How Big in 1980?

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SUPPOSE someone in the year 1900 had predicted that within fifty years l he amount of goods consumed per person in the United States would have risen two and one-half times, that nearly four out of five children of high school age would be in high school, that the number of university students would increase tour times as fast as the population, that nearly every family would own an automobile, a telephone, and a wireless receiving set (the word “radio” would not have been understood); and that this would be accomplished after paying the cost of the nation s participation in two great world wars and while we were gradually reducing the work week from about 58 hours to 40. The forecast would have been quile accurate, as we now know, but anyone making such bold predictions would have been regarded as irresponsible.

At the risk of seeming irresponsible and extravagant, I am going to suggest that by 1980 the output of goods and services of the American economy, which was 246.7 billion dollars in 1948, will be at least 416 billion (in terms of present prices) and that it is more likely to be considerably larger — probably in excess of 550 billion dollars a year. The lower estimate would mean an annual output of nearly $5744 per worker (at present prices) or roughly $2377 per capita. In 1948 the output of goods and services was about $4065 per worker or $1684 per capita.

How can one possibly justify those figures? Let us first examine the lower estimate. It is based upon four underlying assumptions; (1) that the total population of the country in 1980 will be roughly 175 million; (2) that the proportion of the population in the labor force and at work will be about the same as in 1948; (3) that output per manhour will continue to increase at about the rate that has prevailed for several generations; (4) that the number of hours worked by each person per year will be about one fourth less than at present. Suppose we scrutinize these four points.

Population of the country

Estimates of population growth have uniformly turned out to be too small. Today the country has more people than the Temporary National Economic Committee assumed it would have by 1960. The Bureau of the Census, realizing that the war had made previous estimates of population growth obsolete, issued new estimates in 1945. By the middle of 1948, the population of the country was 3.2 million above the new forecast made by the Census only three years before. During 1949 the number of birlhs has continued to run far higher than in pre-war years. By 1950 the population of the country will be about 4.5 million greater than the figure predicted by the Census.

After 1950 the growth of population will be held down for about ten years by the abnormally small number of births which occurred during the depressed thirties. About 1960, however, the large number of births between 1940 and 1950 will begin to affect the number of marriages and hence the growth of population. Population will also be increased to a small extent by immigration. All these considerations lead to the rough estimate that by 1980 the population of the United States will be at least 175 million.

The labor force

In 1918 the average number of persons at work was 41.4 percent of the population. It is reasonable to assume that the proportion in 1980 will be about the same. This would mean that the number at work will be about 72.5 million. The average age at which young people enter industry will be higher, but this will be roughly offset by an increase in the proportion of women in the labor force. The drop in the standard work week, in particular, encourages women to enter industry. A larger part of the population will have passed the age of retirement but the proportion who are too young to be in the labor force will be smaller.

Some people expect that the usual age of retirement will drop and that this will reduce the proportion of the population in the labor force. I do not expect the age of retirement to decline unless unemployment is severe and chronic. Most people do not like to retire. Hence, the efforts of employers to retire workers will meet more and more resistance. I make the conservative assumption, however, that the age of retirement will not change.

Output per man-hour

For several generations output per man-hour has been growing by about 2 per cent per year. If this rate of increase continues, output per man-hour in 1980 will be about 88.4 per cent greater than in 1948.

The thirty-hour week

Everyone knows that as incomes go up, the demand for leisure also increases. Back in 1900, as I have said, the average working week in the United States was about 58 hours; by 1929 it was about 48 hours; in 1940, outside of agriculture, about 40 hours. There has also been a rapid spread of vacations and holidays with pay during the last ten years. Many people believe that even now Americans spend too much time making things and too little time enjoying the fruits of their labors. Certainly if output per man-hour continues to rise, working hours will continue to decrease. I assume that by 1980 the number of hours worked by the average person per year will have dropped about one fourth, That rate would be in keeping with the decline of about one sixth in the last twenty years. It would mean that by 1980 the 30-hour week would be virtually universal, at least outside of farming and other occupations where the self-employed predominate.

400 billion dollars a year

If the average worker produces about 88 per cent more per hour than now and works one fourth fewer hours, annual output per worker, which was $4065 in 1948, will be just under $5744. If there are 72.5 million persons at work, the net national product per year will be 416 billion dollars.

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IS IT reasonable to expect the output of American industry to exceed 400 billion dollars a year in another generation? Certainly the assumption that the average worker will be employed one fourth fewer hours per year than now does not inflate the estimate of output. And my estimate of the growth of population is low. The crucial question, therefore, is whether output per man-hour can be expected to continue to rise at the rate of 2 per cent per year.

Obviously workers cannot turn out 88 per cent more per hour unless they have much more and better plant and equipment to help them produce and unless methods of production improve. Between 1879 and 1929, output per man-hour increased about 3 times and plant and equipment per worker about 2.7 times. This suggests that a gain of 88 per cent in output per man-hour could be achieved with an increase in capital per worker of somewhat less than 88 per cent — perhaps only about 75 per cent. Nevertheless, in order not to underestimate the capital needs of the country, I assume that an increase of 88 per cent in output per man-hour will require an increase in plant and equipment per worker of 88 per cent.

In 1948 the country had about 442 billion dollars of plant and equipment, or about $7265 per employed worker. An increase of 88.4 per cent per employed worker would mean $13,687 per worker. If employment is 72.5 million, the country would have about 992 billion dollars of plant and equipment — a rise of about 550 billion.

What proportion of the national income will have to be devoted to increasing plant and equipment in order to add 550 billion dollars to the country’s plant and equipment in the next thirty years? A surprisingly small proportion — only 6.1 per cent. Between 1879 and 1929, about 8.9 per cent of the national income was devoted to increasing plant and equipment. The explanation of why a smaller proportion will be needed for this use in the future is simple. Since the rate of population increase will be much slower than in the past, a smaller proportion of the population will be entering industry each year and needing to be supplied with new plant and equipment.

Can methods of production be improved and equipment increased so rapidly that output per man-hour is raised 88 per cent in thirty years? This rate, it is true, is no faster than the country has successfully maintained in the past, but were not conditions in the past far more favorable for increasing production and accumulating capital than they are today or are likely to be? Consider the following five possible obstacles: (1) stiff taxation; (2) powerful trade-unions; (3) the concentration of industry and the decline of competition; (4) the exhaustion of natural resources; and (5) the slowing down of the making of inventions.

Stiff taxation

In 1948 the cash outlays of the local, state, and national governments were 21 per cent of the national output. This proportion is not likely to drop, because the demands on the government are growing. Not only will taxes be stiff, but the personal income tax will remain steeply progressive. Hence it will seriously impair the ability of the well-to-do to save and it will also impair their willingness to embark upon risky ventures. The well-to-do, who may be conveniently defined as the 10 per cent receiving the highest incomes, account for one half to three fourths of all investment by individuals. The view that competition is less vigorous today than formerly is one of the most pervasive myths of the age. As a matter of fact , the economy is becoming more competitive, not less so, and will continue to become more competitive. In some industries a few large firms turn out a larger part of the production than they did a few years ago. Between 1939 and 1947, for example, the proportion of employees working for enterprises with labor forces of more than 1000 has increased. Concentration, however, is not in itself a sign of lack of competition. It may be a sign of vigorous competition. Furthermore, the number of enterprises in tho United States has been rapidly increasing — from 3.1 million in 1929 to 4 million in 1948. The industrial revolution has now been going on for two centuries. Can it be expected to continue at the present pace much longer? Have not the easiest discoveries been made? If one looks at any given industry, one finds that, following any great discovery, output per man-hour grows at a decreasing rate. The more or less steady increase in output per man-hour for the economy as a whole has been achieved in large part by the spread of machine production from one industry to another. Now that most industries have been mechanized, must one not expect that output per man-hour for industry as a whole will rise at a decreasing rate?

Taxes will, of course, substantially limit the volume of saving by the well-to-do, but I do not think that high taxes will prevent the country from adding 550 billion dollars to its plant and equipment during the next thirty years. There are several reasons for this belief.

Such an increase, as I have pointed out, would absorb a smaller proportion of the net national income than has been spent on plant and equipment in the past.

The reduction in saving by the well-to-do can be offset to some extent by business enterprises’ plowing back a larger part of their earnings. Between 1910 and 1948, corporations plowed back only one third of their profits — though retained earnings were the largest single source of investment funds for corporations. About 60.1 billion dollars was obtained from this source, 51.7 billion from issues of bonds and notes, and 21.0 billion from issues of common and preferred stock.

The reduction in saving by the well-to-do can be offset, to some extent, by encouraging persons of moderate and small incomes to invest in corporate securities. During the pre-war years 1933 to 1941 and the post-war years 1946, 1947, and 1948, individuals put 157.7 billion dollars into investments of various sorts. Only 3.8 billion, or 2.4 per cent, however, went directly into corporate securities. Individuals put no less than 30.3 billion dollars into residential building; 20.6 billion into cash and bank accounts; 24.6 billion into private insurance (and thus indirectly into industry); 17.4 billion into unincorporated businesses (including farms); and 12.2 billion into government securities. Particularly striking is the fact that investments of individuals in unincorporated businesses were more than twelve times as large as their direct investments in corporate securities.

An enormous source of new capital is open to corporations in the savings of persons with small or moderate incomes and these savings could, if corporations offered inducements, be substantially increased.

Loans from commercial banks, which lend money by creating deposits, will go far to offset any shortage of savings.

During the last three years taxes have been far higher than anyone dreamed they would be after the war, and yet in that period the country has spent 92.3 billion dollars on housing, plant, and equipment. After allowance for the wearing out of capital, the increase in housing, plant, and equipment is estimated by the government at about 41.3 billion dollars. This estimate is probably too high, but the present rate of capital formation is sufficient to increase the country’s stock of housing, plant, and equipment by about 4 per cent a year.

Powerful trade-unions

Today about two thirds of the manual workers in manufacturing, about four fifths in mining, about four fifths in construction, and about four fifths in transportation are organized. Until the last fifteen years, however, the union membership of the country was less than 10 percent of the labor force, and strong unions existed in only a few industries. Unions will be able to force up wages faster than 2 per cent per year — in other words faster than the rise in output per man-hour. If wages rise faster than production, is not the accumulation of capital bound to be reduced?

Although unions will push up wages more than 2 per cent per year, it does not follow that unions will retard the accumulation of capital — at least to any great extent. Any tendency for wages to rise fast.er than output per man-hour will cause either unemployment or an offsetting rise in prices.

The community will not tolerate a substantial volume of chronic unemployment. If it occurs, the government will adopt policies designed to encourage prices to rise or will limit the right of unions and employers to raise wages appreciably faster than the average gain in output per man-hour. Thus the trade-unions will he prevented from reducing in substantial measure the ability and willingness of individuals to save and to invest in industry.

Furthermore, the pressure of unions for higher wages will stimulate management to increase output and to cut costs. In this way unions will indirectly help to increase output.

Intensity of competition

Many people believe that the American economy is becoming less competitive. They argue that business is becoming more and more concentrated in large, well-established enterprises and that these concerns are more interested in maintaining the status quo than in improving their methods and products. Competition undoubtedly helps to increase production by making industry progressive. Consequently, if industry is becoming less competitive, the previous rate of increase in output per man-hour is not likely to be maintained.

One reason why the economy is becoming more competitive is the rise of chain stores and mail order houses. These enterprises do business on small margins and depend upon rapid turnover for profits. They are the best and most efficient purchasing agents that consumers have ever had. They have done much to make retailing more competitive. In addition, their buying methods stimulate competition throughout a large part of the manufacturing industries of the country.

A second reason why the economy is more competitive than ever is that it possesses a larger stock of technological knowledge than in the past. This means that the economy has more raw materials and more ways of doing things at its disposal. Consider, for example, the number of raw materials that have become important in recent years — petroleum, natural gas, oxygen, aluminum, rayon, nylon, plywood, plastics, rubber, glass, and paper. Some of these have been used for generations, but have become cheap or have been given new properties. Hence they are now used for many new purposes — paper for towels, milk bottles, and shipping boxes; and rubber for upholstery.

Consider also the great increase in the varieties of apparatus and methods of doing things—the heat treating of metals; the use of freezing, refrigeration, welding; wireless methods of communication and control; the improvement of forging; the development of new kinds of apparatus such as grinding machines; and the internal-combustion engine. The new materials and new methods greatly increase the points of competition in the economy. Aluminum competes with steel and copper; nylon with silk; paper with wood, glass, and cloth; welding with molding and machining; freezing with canning; photography with the linotype. The vigorous competition in the American economy is illustrated in the effect of movies on the stage, of automobiles and trucks on the railroads, of oleomargarine on butter, of the telephone on the telegraph, of synthetic rubber on natural rubber, it remains to be seen what television will do to several industries.

Finally, and most important, the economy is made more competitive by the huge expenditures of business and government upon industrial research. The outlay of business upon research increased ninefold between 1920 and 1940, and nearly twofold between 1940 and 1947. The growing expenditures of industry on research are a good indication of the fact that the economy of today is more competitive than the relatively static economies of the past, which year after year were content to make goods of about the same quality by the same methods. Enterprises do not engage in research for the fun of it, but because they know that better and cheaper products will increase their sales and profits. The outlays of industry on research are more or less self-perpetuating — if one enterprise spends money on research, its rivals must do the same or be left behind.

The war has greatly stimulated the support of research by the government. The out lay of government on research in 1947 was over nine times as large as in 1940 and 40 percent larger than all the research expenditures of private industry. Some of the research financed by the government is secret, but much of it yields results available to industry.

Depletion of our natural resources

The rich and abundant natural resources of the United States have been partly responsible for the rapid increase in the output of industry. We have been drawing upon these resources rapidly, and some of the richest and most accessible have been nearly exhausted. If output per man-hour were to increase by 2 per cent and if there were to be a gradual drop of one fourth in the number of hours worked by each employed person, the total national income in the next thirty years would be roughly about 9008 billion dollars (in terms of 1948 dollars). This would be nearly 25 per cent more than the country produced in the 149 years between 1800 and 1948 inclusive. In other words, the economy would consume more raw materials in the next generation than in the previous century and a half!

Does the United States possess sufficiently rich and accessible raw materials to support such a high rate of production? If the labor and equipment required to supply industry with raw materials rapidly increases, the rise in output per man-hour will be retarded.

The fact that the country will use up more raw materials in the next thirty years than in all its previous history presents difficult problems, but I do not believe that scarcity of materials will prevent output per man-hour from continuing to rise at 2 per cent per year. The advance in technology reduces the scarcity of materials because it leads to the development of substitutes — aluminum for copper, and plastics for many metals. It also makes possible the development of inaccessible or lowgrade materials at costs little above those of developing accessible and richer materials a few years ago.

As time goes on, the United States will import a larger and larger proportion of many materials. At the present time, when everyone is worrying about the world shortage of dollars, the prospect that this country will need unprecedented quantities of raw materials should be a source of optimism.

Technological stagnation?

The very nature of discoveries makes it impossible to predict the rate at which they will be made. Nevertheless, it is easier to make out a case for expecting technological progress to be faster in the future than a case for expecting it to be slower. In the first place, the number of persons engaged in research in the physical and biological sciences and their applications is a larger proportion of the population today than ever before.

In the second place, the tools available for scientific and industrial research are better than in previous ages. By this I do not mean merely that the apparatus is more powerful, accurate, and sensitive. The most important tool of research is knowledge. The fact that the accumulation of knowledge is greater than in the past is an important reason for expecting that additions to knowledge will be made more rapidly than ever.

Incidentally, the advance of technology should not be thought of as merely a process of replacing handwork with machines. It also includes giving men new and better materials to work with. H is quite as important in the field of biology as in the field of mechanics, and promises in the next generation to make revolutionary changes in agriculture. It includes new drugs and curative agents which greatly increase the out put per man-hour of doctors.

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Is an increase of 2 per cent per man-hour per year a sufficient rate of growth? I do not think so. It is less than the country could reasonably expect to attain and it is also too low for our needs.

The United States, as I have pointed out, is better able to increase output than ever before. No one knows what rate of technological advance may be reasonably expected. I suspect that 3 per cent per man-hour per year would be well within the range of possibility — though it will not be easily achieved. It would mean that the national product by 1980 would be about 569 billion dollars, or over $3252 per capita. It would also mean that the United States in the next thirty years would produce about 70 per cent more than it has produced in all the previous century and a half.

Would this rate of increase in production be enough? It would certainly not be too much for a country which has undertaken to maintain the peace of the world, to help war-stricken countries adjust themselves to the post-war world, to help industrially backward countries develop their resources, 1o provide incomes for millions of its own citizens on the basis of need. An increase of about 3 per cent per man-hour per year might prevent a further rise in the proportion of the national income taken in taxes by our local, state, and national governments, but it would not make possible a substantial reduction in taxes in the near future.

The people are bound to insist that every sick person receive adequate attention regardless of his ability to pay, and payments to the aged are bound to rise rapidly in the next several decades. Nor is a rise of 3 per cent per year likely to equal the wage increases which trade-unions are able to obtain. Hence, it will probably not eliminate the necessity for a slow rise in the price level or for some kind of government control of collective bargaining. I conclude, therefore, that bright as are the prospects for a substantial rise in production, the problem of how to get more output will continue to be the country’s number one economic problem.

What will living be like in the United Stales in another generation? It is easier to estimate the probable increase in quantity of goods that will be consumed than to foresee the changes in the kind of goods. People wall have far more leisure and they will consume at least 50 per cent more per capita than now, and probably from 75 per cent to 100 per cent more. One is fairly safe in predicting that the United States will gradually become a country of two-car families and that in another generation 70 million or more cars will be on the roads. This will make much of the present road system obsolete. Air conditioning in restaurants and office buildings will create the demand for much air conditioning in homes. The family-size swimming pool is likely to become popular, and millions of these pools may be installed.

More important than greater consumption of commodities will be the rise in the use of services. Medical services of all kinds will be used far more than today. The proportion of people completing high school and spending some time in college will rise. Travel will continue to grow in popularity. The most interesting possibility of all is the effect of greater leisure upon interest in the arts. A nation on a 30-hour week will have more opportunity to pursue a multitude of arts, from gardening to painting and writing, than any people has ever possessed. Surely the chance is good that the arts will flourish in the United States as never before in the history of the world.