[Music]
Sales of the General Motors Company, GMC,
declined starting in about 2000 because the
firm had difficulty competing with rivals
offering more fuel-efficient cars.
GM was hit hard by the recession of 2007 to
09 and declared bankruptcy in 2009.
A restructured GM soon emerged with a focus
on increasing sales in foreign markets.
By 2013, GM was selling more cars in China
than in the United States.
From 1949 until the late 1970s, China was
a centrally planned communist economy, and
the country experienced little economic growth.
China moved away from a centrally planned
economy in 1978 and experienced growth of
real per capita GDP of 7.63% annually between
79 and 1990, 9.27% between 1990 and 2000,
9.87% from 2000 to 2010, and 7.51% per year
from 2010 to 2014.
Growth is slowing but is still gaining for
the country overall.
But China is not a democracy, and the Chinese
government has failed to fully establish the
rule of law, particularly with respect to
the consistent enforcement of property rights.
GM has been cautious when bringing its latest
technology to China for fear that its intellectual
property will be stolen.
Okay, now this General Motors will import
Buicks that have been made in China and
they're going to be imported to the
United States and look who is here to
comment on this automotive editor Gary
Gasselo.
Now these shipments of Chinese made
Buicks. Still unconfirmed - just to make sure...
But highly likely? Looks like it's
going to happen. You also so say it's going
to happen. When are they going to come?
Probably happen within a year or two if
it does kick off this rumor first
surface back in August of General Motors
makes a lot of cars in China sells a lot
of cars there it's got excess volume
it'd be pretty easy to knock out 40 or
50,000 cars and send them to the United
States price-competitive in the United
States they will be I'm sure and that's
the thing they'll save a lot of money
making them over there the profit
margins it could even be better now
listen both those already selling
Chinese made cars in the United States
they started this year they were the
first drove it recently far as I can
tell is exactly the same as the ones
made in Sweden how about this one Chevy
and GMC the both coming out with
diesel-powered pickup trucks that get
over 30 miles to the gallon on the
highways on a break through 31 miles a
gallon this would be the most
fuel-efficient pickup trucks ever. This is
their midsize trucks which have been a
huge success this year they've been out
of that segment for a couple years they
came back they're going to sell over a
hundred thousand of them in the United
States this year it's likely now we're
hearing that Ford's going to re-enter
that segment as well Chrysler's been out
of it for a while though it's been a big
success people are very excited about
these diesels not going to save you a
lot of money too they cost thirty seven
hundred bucks more than the regular
gas-powered v6 is and they're only gonna
save you about 100 bucks a year on fuel
prices but people like diesel trucks
because of the towing capabilities and
just the overall performance I drove it
I really did enjoy it'd be nice if that
price was a little closer to the regular
vehicles but I think they are going to
sell well figure about ten percent of
the volume of the trucks. All right Gary
Gasselo, you know what you're
talking about. We appreciate that, thank you very much Gary.
In economics, "economic growth" or "economic
growth theory" typically refers to growth
of potential output, that is, production at
"full employment".
This assumes the country has an established
economic structure, with Rule of Law, Private
Property Rights, and a Financial Infrastructure.
In this chapter, we study the economic development
process in the US and with our trading partners.
[Music]
No sustained economic growth occurred between
1,000,000 B.C.
and 1300 A.D.
Significant growth did not begin until the
Industrial Revolution.
The Industrial Revolution refers to the application
of mechanical power to the production of goods,
beginning in England around 1750.
Before that time, production of goods had
relied almost exclusively on human or animal
power.
First England, and then other countries, experienced
long-run economic growth with sustained increases
in real GDP per capita.
The Industrial Revolution, sprouted in response
to the Glorious Revolution, also called the
Bloodless Revolution of 1688 in England.
The British King passed administrative control
of the banking system and property rights
control to the British Parliament.
These events synergistically establish a trend
of economic growth in Europe.
It started as small growth, but because of
compounding, in the long run, small differences
in economic growth rates result in big differences
in living standards.
The world's average annual growth rate of
real GDP per capita in the period 1800 to
1900 was about 1.3% and equaled 2.3% from
1900 to 2000.
The Bureau of Economic Analysis has estimated
that the real gross domestic product, in 2009
prices, of the United States in 1929 was $1,055.6
billion.
The Industrial Revolution, and its subsequent
spread throughout the world, resulted in sustained
increases in real GDP per capita.
Growth rates matter because an economy that
grows too slowly fails to raise living standards.
In some countries in Africa and Asia, very
little economic growth has occurred in the
past 50 years, resulting in severe poverty.
Remember the Rule of 70, to apply to a couple
growth rates, like 1.3% and 2.3% to see the
time needed to double the average standard
of living in a country.
Even a little rate increase makes a substantial
reduction in the time needed to double the
GDP per capita.
The world can be divided into two groups:
the high-income countries, or the industrial
countries, and the poorer countries, or developing
countries.
The high-income countries include Western
Europe, Australia, Canada, Japan, New Zealand,
and the United States.
The developing countries include most of the
countries of Africa, Asia, and Latin America.
In the 1980s and 1990s, a small group of countries,
mostly East Asian countries such as Singapore,
South Korea, and Taiwan, experienced high
growth rates and are referred to as the newly
industrialized countries.
Income equity between countries is often sought
as Developing Nations grow larger and increase
the difference between the Developed and Developing
countries.
However, there are still undeveloped countries,
not yet engaged in the Globalization thrust.
These differences are evident when comparing
Developed European countries like Germany
to Undeveloped Sub-Saharan African Countries.
Disparity can also be seen when comparing
cultural groups within the USA and Canada
based on Aboriginal cultures when compared
to other cultural origin groups.
Although average income per person in each
group may be substantially different, advances
in health care, educational enhancements,
and rule of law have generally improved substantially,
although that does not mean it is uniform
nor does it mean it is consistently applied.
[Music]
The economic growth model explains growth
rates in real GDP per capita over the long
run.
This model focuses on the causes of long-run
increases in labor productivity, which is
the quantity of goods and services that can
be produced by one worker or by one hour of work.
Economists believe that two key factors determine
labor productivity: the quantity of capital
per hour worked and the level of technology.
Technological change is a change in the quantity
of output a firm can produce using a given
quantity of inputs.
There are three main sources of technological
change:
1. Better machinery and equipment
2. Increases in human capital, which is the accumulated
knowledge and skills that workers acquire
from education and training or from their
life experiences
3. Better means of organizing and managing production
A country's standard of living will be higher
the more capital workers have available on
their jobs, the better the capital, the more
human capital workers have,
and the better
the job business managers can do when organizing production.
This Model of Economic growth is more than
just words, it is a foundational change to
how you, an entrant into the professional
job market, can enter the marketplace as someone
who does more than work faster and with increased
accuracy.
You can find ways to adopt different technologies
into your personal production function.
This concept is a game-changer in many people's
minds.
Growth is not just about new technologies
introduced by businesses into their operations;
it requires employees knowing how to use the
technologies.
I have seen companies that spend thousands
of dollars to purchase Geographical Information
Systems software, integrate servers and desktop
computers with wide format printers so they
could embrace the new technologies.
But, when it came time to deploy these spatial
analysis tools in the workplace, they had
one person able to run the software.
This can create a "Bunker Complex" to create
a wall around this staff member who would
not release the data accumulated to co-workers
or even to clients.
When that worker finds other employment, the
company is left without the human capital
needed to leverage the expensive data into
value for the company.
Does it sound ridiculous to you?
Trust me, it is absurd but it is also a reality.
There are too few professionals entering the
workforce today with single-specialty focus.
Broadened specialization means more preparation
work, but potentially more rewards.
The economic growth model can be illustrated
by using the per-worker production function,
the relationship between real GDP per hour
worked and capital per hour worked, holding
the level of technology constant.
Increases in the quantity of capital per hour
worked result in movements up along the per-worker
production function.
Holding technology constant, equal increases
in the amount of capital per hour worked lead
to diminishing increases in output per hour
worked.
Consider this line as a new entrant into the
technology starts in the lower-left side of
the chart.
New skills are learned, techniques are refined,
and the process of becoming more and more
efficient is embraced.
The worker moves along the line in a right
and upward progression.
This is what most people do as they enter
the workforce.
You can see this clearly for someone working
at a job doing house painting with brushes
and rollers.
The first house painted took a lot of time
to get the use of tools right.
Then as more houses were completed efficiency
increased and eventually the per-worker production
function leveled out.
Leveling out means simply that using the technologies
available that additional worker efficiency
improvements are not likely.
This is diminishing returns.
Technological change helps economies avoid
diminishing returns to capital.
Technological change shifts up the per-worker
production function and allows an economy
to produce more real output per hour worked
with the same quantity of capital per hour worked.
In the long run, a country will experience
an increasing standard of living only if it
experiences continuing technological change
and human capital capable of adopting it,
and using it.
This is where workers enhancing their personal
production function are enabled.
That house painter may consider using a spray
applicator to speed the job, or different
scaffolding devices to access the worksite.
The painter may consider changes to the siding
materials necessitating fewer layers of paint,
or select a different compound to use when
painting.
Each technological change in the operation
introduced a new Production Function the worker
moved up to.
General Secretary Gorbachev if you seek
peace if you seek prosperity for the
Soviet Union and Eastern Europe if you
seek liberalization come here to this
gate Mr. Gorbachev open this gate.
[Applause]
Mr. Gorbachev, Mr. Gorbachev tear down this wall!
[Applause]
As the Soviet Union grew rapidly from 1920
through the 1950s.
It went through a process of adoption of new
technologies.
Some were deployed within the country, and
others were brought from the USA and Europe.
Because of the economic system of the USSR,
employees were engaged through managed work
programs while entrepreneurs were stifled.
Domestically created new technologies bypassed
the Soviet system.
Their economy was anchored on crude oil and
gas extraction to sell to Europe where it
was processed into usable products.
Within the USSR, the raw National Endowments
of oil and gas, were not processed into final
products - no value added was enabled.
Only a small portion of the nation's people
were engaged in the industry and the national
government was the beneficiary of the proceeds
from extraction.
National emphasis on roads and bridges, electricity
and clean water supplies was minimal.
When oil and gas prices dropped in the 1980s
and 90s, the Soviet Union became insolvent
and collapsed.
[chatter]
New growth theory is a model of long-run economic
growth that emphasizes that technological
change is influenced by economic incentives
and so is determined by the working of the
market system.
Paul Romer, who developed the new growth theory,
argues that the rate of technological change
is influenced by how individuals and firms
respond to economic incentives.
Firms add to an economy's stock of knowledge
capital when they engage in research and development
or otherwise contribute to technological change.
Romer argues that the accumulation of knowledge
capital is subject to diminishing returns
at the firm level, but at the level of the
entire economy, knowledge capital is subject
to increasing returns.
The use of knowledge capital is nonrival because
one firm's use of that knowledge does not
prevent another firm from also using it.
Romer points out that firms are unlikely to
engage in research and development up to the
point where the marginal cost of the research
equals the marginal return from the knowledge
gained because other firms will gain much
of the marginal return.
Government policy can increase the accumulation
of knowledge capital in three ways:
1. Protecting intellectual property with patents
and copyrights.
A patent is the exclusive right to produce
a new product for a period of twenty years
from the date the patent is applied for.
2. Subsidizing research and development.
3. Subsidizing education.
These policies can bring the accumulation
of knowledge capital closer to the optimal level.
Research and Development costs companies and
individuals time and money.
Not all R&D is funded by the government and
when it is articulated into a new product,
the creators are protected by laws to ensure
it.
Patents and copyrights are fundamental protections
bestowed on US companies and residents.
This enables creativity and allows inventors
to benefit from their creations.
Sometimes, governments fund R&D activities
and this is generally through Universities
or targeted direct contracts.
It can also be granted as tax incentives.
Mostly, R&D is enhanced by making the science
a part of college and university training.
Many US educational institutions are partially
funded by the Federal Government and States,
with the benefit seen as increases of technology
development in the country, and as increased
wages of trained employees.
The new growth theory has revived interest
in the ideas of Joseph Schumpeter, who developed
a model of growth that emphasized his view
that new products drive older products - and
the firms that produce them - out of the market.
For Schumpeter, the key to rising living standards
is the development of new products that meet
consumer needs in qualitatively different
ways.
Successful entrepreneurs can use their profits
to finance the development of new products.
In my professional career, starting in Forestry,
I have been a proponent of technological changes
necessitating workers to adopt their use.
New technologies need people who understand
their use and are able to implement them.
It was seen at the macro-scale of timber extraction,
and at the micro-scale as navigation in the
forest was facilitated by government produced
maps of where roads and sections were located,
then to using GIS programs to model topographic
lines, streams, and road networks.
Ultimately, to create these maps as needed
with topographic relief on printed paper and
on portable communication devices.
Tools of the trade changed from the staff
compass to a handheld compass, and from steel
tape rolls to a hip mounted distance measuring
string-box.
These were replaced with Global Positioning
System units; a GPS accepting data from satellites
to determine position on the ground and carried
by field staff working in the forest.
Each new unit opening new possibilities to
increase worker productivity.
As each new product release was made, the
previous model was made obsolete:
Creative Destruction.
Employees are always challenged to stay on
top of the evolving technologies to be able
to extract value from its newest technological
introduction.
Upward movements on Personal Production Functions.
Whether we talk about the forest management
sector, or any other industry, it is imperative
you identify movement up from one level of
your Personal Production Function to the next
higher level.
A person may be able to perform on the far
right side of the Production Function 1 curve,
only to be surpassed by someone capable of
performing at introductory levels on the next
level up, or the one higher than that.
Progressive adoption of the technology is
what makes efficiency valuable to the benefit
of the person, the company, and the nation.
It can be frustrating for the businesses to
strive to keep employees on the cutting edge
of technology adoption.
Some have called it staying on the "bleeding
edge".
As an economist, you can identify how to deploy
the right technology for the right job.
That means the most accurate GPS unit costing
$10,000 and requiring a highly trained technician
to operate it, is not justified on the job
to make a road layout Proposed-line survey.
The $150 GPS used for several years already
can do the job fine.
On the other hand, implementing advanced spatial
analysis techniques for a water-flow management
device, costing tens-of-thousands of dollars,
may be justified on the basis of avoiding
flooding and washout costs, and even the risk
imposed to people living in the threat zone
if wrong decisions are implemented.
Of course, knowing which decision is best
deployed means the manager has the understanding
of each level of enhanced technology and is
willing to implement it.
[Music]
Productivity in the United States grew rapidly
from the end of World War II until the mid-1970s.
Growth then slowed down for 20 years.
Beginning in the mid-1990s, the growth rate
picked up again, although it remained below
the levels achieved during most of the twentieth
century.
Some economists believe that productivity
only appeared to slow down because of the
difficulty of accurately measuring productivity,
especially for the production of services.
Other economists blame the productivity slowdown
on the educational system, which may have
left workers ill-trained for the jobs that
were created during this time period.
However, economists have not reached a consensus
on why the productivity slowdown took place.
Some economists believe that the development
of a "new economy" based on information technology,
IT, caused the higher productivity growth
that began in the 1990s.
Faster data processing has had a major effect
on nearly every firm.
Many economists believe that measured growth
rates have understated the actual growth of
the US economy.
Other economists are skeptical about the ability
of the economy
to sustain high rates of productivity growth.
These economists doubt that the unmeasured
benefits of the IT revolution are any greater
than the unmeasured benefits of earlier innovations.
Personally, I believe there has been a reduction
in the level of productivity in part because
of the shift in focus by companies responding
to how the US economy has transitioned from
a manufacturing based economy to a services-based
economy.
Of course the transition is not en masse,
it is only a partial shift of focus.
This shift has given more attention to the
development of a new feature for a Smart Phone
used for personal edification, then it has
to increasing capabilities of data processing
or econometric design deployment used for
business production.
Today's high school graduate is much more
likely to be able to discover the best route
on a Smart Phone to get from home to a concert,
then that same graduate is able to identify
the conditions that make that route the best
option.
New technology adoption is a challenge for
many people.
I have interacted with managers of my generation
who will not consider the newest technologies,
even when shown how it can improve their business
operations and profitability.
The newest technologies are passed over.
This filters through their organizations because
"that is what management is doing,
so it must be right".
Again I urge you to Think Like an Economist,
and consider the best options for yourself.
Then make it happen.
[Music]
The economic growth model tells us that economies
grow when the quantity of capital per hour
worked increases and when technological change
takes place.
The profitability of using additional capital
or better technology is generally greater
in a developing country than in a high-income
country.
The economic growth model predicts that poor
countries will grow faster than rich countries.
Catch-up is the prediction that the level
of GDP per capita, or income per capita, in
poor countries will grow faster than in rich
countries.
The paradox is that lower-income industrial
countries have been catching up to the higher-income
industrial countries, but the developing countries
as a group have not been catching up to the
high-income countries as a group.
It is a process of change.
A graph can be used to illustrate whether
catch-up is happening.
The initial level of GDP per capita is measured
along the horizontal axis and the vertical
axis shows the rate at which GDP per capita
is growing.
Low-income countries should be in the upper-left
part of the graph and high-income countries
should be in the lower-right part of the graph.
Some countries that had low levels of real
GDP per capita in 1960s had lower levels of
real GDP per capita in 2010 than in 1960.
Other countries that started with low levels
of real GDP per capita grew rapidly.
Over the past 20 years, other high-income
countries have fallen further behind the United
States.
Real GDP per capita in Canada, Japan, and
the five largest countries in Western Europe
increased relative to the United States between
1960 and 1990, but none of these countries
has experienced catch-up since 1990.
Many economists believe that there are two
explanations for the failure of these countries
to catch-up with the United States: the greater
flexibility of U.S.
labor markets and the greater efficiency of
the U.S.
financial system.
The U.S. Labor Markets have developed, through
trial and error, into an efficient system
allowing businesses flexibility to make decisions
in their best financial interests.
This sometimes means releasing workers to
recruit new ones better equipped to implement
new technologies, or even to develop them.
Other countries have much stronger government
involvement in the abilities of companies
to make the ultimate decisions about worker
longevity with a firm, and even the acceptable
pay level.
This is also seen in the USA, with workers
entering the workforce sooner, while still
in high school and leaving the workforce later,
sometimes starting a new career after retiring
from another.
This series of events can seem "impossible"
to citizens of other countries who may be
accustomed to spending their entire career
working for the same employer, then retiring
once and for all.
This is not alien in the USA either, at least
not a couple generations ago.
My grandfather lived through the Great Depression
and worked for one employer his entire career.
My father entered an apprentice program as
a machinist for the Puget Sound Naval Shipyard
and received training and experiences to promote
him to the head of the Nuclear Engineering
program for the US Navy.
He spent 41 years working for that one employer
until his retirement.
He never reentered the workforce after that.
The realities of today's USA workforce is
quite different and continues to evolve.
Some poor countries do not experience rapid
growth for four main reasons:
1. Failure to enforce the rule of law, which
is the ability of a government to enforce
the laws of the country, particularly with
respect to protecting private property and
enforcing contracts.
2. Wars and revolutions.
3. Poor public education and health.
4. Low rates of saving and investment
Property rights are the rights individuals
or firms to the exclusive use of their property,
including the right to buy or sell it.
The Rule of Law seems to most American students
as a compulsory topic of self-gratification
to say "we figured it out".
I tell you about it because what we have in
the USA in respect to the Rule of Law is fundamental
to our basic business successes.
I have worked in Latvia, located along the
Baltic Sea in Northern Europe.
While there, I saw that everyone had a personal
chauffer.
The chauffer was not for status reasons, it
was because no one could leave their automobile
unattended without it being stripped or stolen.
Law enforcement was unwilling even to try
to prevent automobile theft, because it was
not their responsibility.
Simple protection of a car is one thing, but
this hands-off philosophy is extended to the
licensed shops in downtown Moscow, Russia,
where small businesses were
experiencing success and growth.
Frustrated by these pesky shop owner's successes,
bribes were paid by the big box stores of
Moscow, to destroy the small businesses taking
their business away.
Government machines were deployed in downtown
Moscow, near subway outlets, to crush their
businesses - I mean literally to really crush
them.
The Rule of Law is touted as the Russian modus
operandi, but in practice the Ruble is the
controller in power.
This night over one hundred shops were demolished
in Moscow.
Moscow people woke up in completely different
looking cities - a lot of their favorite shops
are destroyed.
Never before have Moscow authorities demolished
so many shops at once.
Usually they did it one-by-one after a court
order.
But now they demolished them at will - no
more court orders are needed due to the "new law".
Thanks to this they destroyed over one hundred
stores on one night.
[Construction Noise]
Bulldozers, bailiffs and police arrived
in Moscow private residential
neighborhood of Vilichnik on the
night of January 21st to enforce a court
order by tearing down 43 houses
They do what they want the resident were not
warned in advance as the law requires
the city has declared the region a
protected ecological zone it says the
old Soviet land permits for Vilichnik
residents are invalid and that their
houses must be destroyed
by a shield
radius 200 people dressed in black
arrived at 3 o'clock in the morning we
don't know whether they were police or
riot police they came some of our
residents were standing outside on the
road and somewhere in their cars police
started taking people into a police bus
and sending them to the police station
the others were taken from their cars
police arrest around 20 protesters who
were brought to the nearest police
station overnight for disorderly conduct
during the standoff with the bailiffs we
were asking the policeman why they did
detain us?
they answered for property robbery.
Another man was
told that he was detained for dealing
drugs and a woman was accused of
prostitution.
As police cordon off the
area where houses are being demolished
residents can appeal only to reporters
and others to save their homes.
Reasons for slow economic growth as a numerous
as the countries experiencing it.
Military engagements can initiate new technologies
such as it did for the USA before the start
of WWII, because the war was not fought on
US soil, until Pearl Harbor was bombed.
For a country like Ukraine being attacked
by the Russian Federation, or Mozambique engaged
in a civil war, technological progression
is mostly halted as real estate is destroyed
and people killed.
Infrastructure development goes beyond roads
and bridges, to encompass education from grammar
school to colleges, health care from people's
diet to the nation's hospitals, and business
success from growing businesses expanding
employment to all levels of production: assembly
lines to R&D.
One way for a developing country to break
out of the vicious cycle of low saving and
investment and low growth is through foreign
investment.
Foreign Direct Investment, FDI, is the purchase
or building by a corporation of a facility
in a foreign country.
Foreign portfolio investment is the purchase
by an individual or a firm of stocks or bonds
issued in another country.
Globalization is the process of countries
becoming more open to foreign trade and investment.
Developing countries that are more globalized
have grown faster than countries that are
less globalized.
[Music]
A market system cannot work well unless property
rights are enforced.
Entrepreneurs are unlikely to risk their own
funds, and investors are unlikely to lend
their funds to entrepreneurs, unless property
is safe from being arbitrarily seized.
In many developing countries, the rule of
law and property rights are undermined by
corruption.
Research has shown that countries where corruption
is most widespread grow much more slowly than
countries where corruption is less of a problem.
As people's health improves and they became
taller, stronger, and less susceptible to
disease, they also become more productive.
Many economists believe that government subsidies
to education have played an important role
in promoting economic growth.
The rising incomes that result from economic
growth can help developing countries deal
with brain drain.
Brain drain refers to highly educated and
successful individuals leaving developing
countries for high-income countries.
Government policies that facilitate access
to technology are crucial for low-income countries.
The easiest way for developing countries to
gain access to technology is through foreign
direct investment.
In high-income countries, government policies
can aid the growth of technology by subsidizing
research and development.
Governments can increase incentives for firms
to engage in investment in physical capital
by using investment tax credits.
These credits allow firms to deduct from their
taxes some fraction of the funds they spent
on investment.
Analysts are perpetually making projections
about the standard of living experienced by
other countries.
The case of Chinese economic development is
no stranger to this scenario.
Of course China's economic development will
improve the standard of living for people
in China.
Next year will most likely be better for Chinese
people, than it was this year.
The question of the rate of China's economic
development, challenges the traditional methods
of measuring it when trying to use tools created
to measure Open Market economies.
These tools were applied to the Soviet Union
from 1950 through 1980 with little success,
because the Soviet economic system was plagued
by corruption and a national ego pivoting
on world domination.
The Chinese communist system is different.
China has endorsed internal commercial enterprises
and opened its markets to direct foreign investment.
China manufactures goods for sale on the world
market, and is the world's largest exporter.
China hosts General Motors, a US mega-enterprise
to manufacture automobiles in Chinese plants,
employing Chinese laborers, and exporting
a part of the automobiles it makes, while
consuming those new vehicles in China.
Understanding how Communism is strengthened
in China through Globalization is a new paradigm
to challenge everyone.
The arguments against further economic growth
tend to be motivated either by concern about
the effects of growth on the environment or
by concern about the effects of the globalization
process that has accompanied economic growth
in recent years.
Economic analysis can contribute to the debate
over the consequences of economic growth,
but it cannot resolve the issue.
[Music]
