Americans live fearlessly in a world of endless cycles.
To them, the economy rises, falls, then rises again, looking much the same as it did before the decline. To them, it is a dependable engine that makes up for an occasional sputter with long, trouble-free journeys to higher prosperity.
Once again, the nation appears to be on the verge of one of those cyclical turns. Once again, there is the same old predictable reaction: While the recovery may be slow, after a while things will return to ”normal”
again.
But they will never be ”normal” again, in the sense that things were normal in the `50s, `60s, `70s and `80s. The United States is about to encounter a brand-new economic experience and will be forced to explore new areas for possibilities of growth, prosperity and employment in the anxious
`90s.
The old standbys aren`t standing by anymore. The automobile industry is satiated with capacity, and some plants will have to close. Other
manufacturing industries are more efficient, and not apt to provide new employment. Services like banking and insurance are undergoing a restructuring to cut costs, and there will be a consolidation.
And then there is land.
Since frontier days, there always has been room to build on this big, sprawling continent, and usually there have been enough tenants to fill the space they have provided. One of the heroes of American economic growth has been the cigar-chomping developer, full of confidence amd bravado and never seeing a big risk as a grave risk.
The country is never happier than when the construction crews come out of their economically imposed hibernation and turn wood, concrete, steel and stone into condo, townhouse and skyscraper. America, relentless exploiter of land and raw materials, always seems to come back strong when it is building. Historically, that is why real estate has always been a good investment. But as Americans learned in the last year, the country overinvested in land and buildings in the last decade, so that there is a glut of office space almost everywhere.
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So where do we build now? Will it be highways, bridges and sewers? There is every indication that the country badly needs new investment in its infrastructure. The only problem is that the federal, state and local governments will remain so stretched for funds that they will be unable to afford the kinds of investments required.
So the old pattern of growth has been swept away. It`s a fundamental change-the bulldozer and the crane no longer are the chief symbols of economic growth. The question is what will replace investment in land and buildings as a driving force of the U.S. economy.
”It`s a critical juncture,” said Steven Roach, senior economist at Morgan Stanley, the investment banking firm. He doesn`t buy the conventional wisdom that all sectors of the economy will come back in proportion to the way they prevailed before this downturn began.
It was hoped that, with manufacturing employment having dropped by 2 million during the last decade, services would pick up the slack. But that was before the crisis in banking, insurance and aviation and before companies realized that their offices were inefficiently organized.
Back in more innocent times, noted Roach, many economists had assumed that America wuld make a ”seamless transition to the information age” as manufacturing gradually decreased in importance. But manufacturing`s role has fallen dramatically, and jobs in the ”information” industries have not been as robust as hoped.
Normally, the chief source of new income and jobs is the rise of new industries, products and markets, said Roach. ”That`s what changed in the
`80s. Job growth was driven by the inherent inefficiency of the service sector.”
In other words, firms in the last decade decided it was cheaper for them in a growing economy to hire young workers for low-paying service jobs than it was to become more productive. Even then, according to Roach, they weren`t sure how to use new technology to improve the efficiency of their operations. They were blinded by the glitz and hype of new technology, said Roach.
When the recession came, they cut back these jobs dramatically to increase their efficiency, having failed to do so with new technology. It is yet another example of how short-sighted decisions by business managers in the `80s will continue to haunt the economy for the next decade.
It is important for policymakers in the nation`s capital and for inflation-frightened Wall Street to understand that the U.S. economy has changed beyond all recognition. The old, traditional recipes won`t work, especially tight money or pump-priming.
Just when the country needs leadership from Washington on how to cope with a rapidly changing economy, the Bush administration is hopelessly caught up in the theory of cycles. This attitude, though, could boomerang on the administration, if not the American people, at a crucial time.