Academic journal article Economic Commentary (Cleveland)

Economic Policy for Our Era: The Ohio Experience

Academic journal article Economic Commentary (Cleveland)

Economic Policy for Our Era: The Ohio Experience

Article excerpt

What Makes an Economy World Class?

A world-class economy, as I understand the term, is an economy that successfully competes at the international level. I doubt whether many places in this nation have as clear a perspective on the world economy as northeast Ohio. One-quarter of the nation's manufacturing output is produced within a half-day's drive from Cleveland. The region generates more than 40 percent of the nation's transportation equipment, 30 percent of its industrial machinery, and 40 percent of its metals-industries that make up an important part of the nation's re-energized trade sector. Consider that about one in four dollars' worth of metalworking machinery, of which this region is a major producer, was exported. Ohio's steel producers-another of the state's revitalized industries-have more than doubled their export volumes since the mid-1980x. And in the transportation equipment industry, the foreign-owned Honda assembly plant in Marysville, Ohio, which produced roughly half a million cars in 1999, is the largest automobile assembly plant in North America.

I would like to offer some observations. from a policymaker's perspective, on events that have already transformed national and regional economies and continue to reshape business around the globe. Specifically, I want to reflect on the changing role of economic policy in our current environment of rapidly improving communications and expanding markets. To sustain the progress that this region and other regions have made in the past decade and to best ensure our continued global competitiveness, we need to fashion economic policy that, above all else, facilitates communication through efficient and effective markets.

Recent Economic Developments

The national economy is enjoying an impressive period of prosperity. U.S. income, after adjusting for inflation, has grown about one-third since 1991-or about 3 1/2 percent annually. U.S. joblessness has fallen to a level not seen in 30 years, and wealth is being created at a pace rarely achieved.

Growth in this region has been even more impressive. On a per capita basis, northeast Ohioans saw 5 percent more income growth than the nation during the five-year period that ended in 1997. Economic strength is also reflected in local labor market indicators. After many years of subpar performance, and occasional periods of outright decline, the net growth of jobs in the region has kept pace with the exceptional U.S. average. Even more telling is the remarkable pattem of the local unemployment rate. After averaging more than I percentage point above the national average in the 1980s, joblessness in the Cleveland area fell below the U.S. average in 1990 and has remained at or below the national benchmark every year since.

The recent prosperity of the region dramatically reverses the previous 12-year period of economic decline relative to the nation. This decline, not so flatteringly referred to by some as the "RustBowl Era," took its toll on labor and business alike. After peaking in the early 1970s, the population of the six-county area surrounding and including Cuyahoga County declined annually for nearly two straight decades. But since 1990, more families have been arriving than leaving, which can be due only to this area's rejuvenated economy.

What accounts for this remarkable reversal in economic fortune? On the national level, and in this region as well, the dominant force of late appears to be a significant upshift in the rate of productivity growth. Having increased 1.6 percent annually from 1990 to 1995, output per hour in the nonfarm business sector-a conventional measure of productivityhas risen at a yearly pace of about 2.6 percent since 1995. Cyclical forcessuch as businesses' inability to add to their payrolls as rapidly as they would have liked in response to the rise in demand-have probably played some role in these efficiency gains. But I suspect that longer-term structural changes, reflecting the boom in capital spending and the revolution in information technology, have been more important. …

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