Productivity: key to growth - column

Nation's Business, Nov, 1989 by Warren T. Brookes

Productivity: Key To Growth

You would never know it from the news media or the politicians, but U.S. manufacturing is now more muscular and competitive than at any time since the 1960s.

Indeed, the manufacturing sector's tough-minded controls over costs and inventories make up one of the principal reasons that the U.S. economy thus far has outlasted the severe credit tightening of the Federal Reserve over the past 18 months. The International Monetary Fund's most recent analysis shows that U.S. unit labor costs (the cost of labor per unit of output) in manufacturing are now 33 percent lower than West Germany's and nearly 40 percent below Japan's.

While part of that favorable trend is the result of the lower value of the dollar, the principal reason is that since 1981, U.S. manufacturing productivity has risen at the fastest rate in postwar history--over 4 percent a year. At the same time, manufacturing unit labor costs have risen less than 1 percent a year, marking the best cost performance in U.S. history and a complete turnaround from the 1970s.

This is why U.S. merchandise exports have been rising a husky 20 percent a year since 1986, and this trend has continued in 1989; manufacturing productivity rose more than 3 percent in the second quarter, while unit labor costs were flat. As a recent Bear Stearns newsletter explained it: "The bottom line for manufacturing is productivity growth and cost control. International comparisons still indicate that U.S. manufacturing enjoys a sizable competitive advantage. Bravo."

The big danger, as always, is not as much with the Federal Reserve as it is with Congress, which nearly always has been an enemy of U.S. competitiveness. During the 1970s, for example, when the U.S. saw its greatest decline in productivity and competitiveness, the Congress was engaged in its own greatest legislative productivity. Its output soared from an average of under 2,500 pages of enacted bills per session in the 1960s to more than 3,500 in the 1970s. This in turn produced an explosion in the Federal Register, from an average of 20,000 pages of new rules in the late 1960s to more than 60,000 a year in the 1970s, reaching 87,012 pages in 1980.

We should not be surprised that this onslaught coincided with the worst four-year competitiveness performance in U.S. manufacturing history, from 1977 to 1981, when output per hour rose less than 1 percent a year, while unit labor costs shot up an awful 8.7 percent a year.

Since 1981, Congress's output has fallen sharply, as have the annual additions to the Federal Register, which now are back below 60,000 pages. Unfortunately, this year Congress is busier than ever cooking up a whole slew of cost impositions on U.S. industry. They include everything from minimum-wage hikes to a host of mandates--concerning health insurance, child care, parental leave, and workplace accommodations for the disabled--to one of the most aggressive environmental onslaughts ever seen.

Meanwhile, the administration is still reeling from the massive paperwork assault from the Omnibus Trade and Competitiveness Act of 1988. Murray Weidenbaum, the estimable economist who runs the Center for the Study of American Business, at Washington University, in St. Louis, states in a recent report that this 467-page law is "an example of the inability of Congress to control itself."

Hidden in this law, Weidenbaum found, are mandates by Congress for "a host of new studies, reports, advisory committees, interagency groups, meetings, seminars, and conferences to feed the insatiable curiosity of members of Congress. Nowhere is there any indication that this paperwork will be costly."

How costly? Weidenbaum found no fewer than 272 reporting and paperwork requirements, which he says will force the executive branch "to reverse the recent trend toward reducing the paperwork burden of the federal government." Even as Congress tries to lock up more forests, he adds, "ecologists should mourn for all the trees that will be cut down to provide the paper" for what surely will be an incredible array of studies and reports, "few of which will enhance U.S. trade or competitiveness."

Weidenbaum documents that array in his 19-page report. The State Department, for example, must produce 219 new reports; the Commerce Department, nine new reports and two new committees; the Agriculture Department, nine new reports; and the president's staff, eight new reports and two new committees.

What is the reason for these new reporting requirements? Weidenbaum says: "It appears that Congress votes for a new study or report as a `consolidation prize' for a member whose substantive legislative proposal is rejected. The report or study serves to keep the idea alive."

Congress obviously has failed to learn how to "just say no" to itself. "It is ironic," Weidenbaum notes, "that a legislative body that is so alert to shortcomings in the rest of the economy is oblivious to the impacts of its own actions."

The most beneficial action that Congress could take for U.S. competitiveness just might be to go home for a long, long vacation.