'90S TECHNOLOGY CREATING A HIGH-PRODUCTION DECADE

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, February 18, 1993                   TAG: 9302180094
SECTION: BUSINESS                    PAGE: B-5   EDITION: METRO 
SOURCE: By SYLVIA NASAR THE NEW YORK TIMES
DATELINE:                                 LENGTH: Long
'90S TECHNOLOGY CREATING A HIGH-PRODUCTION DECADE
The nation may be poised for faster economic growth during the 1990s than people have previously believed, say economic heavyweights such as Federal Reserve Board Chairman Alan Greenspan.
Just as the Clinton administra- tion is starting to concentrate on the economy's long-term troubles, some economists are focusing on tantalizing signs that America's economic engine packs more horsepower than it used to:
Last year's productivity growth was the fastest in 20 years, profits are rebounding despite weak sales growth and business has gone on a high-tech spending spree. Job growth finally may be picking up, too.
"By the second half of the 1990s, the United States may post consistently faster non-inflationary growth than was possible during the past two decades," said Bruce Steinberg, an economist at Merrill Lynch.
Faster growth would not put most Americans on Easy Street anytime soon. The turmoil of bankruptcies, corporate restructurings and white-collar layoffs almost surely will continue as once-prosperous economic leaders such as IBM, General Motors and Sears struggle to remake themselves and a wave of new technologies wipes out entire occupations.
"Like other rich countries, the United States was caught in a slow-growth trap since the early 1970s," Steinberg said. "But now the great productivity slowdown of the past 20 years may finally be over."
Increases in productivity may be reviving, economists say, in part because corporations are learning to take advantage of the $1 trillion they invested in the past decade in computers and other high-tech equipment.
"We should realize just how long the gestation of technology is," said Claudia Goldin, an economic historian at Harvard.
Charles Ferguson, a technology consultant based in Cambridge, Mass., remarked, "There's no doubt that in the remainder of this decade, U.S. corporations are going to use computers much more effectively than they have been."
Among those who think this is a possibility is the customarily cautious Greenspan. "A new synergy of hardware and software applications may finally be showing through in a significant increase in labor productivity," he told the Joint Economic Committee of Congress on Jan. 29. "These far-reaching changes in the production processes . . . have apparently yet to run their course."
If the increase in productivity continues, he said, "we have underestimated the potential long-term economic growth of the economy - that, in fact, it can grow faster than most economists have recently been forecasting."
What makes Greenspan's speculation powerful is that in his role at the central bank, he functions as a sort of state trooper for the economy - the man who cruises into traffic to remind drivers not to exceed the speed limit. In effect, Greenspan was telling worried Democrats that he soon might be standing on the side of highway, arms folded, smiling.
"The higher potential growth, the more likely that the economy will actually grow faster," Steinberg of Merrill Lynch said, "and the longer it takes before the bottlenecks develop or the economy runs into growth barriers like more restrictive monetary policy."
Until recently, most forecasters said the economy could not safely grow much faster than an average of 2 percent a year: The labor force is expanding about 1 percent a year and productivity growth has been stuck at about 1 percent a year since the early 1970s. But lately some economists have started wondering whether last year's higher productivity might be pushing potential growth closer to 3 percent.
The difference between 2 percent and 3 percent growth, year in and year out, can be the difference between living standards doubling in one generation or taking two or three generations.
But, Greenspan and others warn, higher growth is a possibility, not a certainty. Hard evidence that the United States has broken out of its two-decades-long growth slump will not be available for several years, when long-term trends can be viewed apart from the ups and downs of the business cycle.
Robert Gordon, an economist at Northwestern University, is one of those who is skeptical that there has been an authentic turnaround.
"Productivity grew in the last year and a half," he said, "but it was extremely bad from 1988 to 1991. Much of the turnaround is just getting back to where we were."
Nonetheless, Greenspan and some others cite concrete evidence that prospects of faster growth are not pie in the sky. They refer to three measures:

The increase in productivity, while similar to those in past recoveries, is very fast, given the slow growth of output. It is not unusual for productivity to bounce up when sales are booming, but sales have been tepid this time around.

This is the first time that all of the production increases during a recovery were due to greater productivity, rather than from an expansion of the work force.

Profits have made a strong comeback despite a relatively weak rebound in sales.
"This is a business-led, profits-driven recovery," said Lawrence A. Kudlow, chief economist at Bear Stearns who was chief economist with the Office of Management and Budget during President Ronald Reagan's first term.

by Archana Subramaniam by CNB