|
PureBytes Links
Trading Reference Links
|
----- Original Message -----
From: Steve Moore <sales@xxxxxxxx>
To: <undisclosed-recipients@xxxxxxxxxxxxxxxxxxxxx>
Sent: Tuesday, July 11, 2000 7:01 AM
Subject: Greenspan Speech - 7/11/2000
> Remarks by Chairman Alan Greenspan
> Structural change in the new economy
> Before the National Governors' Association, 92nd Annual Meeting, State
College, Pennsylvania
> July 11, 2000
>
> I am pleased to have the opportunity to meet with you today and address
the remarkable changes that have
> been occurring in our economy. The current economic expansion has not
simply set a new record for
> longevity. More important, the recent period has been marked by a
transformation to an economy that is more
> productive as competitive forces become increasingly intense and new
technologies raise the efficiency of our
> businesses. With the rapid adoption of information technology, the share
of output that is conceptual rather
> than physical continues to grow. While these tendencies were no doubt in
train in the "old," pre-1990s
> economy, they accelerated over the past decade as a number of
technologies with their roots in the cumulative
> innovations of the past half-century began to yield dramatic economic
returns.
>
> As governors of our states, you have all been dealing with the practical
effects of these shifts, which not only
> have increased prosperity but also are presenting important new
challenges.
>
> The process of innovation is, of course, never ending. Indeed, the
substitution of physical capital, in which
> new technologies are embodied, for manual labor is an ongoing trend that
began nearly two centuries ago
> when work in craft shops shifted to factories and then to assembly lines.
However, the development of the
> transistor after World War II appears in retrospect to have initiated a
special wave of creative synergies. It
> brought us the microprocessor, the computer, satellites, and the joining
of laser and fiber optic technologies.
> By the 1990s, these and a number of lesser but critical innovations had
fostered an enormous new capacity to
> capture, analyze, and disseminate information. Indeed, it is the
proliferation of information technology
> throughout the economy that makes the current period appear so different
from preceding decades. This
> remarkable coming together of technologies that we label IT has allowed
us to move beyond efficiency gains in
> routine manual tasks to achieve new levels of productivity in now-routine
information-processing tasks that
> previously depended upon people to compute, sort, and retrieve
information for purposes of taking action. As
> a result, information technologies have begun to alter significantly how
we do business and create economic
> value, often in ways that were not foreseeable even a decade ago.
>
> One result of the more-rapid pace of IT innovation has been a visible
acceleration of the process that noted
> economist Joseph Schumpeter many years ago termed "creative
destruction"-- the continuous shift in which
> emerging technologies push out the old. Today our capital stock is
undergoing an increasing pace of renewal
> through investment of cash flow from older-technology capital equipment
and facilities into cutting-edge, more
> efficient vintages. This process of capital reallocation across the
economy has been assisted by a significant
> unbundling of risks in capital markets made possible by the development
of innovative financial products,
> many of which themselves owe their viability to advances in technology.
>
> At the microeconomic level, the essential contribution of information
technology is the expansion of
> knowledge and its obverse, the reduction of uncertainty. Before this
recent quantum jump in information
> availability, businesses had limited and less timely knowledge of
customers' needs and of the location of
> inventories and materials flowing through complex production systems. In
that environment, decisions were
> based on information that was hours, days, or even weeks old. Businesses,
to protect production schedules,
> found it essential, although costly, to carry sizable backup stocks of
materials and to keep additional persons
> on their payrolls for making the necessary adjustments to the inevitable
miscalculations and unanticipated
> shifts in demand for their products and services.
>
> Of course, a great deal of imprecision persists, but the remarkable surge
in the availability of real-time
> information has enabled businesses to reduce unnecessary inventory and
dispense with labor and capital
> redundancies. Intermediate production and distribution processes, so
essential when information and quality
> control were poor, are being bypassed or eliminated. There are no
indications in the marketplace that the
> process of re-engineering business operations is slowing, although it has
been difficult analytically to
> disentangle the part of the rise in output per hour that is permanent and
that which is the consequence of
> transitory business cycle forces. The part based on information advances,
of course, is irreversible. Having
> learned to employ bar code and satellite technologies, for example, we
are not about to lose our capability in
> applying them. But until we experience an economic slowdown, we will not
know for sure how much of the
> extraordinary rise in output per hour in the past five years is
attributable to the irreversible way value is created
> and how much reflects endeavors on the part of our business community to
stretch existing capital and labor
> resources in ways that are not sustainable over the longer run.
>
> I have stressed information technology's crucial role on the factory
floor and in distribution channels. But
> technological innovation has spread far beyond that. Biotechnology is
revolutionizing medicine and
> agriculture in ways that were unimaginable just a few years ago, with
far-reaching consequences for the quality
> of life not only in the United States but also around the world. Even
more intriguing are those as yet unrealized
> opportunities for computers and information technology to expand our
scientific knowledge more generally.
>
> As I indicated earlier, the major contribution of advances in information
technology and their incorporation
> into the capital stock has been to reduce the number of worker hours
required to produce the nation's output,
> our proxy for productivity growth. Echoing a debate that is as old as
Adam Smith, some view this so-called
> labor displacing investment and the introduction of innovative production
processes as a threat to our
> economy's capacity to create new jobs. But because technological change
spawns so many opportunities for
> businesses to expand, the introduction of new efficiencies has today, as
in the past, created a vibrant economy
> in which opportunities for new jobs and businesses have blossomed.
>
> An intriguing aspect of the recent wave of productivity acceleration is
that U.S. businesses and workers
> appear to have benefited more from the recent advances in information
technology than their counterparts in
> Europe or Japan. Those countries, of course, have also participated in
this wave of invention and innovation,
> but they appear to have been slower to exploit it. The relatively
inflexible and, hence, more costly labor markets
> of these economies appear to be a significant part of the explanation.
The elevated rates of return offered by
> the newer technologies in the United States are largely the result of a
reduction in labor costs per unit of
> output. The rates of return on investment in the same new technologies
are correspondingly less in Europe
> and Japan because businesses there face higher costs of displacing
workers than we do. Here, labor
> displacement is more readily countenanced both by law and by culture.
Paranthetically, because our costs of
> dismissing workers are lower, the potential costs of hiring and the risks
associated with expanding employment
> are less. The result of this significantly higher capacity for job
dismissal has been, counterintuitively, a
> dramatic decline in the U.S. unemployment rate in recent years.
>
> But one less welcome byproduct of rapid economic and technological
change, and the necessary heightened
> level of potential job dismissal that goes with it, is the evident
insecurity felt by many workers despite the
> tightest labor markets in decades. This anxiety stems, I suspect, from a
fear of job skill obsolescence, and one
> very tangible measure of it is the pressure on our education and training
systems to prepare and adapt workers
> to effectively run the new technologies.
>
> These pressures are likely to remain intense, even though they may wax
and wane, because I see nothing to
> suggest that the trends toward a greater conceptual content of our
nation's output and, thus, toward increased
> demand for conceptual skills in our workforce, will end. The rapidity of
innovation and the unpredictability of
> the directions it may take imply a need for considerable investment in
human capital. Even the most significant
> advances in information and computer technology will produce little
additional economic value without human
> creativity and intellect.
>
> The heyday when a high school or college education would serve a graduate
for a lifetime is gone; basic
> credentials, by themselves, are not enough to ensure success in the
workplace. Today's recipients of diplomas
> expect to have many jobs and to use a wide range of skills over their
working lives. Their parents and
> grandparents looked to a more stable future--even if in reality it often
turned out otherwise. Workers must be
> equipped not simply with technical know-how but also with the ability to
create, analyze, and transform
> information and to interact effectively with others. Moreover, learning
will increasingly be a lifelong activity.
>
> Certainly, the notion that human and physical capital are complements is
not new. Technological advance has
> inevitably brought with it improvements not only in the capital inputs
used in production but also new
> demands on workers who must interact with that increasingly more complex
stock of capital. Early in this
> century, these advances required workers with a higher level of cognitive
skills, for instance the ability to read
> manuals, to interpret blueprints, or to understand formulae.
>
> Our educational system responded: In the 1920s and 1930s, high school
enrollment in this country expanded
> rapidly, pulling youth from rural areas, where opportunities were
limited, into more productive occupations in
> business and broadening the skills of students to meet the needs of an
advancing manufacturing sector. It
> became the job of these institutions to prepare students for work life,
not just for a transition to college. In the
> context of the demands of the economy at that time, a high school diploma
represented the training needed to
> be successful in most aspects of American enterprise. The economic
returns for having a high school diploma
> rose and, as a result, high school enrollment rates climbed.
>
> At the same time, our system of higher education was also responding to
the advances in economic processes.
> Although many states had established land grant schools earlier, their
support accelerated in the late
> nineteenth century as those whose economies specialized in agriculture
and mining sought to take advantage
> of new scientific methods of production. Early in the twentieth century,
the content of education at an
> American college had evolved from a classically based curriculum to one
combining the sciences, empirical
> studies, and modern liberal arts. Universities responded to the need for
the application of science--particularly
> chemistry and physics--to the manufacture of steel, rubber, chemicals,
drugs, petroleum, and other goods
> requiring the newer production technologies. Communities looked to their
institutions of higher learning for
> leadership in scientific knowledge and for training of professionals such
as teachers and engineers. The scale
> and scope of higher education in America was being shaped by the
recognition that research--the creation of
> knowledge--complemented teaching and training--the diffusion of
knowledge.
>
> In a global environment in which prospects for economic growth now depend
importantly on a country's
> capacity to develop and apply new technologies, our universities are
envied around the world. The payoffs--in
> terms of the flow of expertise, new products, and startup companies, for
example--have been impressive. Here,
> perhaps the most frequently cited measures of our success have been the
emergence of significant centers of
> commercial innovation and entrepreneurship where creative ideas flow
freely between local academic scholars
> and those in industry. Not all that long ago, it was easy to recite a
relatively short list of places where these
> activities were clustered. But we have witnessed in recent years a great
multiplicity of these centers of
> innovation. State support, both for the university system and for small
businesses, has been an important
> element in the vitality of these centers.
>
> Certainly, if we are to remain preeminent in transforming knowledge into
economic value, the U.S. system of
> higher education must remain the world's leader in generating scientific
and technological breakthroughs and
> in preparing workers to meet the evolving demands for skilled labor. With
two-thirds of our high school
> graduates now enrolling in college and an increasing proportion of adult
workers seeking opportunities for
> retooling, our institutions of higher learning increasingly bear an
important responsibility for ensuring that our
> society is prepared for the demands of rapid economic change. Equally
critical to our investment in human
> capital is the quality of education in our elementary and secondary
schools. As you know, the results of
> international comparisons of student achievement in mathematics and
science, which indicated that
> performance of U.S. twelfth-grade students fell short of their peers in
other countries, heightened the debate
> about the quality of education below the college level. To be sure,
substantial reforms in math and science
> education have been under way for some time, and I am encouraged that
policymakers, educators, and the
> business community recognize the significant contribution that a stronger
elementary and secondary
> education system will make in boosting the potential productivity of new
generations of workers. I hope that
> we will see that the efforts to date have paid off in raising the
achievement of U.S. students when the results of
> the 1998-99 international comparisons for eighth graders are published.
>
> Whatever the outcome, the pressures to advance our education system will
continue to be intense. As the
> conceptual share of the value added in our economic processes expands
further, the ability to think abstractly
> will be increasingly important across a broad range of professions.
Critical awareness and the abilities to
> hypothesize, to interpret, and to communicate are essential elements of
successful innovation in a
> conceptual-based economy. As with many skills, such learning is most
effective when it is begun at an early
> age. And most educators believe that exposure to a wide range of
subjects--including literature, music, art, and
> languages--plays a considerable role in fostering the development of
these skills.
>
> As you know, school districts are also being challenged to evaluate how
new information technologies can be
> best employed in their curricula. Unfortunately, this goal has too often
been narrowly interpreted as teaching
> students how to type on the computer or permitting students to research
projects over the Internet.
> Incorporating new technologies into the educational process is indeed
likely to be an important element in
> improving our schools, but it must involve more than simply wiring the
classroom. Human capital--in the form
> of our teachers--and technology are complements in producing education
output just as they are in other
> business activities. To achieve the most effective outcome from new
technologies, we must provide teachers
> with the necessary training to use them effectively and to provide forums
for teachers and education
> researchers to share ideas and approaches on how best to integrate
technology into the curriculum. And we
> must create partnerships among the states, the school systems, labor and
industry to develop appropriate
> standards and guidelines for the teaching of information technology in
the classroom.
>
> A crucial concern today--and I know that the National Governors'
Association is working hard to address this
> issue--is that the supply of qualified teachers will be insufficient to
meet the demand. Indeed, a substantial
> number of teachers are scheduled to retire over the next decade, and how
to replace them and meet the
> additional demand from rising enrollments is certain to be a significant
challenge in the years ahead.
>
> Finally, the pressure to enlarge the pool of skilled workers also means
that we must strengthen the significant
> contributions of other types of training and educational programs,
especially for those with lesser skills. It is
> not enough to create a job market that has enabled those with few skills
to finally grasp the first rung of the
> ladder to achievement. More generally, we must ensure that our whole
population receives an education that
> will allow full and continuing participation in this dynamic period of
American economic history.
>
> We need to foster a flexible education system--one that integrates work
and training and that serves the needs
> both of experienced workers at different stages in their careers and of
students embarking on their initial course
> of study. Community colleges, for example, have become important
providers of job skills training not just for
> students who may eventually move on to a four-year college or university
but for individuals with
> jobs--particularly older workers seeking to retool or retrain. The
increasing availability of courses that can be
> "taken at a distance" over the Internet means that learning can more
easily occur outside the workplace or the
> classroom--an innovation that may be particularly valuable for states
with large rural populations for whom
> access to traditional classroom learning is more difficult.
>
> In summary, we are in a period of rapid innovation that is bringing with
it enormous opportunities to enhance
> living standards for a large majority of Americans. Our ability to take
advantage of these opportunities is not
> only influenced by national policies but is also determined importantly
at the state level. States with more
> flexible labor markets, skilled work forces, and a reputation for
supporting innovation and entrepreneurship will
> be prime locations for firms at the cutting edge of technology. Not all
new enterprises will succeed, of course.
> But many will, and those that do will provide the impetus for further
economic progress and expanding
> opportunities in their communities. Your leadership as policymakers will
be a key element in promoting an
> environment in which you join with others in business, labor, and
education to realize the potential that
> technological change has for bringing substantial and lasting benefits to
our economy.
>
|