Short paper

How to grow rapidly with high profit margins

                                    
                                             

Rule Three: Businesses that would grow rapidly with high profit margins must take advantage of technological disequilibriums, exploit developmental disequili riums, or create sociological disequilibriums. All other activities are slow-growth, low-rate-of-return commodity businesses.[1]


Slow productivity growth in 1970-1990s

In the past years, we have seen the development of many new products such as personal computers, cellular phones and new technologies. No one denies that the last decade has produced more market wealth and generated greater fortunes than any other decade in American history. Productivity growth has stayed high since 1995, the productivity improvement has increasingly come to be seen as lasting. Data from 2001 and 2002 only strengthen this conclusion. During the seven quarters ending in the third quarter of 2002--a period that includes a recession and a recovery---labor productivity grew at an annual rate of 3.2 percent, somewhat higher than the annual rate of 2.5 percent from 1995 to 2000 and much higher than the 1.4 percent trend from 1973 to 1995[2]. But it is almost the same as that of the 1960s\'. What can explain the productivity growth slowdown during the 1980-1990s?

1. Exaggeration in inflation and a consequent underestimation of output. Inflation is difficult to measure, because of the dynamic nature of consumers\' choices, and it is not directly linked to long-run living standards. Actually, inflation fell to 0.8 percent during the four quarters ending in the third quarter of 2002--down from 2.6 percent during the same period a year earlier. So it can\'t completely solve this problem.

2. Quality and experience of labor. Slower improvements in the quality of labor have reduced the growth in labor productivity. This may have been caused by less able workers entering the labor force in the past few decades as well as a decrease in the overall experience level of the labor force. All of these lead workers have to sacrifice more time to generate products. Unite states is first in the world in terms of GDP per person but ninth in terms of GDP per hour of work.

3. Investment Spending. The stock market\'s decline has caused some to question the productivity improvements of the late 1990s. Yet even though investors  may had overestimated the value of particular technology-intensive investments, it would be a mistake to infer that technological improvements hold little promise for future economic growth. Economists have long been interested in precisely how changes in stock prices affect consumption decisions. As the most important part of the real GDP growth, a decrease in his or her consumption must ultimately bring about a slowdown in real GDP growth.

4 Price of Energy. Some economists maintain that the large increases in oil prices occurring during the 1970s deterred the growth of productivity. I think it is one of the reasons for Bush to lunch the war.

High unemployment rate

Although the labor market improved in 2002 after weakness in the wake of the September 2001 attacks, most major labor market indicators showed little progress over the course of the year. The unemployment rate hovered between 5.5 and 6.0 percent throughout the year. I think the reason is the overemployment and a sharp rise in the minimum wage in 1997 and 1998. When the minimum wage is raised, some workers who had been employed are discharged simply because their services don\'t produce value in excess of their wages. It reduces the opportunities for useful employment. First of all, it makes low-skilled labor more expensive than it would otherwise be, thus fostering labor-saving devices that higher priced labor creates. Secondly, it reduces the numbers of young and low-skilled workers entering the labor market where training and apprenticeship would later permit the trainee to obtain a better higher paying job. All of these will lead two results:

1. Wealth is being taken away from those at the bottom. But the broad middle class of working and voting Americans has not been directly affected. Among men, the top 10 percent of the work-force gained 6.2 percent, the middle 10 percent gained 4.0 percent and bottom 10 percent gained 4.8 percent. That top 5 percent now owns as much marker wealth as the bottom 60 percent.

2. Earnings are being shifted to profits. In fact, firms are less willing to hire and train the least productive employee who includes teenagers and particularly minority teenagers. Companies can earn more profits by taking advantage of technological disequilibriums and creating sociological disequilibriums. In the twenty-first century, economic losers cannot be helped if societies want to have economic winners, or so it is said.

Conclusion

We know a nation realizes economic growth when it increases its full production level of output over time. Real wealth is the ability to produce more with less--to generate a flow of goods and services without having to sacrifice something else of equal value. Economic growth is determined by Natural resources, physical capital, human capital and economic efficiency. For natural resources, economic growth is not on a collision course with the environment. The same technical changes that are creating economic growth are creating a better environment. But how can we push the technological progress if there are no revolutions and inventions. For economic efficiency, how can we improve the efficiency of the economy if Unite states remain a perverse form of equalization. For example, if everyone has a higher standard of living, why they need to work hard for getting a piece of cake?

I agree with this word in Thurow’s book: Trying to defend what exist—the wealth pyramid created during the second industrial revolution-is impossible. The forces of the third industrial revolution, as we shall see, can be channeled so that they don’t increase inequalities, but governments can’t defeat them in a head-to-head battle.[1]

Reference

1.        Lester C. Thurow (1999). Building Wealth The new rules for individuals, companies, and nations in a knowledge-based economy
2.        Council of Economic Advisers (2003). Economic Report of the President