Newspaper article THE JOURNAL RECORD

Industrial Specialization May Dictate World Economy

Newspaper article THE JOURNAL RECORD

Industrial Specialization May Dictate World Economy

Article excerpt

By Sylvia Nasar N.Y. Times News Service Must commerce among nations always be a dog eat dog fight for absolute advantage?

Economic Darwinians fear that America's loss of leadership in a few key industries is the beginning of an irreversible decline in competitiveness. A more sanguine school, which holds that industrialized economies will ultimately converge, maintains that Japan and Germany will catch up with the United States, but not surpass it.

As it turns out, reality isn't unfolding quite according to either script, some economists say. While the level of output per employee in Japan and Germany and the United States has converged since the 1950s, productivity in individual industries has begun to diverge.

Instead of catching up across the board, countries seem to be specializing in the things they do best. While Japan and Germany have surged ahead in some industries, the United States has widened its lead in others and stayed ahead, if by a narrower margin, in still others.

"If you lose one industry, there's no sign you'll lose them all,"

said Edward N. Wolff, an economist at New York University. "Just because Japan has taken over consumer electronics does not mean that Japan will triumph in mainframe computers or medical instruments."

A book by Wolff and David Dollar, a colleague at the World Bank, called "Competitiveness, Convergence and International Specialization"

will be published by MIT Press this fall.

That pattern of specialization, which started to emerge after the early 1970s, said Dale W. Jorgenson, an economist at Harvard University, suggests that the United States still stands to gain from expanded world trade, but that it continues to face the possibility that trade conflicts will develop

"We can take some of their markets and they can take ours," said Jorgenson. "So we will have to stamp out little moves toward protectionism and make sure our trading partners do too."

Productivity is a handy measure of an industry's competitive muscle.

Industries with high levels of labor productivity tend to export a lot.

"If you're the most efficient country in the world in making planes, you tend to dominate world aircraft trade," Wolff said. "High productivity reflects how much investment you've poured into an industry as well as how sophisticated the technology you have."

For 25 years after World War II, the overall level of productivity among industrialized countries did converge. Productivity grew faster in Germany and Japan than in the United States during the 1950s, 1960s and early 1970s.

"The U.S. was once the dominant economy," said Wolff. "Now it's the first among equals."

Using output per worker as a yardstick for productivity, the United States is about 45 percent more efficient than either Germany or Japan, who are roughly equal.

Of course, using that measure instead of output per hour understates Germany's efficiency and overstates Japan's because German workers put in fewer hours on the job than Americans while their Japanese counterparts put in more.

"Many parts of Japanese businesses operate below United States standards," said Jorgenson. "Japan has world class factories in many industries, but getting things to and out of the factory is incredibly inefficient. …

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