NCPA - National Center for Policy Analysis


June 25, 2007

The law of convergence implies that as countries get richer and more productive, their growth rates slow.  But this hasn't held true in the case of the United States, says Austan Goolsbee, professor of economics at the University of Chicago, Graduate School of Business and a research fellow at the American Bar Foundation.

To explain the experience in the United States, one would have to believe that Americans have some better way of translating the new technology into productivity than other countries, says Goolsbee.  That is precisely what research by London School of Economics Professor Van Reenen suggests:

  • When Americans take over a business in Britain, the business becomes significantly better at translating technology spending into productivity than a comparable business taken over by someone else.
  • Companies like Wal-Mart, for example, seem to be more adept at translating technology into productivity than anyone else.
  • The Asda supermarket chain in Britain was a middling fourth in its home market before it was taken over by Wal-Mart in 1999; Asda proceeded to grow, sharply, and has taken the No. 2 spot.

American companies have proven remarkably adept at adjusting to new conditions and incorporating technology.  The real question is whether this advantage will last.  The paradox of the American position is that we hate experiencing major adjustments and industry transformations that force people to look for new jobs. Yet the evidence seems to show that for all our dissatisfaction, we are the most flexible economy around and may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting.

Source: Austan Goolsbee, "How the U.S. Has Kept the Productivity Playing Field Tilted to Its Advantage," New York Times, June 21, 2007.

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