Cheap dollar, technology promise better days ahead for business

The Baltimore Sun

Life improves slowly and goes wrong fast, and only catastrophe is clearly visible," said nuclear physicist Edward Teller. Improvement is especially obscure as we say goodbye to a miserable 2007.

The Christmas shopping season was a flop. The country may be entering its first consumer-led recession since 1991. The mortgage mess, worse than almost anybody could have dreamed, is hurting all kinds of borrowing. Inflation is stirring. Middle-class families may do even more poorly this year than they have in the previous five.

So a column on what's going right in the economy may be seen as not just contrarian but cruel. But it's true. For all its faults, the private enterprise system that got us into this mess will eventually get us out. For all its problems, the present economy is sowing the hidden seeds of its revival.

Perhaps the best (and most ignored) news of the last few months was the surge in productivity growth in the third quarter. Output per worker grew at an annual rate of 6.7 percent - the best showing since 2003 and an indicator that the computer-led boom that began in 1995 isn't dead yet.

Productivity increases allow greater business profits, low inflation growth and, eventually, better worker pay. It's true that, since 2000, businesses and shareholders have disproportionately benefited from productivity gains. Profits have soared while wages lagged.

But that's no reason to boo productivity increases. Productivity growth may not guarantee improvements in standards of living, but without it they are impossible.

The labor scarcity generated by the looming retirements of baby boomers, economist Jeff Thredgold and others argue, will finally drive up wages and give workers a bigger stake in the productivity revolution.

A weak dollar - the result of money fleeing U.S. stock and bond markets - is setting the stage for the biggest factory revival in decades. As the dollar has slid against the euro, yen and other currencies, American factories have become more competitive not just internationally but within the United States as well, with imports getting more expensive.

"While there is plenty to be negative about with respect to housing, credit and the consumer, at the same time we believe we are going to see a manufacturing renaissance emerge," Merrill Lynch economist David A. Rosenberg wrote two weeks ago. "This is a five-year story that nobody is talking about."

U.S. exports are already up substantially, and Rosenberg goes so far as to predict "a revival in the Rust Belt."

If he's right, technology will be a big part of the story, as it has been for two centuries. If the Internet was the tech story of the 1990s, energy and the environment will be themes for the 2010s. Detroit is rolling out prototypes of cars that run on hydrogen. Wind energy is taking a substantial share of the market.

Venture capitalists are pouring billions into newer ideas from cellulosic ethanol to desalinization. Most will be flops, but some will create riches for investors and immeasurably improve the world.

For an idea of what might be in store, check out Nanosolar, a California company that has perfected a way to print solar cells on metal foil, substantially reducing the cost of clean energy from the sun. In San Jose, Nanosolar is building what Popular Science says "will soon be the world's largest solar-panel manufacturing facility."

For all the economic pain of the past year, the U.S. economy isn't in especially bad shape. Interest rates are still very low by the standards of the 1970s and 1980s. While worrisome, inflation isn't close to 1970s levels, either.

Businesses continue to add jobs. One happy result of the computer revolution is that outright recessions are much rarer than they used to be, and so far we have avoided one. When human resources departments, factory chiefs and purchasing managers can instantly check sales trends on their internal networks, they're less likely to make mistakes that lead to layoffs and write-downs.

That was one of many future improvements that almost nobody predicted 17 years ago, at the bottom of the last recession. We shouldn't minimize the present challenges. But the next few years will certainly bring economic progress that is just as beneficial and just as invisible now.

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