europe or Japan.

The record is as impressive for many of the ingredients of growth. America has nearly a third more workers than in 1990, compared with a tenth in western Europe and Japan. And, perhaps surprisingly, more of them have graduate and postgraduate degrees. True, Americans work more hours on average than Europeans and the Japanese. But they are significantly more productive than both.

American firms own more than a fifth of patents registered abroad, more than China and Germany put together. All of the five biggest corporate sources of research and development(r&d) are American; in the past year they have spent $200bn. 

One retort to this could be that Americans trade higher incomes for less generous safety-nets. America’s spending on social benefits, as a share of GDP, is indeed a great deal stingier than other countries’. But those benefits have become more European and, as the economy has grown, they have grown even faster.  Thanks to such changes, incomes for America’s poorest fifth have risen in real terms by 74% since 1990, much more than in Britain.

For the world as a whole, America’s outperformance says much about how to grow. One lesson is that size matters. America has the benefit of a large consumer market over which to spread the costs of R&D, and a deep capital market from which to raise finance. Only China, and perhaps one day India, can boast of purchasing power at such scale.

The size and the quality of the workforce matters, too. America was blessed with a younger population and a higher fertility rate than other rich countries. That may not be easily remedied elsewhere, but countries can at least take inspiration from America’s high share of immigrants, who in 2021 made up 17% of its workforce, compared with less than 3% in ageing Japan.

Another lesson is the value of dynamism. Starting a business is easy in America, as is restructuring it through bankruptcy. The flexibility of the labour market helps employment adapt to shifting patterns of demand.

Americans should find the economy’s performance reassuring. If history is a guide, living standards will continue to go up for the next generation, even as the country bears the costs of decarbonising the economy. Yet, resilient as the growth record has been, there are shadows.

3 key takeaways from the article

1. America remains the world’s richest, most productive and most innovative big economy. 
2. The ingredients of growth include America has nearly a third more workers than in 1990, compared with a tenth in Western Europe and Japan. More of them have graduate and postgraduate degrees. True, Americans work more hours on average than Europeans and the Japanese. But they are significantly more productive than both.  American firms own more than a fifth of patents registered abroad, more than China and Germany put together. All of the five biggest corporate sources of research and development(R&D) are American.  A large consumer market over which to spread the costs of R&D, and a deep capital market from which to raise finance.  The size and the quality of the workforce matters, too. America was blessed with a younger population and a higher fertility rate than other rich countries.  And the dynamism of the system.
3. Yet, resilient as the growth record has been, there are shadows.

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Topics:  USA, Economic Development, Poverty