How Economies Grow:The CED Perspective on Raising the Long
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HOW ECONOMIES GROW: The CED Perspective on Raising the Long-Term Standard of Living AStatement by the Research and Policy Committee of the Committee for Economic Development May 2003 CED is a nonprofit, nonpartisan organization of business leaders and educators that has worked for sixty years to address the critical economic and social issues facing American society. HOW ECONOMIES GROW: The CED Perspective on Raising the Long-Term Standard of Living AStatement by the Research and Policy Committee of the Committee for Economic Development May 2003 Library of Congress Cataloging-in-Publication Data How economies grow : the ced perspective on raising the long-term standard of living : a statement on national policy / by the Research and Policy Committee of the Committee for Economic Development. p. cm. Includes bibliographical references. ISBN 0-00000-000-X 1. Economics—United States. I. Committee for Economic Development. Research and Policy Committee. QA00.L00 2003 510’.71’073—dc21 2003043432 First printing in bound-book form: 2003 Paperback: $15.00 Printed in the United States of America Design: Rowe Design Group COMMITTEE FOR ECONOMIC DEVELOPMENT 261 Madison Avenue, New York, N.Y. 10016 (212) 688-2063 2000 L Street, N.W., Suite 700, Washington, D.C. 20036 (202) 296-5860 www.ced.org CONTENTS RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY........................................iv PURPOSE OF THIS STATEMENT......................................................................................................viii CHAPTER 1: ON ECONOMIC GROWTH.............................................................................................1 Concepts of Growth...................................................................................................................................2 Increasing Long-Term Productive Capacity Versus Using More of Existing Capacity ..................2 Total Income, “Per Capita” Income, and Productivity.......................................................................3 Measured Growth Versus “Welfare” ....................................................................................................3 CHAPTER 2: THE FUNDAMENTALS OF GROWTH..........................................................................4 Invention ....................................................................................................................................................4 Investment ..................................................................................................................................................5 Reorganization ...........................................................................................................................................8 A Note on Markets.....................................................................................................................................9 Invent, Invest, Reorganize: The Process in Action ..............................................................................10 CHAPTER 3: “STAGE SETTING” POLICIES.....................................................................................13 Macroeconomic Policy.............................................................................................................................14 Openness..................................................................................................................................................16 Corporate Governance and the Quality of the Markets.......................................................................18 Culture as an Economic Asset.................................................................................................................19 Public Investment.....................................................................................................................................21 Unresolved Issues ....................................................................................................................................21 CONCLUSION........................................................................................................................................23 ENDNOTES.............................................................................................................................................24 OBJECTIVES OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT..................................26 iii RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY The Committee for Economic Develop- specific legislative proposals; its purpose is to ment is an independent research and policy urge careful consideration of the objectives set organization of some 250 business leaders and forth in this statement and of the best means of educators. CED is nonprofit, nonpartisan, and accomplishing those objectives. nonpolitical. Its purpose is to propose policies Each statement is preceded by extensive dis- that bring about steady economic growth at cussions, meetings, and exchange of memo- high employment and reasonably stable prices, randa. The research is undertaken by a sub- increased productivity and living standards, committee, assisted by advisors chosen for their greater and more equal opportunity for every competence in the field under study. citizen, and an improved quality of life for all. The full Research and Policy Committee All CED policy recommendations must have participates in the drafting of recommenda- the approval of Trustees on the Research and tions. Likewise, the trustees on the drafting Policy Committee. This committee is directed subcommittee vote to approve or disapprove a under the bylaws, which emphasize that “all policy statement, and they share with the research is to be thoroughly objective in char- Research and Policy Committee the privilege acter, and the approach in each instance is to of submitting individual comments for publica- be from the standpoint of the general welfare tion. and not from that of any special political or economic group.” The committee is aided by a The recommendations presented herein are those Research Advisory Board of leading social sci- of the Trustee members of the Research and Policy entists and by a small permanent professional Committee and the responsible subcommittee. They staff. are not necessarily endorsed by other Trustees or by The Research and Policy Committee does nontrustee subcommittee members, advisors, contrib- not attempt to pass judgment on any pending utors, staff members, or others associated with CED. iv RESEARCH AND POLICY COMMITTEE Co-Chairmen GEORGE H. CONRADES CHARLES R. LEE Chairman and Chief Executive Officer Chairman PATRICK W. GROSS Akamai Technologies, Inc. Verizon Communications Chairman, The Lovell Group Founder and Senior Advisor RONALD R. DAVENPORT ALONZO L. MCDONALD American Management Systems, Inc. Chairman of the Board Chairman and Chief Executive Officer Sheridan Broadcasting Corporation Avenir Group, Inc. BRUCE K. MACLAURY President Emeritus JOHN DIEBOLD NICHOLAS G. MOORE The Brookings Institution Chairman Chairman Emeritus John Diebold Incorporated PricewaterhouseCoopers Vice Chairmen FRANK P. DOYLE STEFFEN E. PALKO Retired Executive Vice President Vice Chairman and President IAN ARNOF General Electric XTO Energy Inc. Retired Chairman Bank One, Louisiana, N.A. T.J. DERMOT DUNPHY CAROL J. PARRY Chairman President CLIFTON R. WHARTON, JR. Kildare Enterprises, LLC Corporate Social Responsibility Former Chairman and Chief Executive Associates Officer CHRISTOPHER D. EARL TIAA-CREF Managing Director VICTOR A. PELSON Perseus Capital, LLC Senior Advisor UBS Warburg LLC W. D. EBERLE Chairman PETER G. PETERSON REX D. ADAMS Manchester Associates, Ltd. Chairman Professor of Business Administration The Blackstone Group The Fuqua School of Business EDMUND B. FITZGERALD Duke University Managing Director NED REGAN Woodmont Associates President ALAN BELZER Baruch College Retired President and Chief Operating HARRY L. FREEMAN Officer Chair JAMES Q. RIORDAN AlliedSignal Inc. The Mark Twain Institute Chairman Quentin Partners Co. PETER A. BENOLIEL BARBARA B. GROGAN Chairman, Executive Committee President LANDON H. ROWLAND Quaker Chemical Corporation Western Industrial Contractors Chairman Janus Capital Group ROY J. BOSTOCK RICHARD W. HANSELMAN Chairman Emeritus, Executive Chairman GEORGE RUPP Committee Health Net Inc. President Bcom3 Group, Inc. International Rescue Committee RODERICK M. HILLS FLETCHER L. BYROM Chairman ROCCO C. SICILIANO President and Chief Executive Officer Hills Enterprises, Ltd. Beverly Hills, California MICASU Corporation MATINA S. HORNER MATTHEW J. STOVER DONALD R. CALDWELL Executive Vice President President Chairman and Chief Executive Officer TIAA-CREF LKM Ventures Cross Atlantic Capital Partners H.V. JONES ARNOLD R. WEBER JOHN B. CAVE Managing Director President Emeritus Principal Korn/Ferry International Northwestern University Avenir Group, Inc. EDWARD A. KANGAS JOSH S. WESTON CAROLYN CHIN Chairman and Chief Executive Officer, Honorary Chairman Chairman Retired Automatic Data Processing, Inc. Commtouch/C3 Partners Deloitte Touche Tohmatsu DOLORES D. WHARTON A. W. CLAUSEN JOSEPH E. KASPUTYS Former Chairman and Chief Retired Chairman and Chief Executive Chairman, President and Chief Executive Officer Officer Executive Officer The Fund for Corporate Initiatives, Inc. BankAmerica Corporation Global Insight, Inc. MARTIN B. ZIMMERMAN JOHN L. CLENDENIN CHARLES E.M. KOLB Group Vice President, Corporate Retired Chairman President Affairs BellSouth Corporation Committee for Economic