Your weekend economics reading

Virginia Postrel‘s latest New York Times column looks at William W. Lewis’ The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability — about which I’ve blogged here and here. Postrel gets at a facet of Lewis’ book I failed to highlight in my previous posts: To know why some countries prosper while ...

By Daniel W. Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast.

July 16, 2004, 10:18 PM

Virginia Postrel's latest New York Times column looks at William W. Lewis' The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability -- about which I've blogged here and here. Postrel gets at a facet of Lewis' book I failed to highlight in my previous posts:

Virginia Postrel‘s latest New York Times column looks at William W. Lewis’ The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability — about which I’ve blogged here and here. Postrel gets at a facet of Lewis’ book I failed to highlight in my previous posts:

To know why some countries prosper while others fall behind, then, we need to know which industries in which countries are more productive and why. Most studies of the subject, however, concentrate on a narrow slice of the economy: products that are traded in world markets. That’s because, thanks to customs regulations, most countries have excellent data on those goods. Looking only at traded goods can be highly misleading. International businesses tend to face intense competition. They have to adopt practices that improve productivity. Domestic industries, by contrast, are often protected from competition. McKinsey’s research fills in the picture, providing data and case studies of industries like retailing, food processing and construction.

Looking at the nontradeable sectors reveals some startling gaps in productivity:

Food processing in Japan, Mr. Lewis writes, “has more employees than the combined total of cars, steel, machine tools and computers,” or about 11 percent of all manufacturing workers. While Japan’s fiercely competitive auto industry is the most productive in the world, its food-processing industry is only 39 percent as productive as the United States industry, McKinsey found.

Read the whole thing, and then order the Lewis book if you haven’t already. Meanwhile Tyler Cowen links to this Arnold Kling TCS essay comparing and contrasting America’s poor in 1970 with 2000. The statistics are quite startling — poor Americans are much better off now than during the height of the Great Society. [But wage rates have been pretty much stagnant since 1970. In fact, they’ve been worse than stagnant in recent months. How can this be?–ed. Kling looks at consumption rather than wages. He goes on to postulate:

Given these statistics, what explains the fact that, adjusted for inflation, the pay of the lowest-wage workers has not increased much over the past thirty years? There are a number of factors involved, but I suspect that the largest component of the explanation is a shift in the composition of the low-wage work force. In the 1970’s, many of the people at the bottom of the wage scale were heads of households. Today, many low-wage workers are providing second or third incomes to families.

I have no idea if Kling’s hypothesis holds — but it’s worth investigating. UPDATE: One more reading assignment — Brad DeLong’s latest post on global warming.

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner

Tag: Economics