Opinion Editorial | |
| Monday, February 22, 1999 | |
Economy Benefits From Improved Private Sector Efficiency |
Bill Clinton would like us to believe that he and his policies are primarily responsible for the good economic times we are experiencing. This is only fair. Presidents always get blamed for bad things that happen on their watch, whether or not they had anything to do with them, so they are entitled to take the credit as well.
Clinton's good policies have probably been offset by his bad ones, however, so on balance they probably have had no effect on the overall economy one way or another. The true source of the economy's strength must go to the private sector, which has transformed many of the ways in which business is done, to the benefit of everyone.
One of the most important ways in which the private sector has transformed itself is in the obscure area of inventories. The business cycle is, in essence, an inventory cycle. Businesses purchase or order goods in anticipation of sales. When those sales fall off, businesses are stuck with excess inventories. This causes them to cancel purchases and orders from their suppliers and to slash prices on their stocks of unsold goods. This reduces profits and production, causing a slowdown in growth.
But in recent years companies have been able to sharply reduce inventories, thereby reducing volatility in the economy as well as reducing their costs of doing business.
Firms have been able to reduce inventories due to computers, improved communications and transportation. Computers allow firms to track inventories extremely accurately, reducing the need to carry excess supplies. Computers also increase efficiency by transmitting orders automatically into the suppliers' computers, improving both speed and accuracy.
Finally, overnight delivery services allow orders to be sent in at the close of business with the orders fulfilled by 10 am the next day. This allows many businesses to operate with virtually zero inventories, which slashes startup costs to almost nothing in some cases--one reason for the spurt in internet stocks.
The jury is still out on whether we have entered a "new era" economy that is fundamentally different, but there is no question that at least some areas of the economy have changed for good, with permanent benefits in terms of efficiency and growth.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, February 22, 1999.
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