THE PRODUCTIVITY REVOLUTION OF THE 21ST CENTURY ECONOMY

June 18, 2004

Mr. DREIER: Mr. Speaker, I have some prepared remarks that I would like to offer to our colleagues this evening about economic growth and how important that is, but before that I would like to join, as my colleagues did earlier, in extending condolences and our thoughts and prayers to the family of Paul Marshall Johnson, as we have all seen in the last couple of hours, who was tragically killed in Riyadh, Saudi Arabia, and it clearly has underscored our Nation's resolve and the resolve of the civilized world to deal with this issue.

It is out of this tragedy we have gotten the news that Abdulaziz Muqrin, who has links to al Qaeda, was shot in the gunfire that took place afterward, and he reportedly is responsible for the tragic death of Mr. Johnson, and we hope very much that this will play a role in moving us down towards victory in this global war on terrorism.

My remarks, Mr. Speaker, are on the issue of the economy, and there is, in fact, a direct correlation because a strong, dynamic, growing U.S. economy will do a couple of things.

First, it will help us ensure that we have the revenues necessary to fight the global war on terrorism. A strong, growing U.S. economy clearly will have a ripple effect to other parts of the world, developing Nations in our quest to deal with this war on terrorism as we know many people who have been attracted to terrorist activities have been doing so in part seeking economic opportunity. So economic growth is something that is very important as we tackle and continue to expand on this global war on terrorism.

Mr. Speaker, the word ``revolution'' gets a lot of talk these days, perhaps even some overuse. A Google search comes up with everything from the yoga revolution to the low-carb revolution to something called a stencil revolution. I had no idea that the art of stenciling even could be revolutionized, but tonight, I am going to talk about a phenomenon that is truly deserving of the label, and that is the productivity revolution.

Large, sustained bursts of productivity growth have fundamentally changed our entire economy in the past, and I believe we are witnessing a new wave of productivity growth that is changing the face of our economy once again. I would like to note that I believe this discussion is particularly timely given the recent onslaught of policy proposals, most notably coming from the presumptive Democratic presidential nominee Mr. Kerry. Those would actually reduce the productivity of American companies.

Currently, productivity is booming in this country. Last year, U.S. nonfinancial businesses increased productivity by 5.7 percent, the largest increase since we began collecting data. Again, that increase was 5.7 percent, the largest since 1959 when the data was first being collected.

Private sector productivity overall grew nearly as much, at a rate of 5.5 percent. Manufacturing productivity jumped 5.1 percent last year which followed a spike of 7.2 percent in the previous year, but these sharp increases over the last several quarters are part of a long-term trend of growing productivity throughout our entire economy.

Nowhere is this revolution more apparent than in manufacturing, where productivity has grown an astonishing 72 percent. That is over the last 20 years, which is nearly double the rate of productivity growth in the economy that we have overall, a 72 percent productivity growth in the manufacturing sector of our economy, nearly twice the overall rate of productivity growth.

American companies that produce goods have been at the front of the line of businesses adopting new technologies and business strategies to be more productive. As a result, the American manufacturing sector today is stronger than ever before, and it is getting even stronger as we speak. They make more from less, and that is vitally good news for the overall economy, but in order to get a full understanding of exactly what I mean by productivity revolution and the fundamental changes to U.S. manufacturing that are taking place as a result, I think we need to take a big step back and take a look at much of our economic history.

By looking at an earlier productivity revolution that also brought about fundamental change, we can get a sense of how things are changing today. We can see what it means for our economy, and even more important, what it means to people who work in manufacturing jobs.

The first major transformation in American economic history was from an agrarian economy to the heavy industrial economy. It was such a major change that it really meant a change in our entire society, from the agrarian society of the late 1700s to the post-World War II America that our Nation experienced.

The American farm did not wither away. American farmers did not become unproductive. In fact, the driving force behind the transformation was just the opposite. American farms became the most productive in the world and are among the most productive today. They produce vastly more than they have at any time in our Nation's history, but if we just look at the jobs side, the number of Americans working on farms, we could think that things went horribly wrong if we just looked at jobs.

In the early years of our country, 95 percent of Americans worked on the farm, but at the start of the 20th century, well into transition from that agrarian to an industrial economy, farm jobs still accounted for 40 percent of all America, going from 95 percent down to 40 percent.

Today, the number of farm jobs in the United States of America is just 3 percent of our economy. So the question is, did we lose millions of farm jobs in America in the 20th century? Think about the fact that 40 percent of American jobs were agriculture jobs. Today, there are 140 million working Americans. Based on the 1900 economy, we should have 56 million farm jobs here in the United States, but instead, as I said, we have 4.2 million farm jobs. Have we really lost over 50 million American farm jobs?

The real question we must ask, Mr. Speaker, is the American farm economy better off than it was at the start of the 20th century? Is the American economy, the farm economy, actually better off than it was 100 years ago, and the answer is an unquestionable yes. American farms produce vastly more than they ever could have produced without modern technology, and they are doing it with a tiny fraction of the human capital that was necessary before the agricultural productivity revolution began, and perhaps most significantly, these productivity gains freed up millions of workers to initiate and advance the industrial revolution, paving the way for our modern economy.

So American farms today produce more food, more cheaply, with fewer people than ever before. Food is so cheap that our biggest emerging health problem is what? Obesity.

Now, what does this have to do with the American manufacturing sector? Just like our agriculture sector over a century ago, productivity in American manufacturing industries is on a long-term upward path.

U.S. manufacturing workers are producing more with less. They are reducing waste. They are harnessing new technologies and making the entire sector more efficient and competitive.

At the same time, wages have been steadily climbing. Technology is a huge part of the equation, with computers and robotics doing what tractors and fertilizers did on the farm over the past 200 years and steam engines did in an earlier generation of factories.

The result is that U.S. manufacturing has grown to be so large, the sector is now bigger than the entire Chinese economy. Again, the U.S. manufacturing sector of our economy is so large that it is larger than the entire economy of the People's Republic of China.

At the same time, employment has fallen for 25 years, while the average wages and productivity of the remaining workers have continued to go up.

And just like the productivity revolution that swept our agrarian economy, huge advances in our manufacturing sector have led to a fundamental transformation of our entire economy, from heavy industry to our high-tech 21st century economy.

As U.S. manufacturers have become increasingly productive and efficient over the past 2 decades, more and more Americans have found jobs in cutting-edge fields in the services sector. They are working as financial advisers and wedding coordinators and software engineers, among other areas.

And just like their counterparts in the manufacturing sector, booming productivity is changing the way that they work too. Technology gains and better business practices, not to mention the lower costs brought about by open trade, have empowered Americans in virtually every part of our economy to become more productive. The tech boom of the 1990s clearly changed the way Americans do business. The Internet and the rapid proliferation of personal computers allowed workers to communicate efficiently and quickly.

Data could be transferred with the click of a mouse. The world became a smaller place, and we all were able to accomplish more in less time and with fewer resources.

But the real story of the productivity revolution is not just greater efficiency. If we look at the impact on the overall economy, the results are even more significant. American consumers now purchase more products and better products for less money. That increase in purchasing power means that our standard of living has gone up and continues to go up, and Americans with the skills and energy to contribute to the economy are able to move into other more productive work, enlarging the overall economic pie.

In fact, Mr. Speaker, productivity growth is so fundamental to both growth in GDP and a rising standard of living that most economists agree it is the single most important economic factor for improving our quality of life.

Now, the economist Paul Krugman, whom I have debated on more than a few occasions and has a tendency to look at the world a little differently than I, writes in his book ``The Age of Diminished Expectations'': ``A country's ability to improve its standard of living over time depends almost entirely on productivity growth.''

Now, Princeton economist William Baumol and Susan Blackman with New York University, along with New York University economist Edward Wolff, write in their book entitled ``Productivity and American Leadership'': ``It can be said without exaggeration that in the long run, probably nothing is as important for economic welfare as the rate of productivity growth.''

Our Joint Economic Committee's recent productivity primer states that ``labor productivity is the most important driver of our standard of living, and its continued rapid growth is great news for the long-run prosperity of the American people.''

Mr. Speaker, the report goes on to say that high productivity is a sign of a healthy, growing economy and points out that if productivity had not fallen during the stagflation days of the 1970s and early 1980s, it says, ``Our standard of living today would be approximately 50 percent higher, adding an extra $5 trillion to the U.S. economy.''

We have an $11 trillion economy today; and had we not seen that productivity slow down during the stagflation period of the 1970s, the economy of the United States would be roughly $16 trillion.

But there has been a lot of anxiety and stress in the American economy caused by this productivity-led long-term transition. This, by the way, was also the case during the height of the Industrial Revolution, when similar long-term economic trends caused great anxiety among the many people impacted by changes in the agrarian society.

Manufacturing workers, in particular, have had to cope with a great deal of anxiety. While productivity growth has steadily reduced employment even as the sector

becomes bigger and stronger, recent short-term cycles have made times even tougher.

The 2001 recession led to a sharp drop in business investment, which left U.S. manufacturers struggling. This weak domestic demand was made worse by a worldwide downturn that clearly hurt U.S. exports. This temporary, but very painful, loss of customers, both here at home and abroad, delivered a tough blow to America's manufacturing workers. We all acknowledge that.

But the past couple of months have brought us very good news, Mr. Speaker. Our booming economy has stepped up demand for manufactured goods, particularly high-tech goods. Consumer spending is strong, and business investment is on the rise, causing manufacturing output to increase steadily for a year, and growing markets overseas, like China and India, are importing U.S. products at rapidly growing rates. Our exports to China alone grew by almost 30 percent in the past year.

Let me underscore that again as we got the news today of the current account deficit. Our exports alone last year to the People's Republic of China grew by almost 30 percent.

These strong economic gains have led the turnaround in manufacturing employment. Last month 32,000 manufacturing jobs were created, the fourth straight monthly increase and the strongest employment gains in manufacturing in 45 months. With demand for U.S. goods steadily rising, our manufacturing sector is on track for regaining the jobs that were lost due to the short-term downturn.

But what about the long-term trend of fewer and fewer manufacturing workers and the anxiety that comes with it? The productivity revolution is improving the quality of life for nearly everyone; but just like millions of farm workers, many generations ago, American workers today must increasingly find work outside of the manufacturing sector. Where will these Americans find work? What are the kinds of jobs that are being created? An easy and logical way to find booming job creation is to take a look at the booming consumer demand. What are we spending our money on? What areas of our economy are witnessing big increases in demand?

Mr. Speaker, one of those areas happens to be health care. We have an aging and more health-conscious population. We have had major breakthroughs in pharmaceuticals and biotechnology. Many people believe we are on the cusp of a new wave of biotechnology advancements and investments that will lead to new cures and help Americans live longer, healthier lives.

These factors have led to a greater share of our economy being dedicated to health care. This trend is not just being led by the elderly. I know there is a sense that as we look at the aging population, that all health care costs are focused on the elderly. In fact, while health care spending by the 65-and-older set edged up by only 2.7 percent last year, spending by the under-25 demographic increased by a remarkable 20.8 percent.

Mr. Speaker, as Americans become more and more health conscious, health-related spending across all demographics from the very young to the very old will continue to rise. This strong demand for health-related products and services is driving job creation at the same time. In the past year, physicians' offices hired an additional 45,000 employees, outpatient care centers grew by 9,000 workers, and hospitals added 59,000 people. In just 12 months, the health care industry created nearly a quarter of a million jobs, 225,000 new jobs to be precise.

But this trend in job creation is more than just a year old. Virtually every health-related field has been growing rapidly over the past decade. Physical therapists have grown by 90 percent. Medical assistants have grown by over 70 percent. Home health aides have grown by 138 percent. Rising demand in health care is not just a product, as I said, of an aging population. It is also due to the fact that Americans, particularly younger Americans, are becoming more health conscious. As a result, job creation in more nontraditional forms of health services is growing rapidly as well.

I frequently cite the example of the tremendous increase of massage therapists; and my comments when I talk about that are usually greeted with snickers, but let us keep in mind that massage therapy is a service that more and more Americans are incorporating into their health care regimes. Whether it is for treatment of chronic pain or ailments or simply to promote general well-being, more and more people are relying on massage therapy. And in terms of job quality, this is a profession that pays upwards of $35 an hour, often quite a bit more than that. Furthermore, massage therapists often have the privilege of working independently, which is something that draws a lot of people to that sector. Greater demand for this type of health service has again resulted in greater job creation.

In the past 8 years, the number of massage

therapists in this country has more than doubled, growing from 120,000 back in 1996 to nearly 300,000 today. The rapid growth of spa centers across the country indicates that the pace of job creation in this field is going to quicken as well. And with baby boomers set to begin retiring in the near future, the dual trends of increasing demand and increasing job creation in the health care industry overall show no sign whatsoever of slowing down anytime soon.

Mr. Speaker, the Department of Labor's Bureau of Labor Statistics estimates that the health care industry will be one of the largest job creators over the next decade. Home health care services, offices of physicians, outpatient care centers, and hospitals will

all increase employment over the next 4 years by over 16 percent. Over the next 8 to 10 years, the BLS, the Bureau of Labor Statistics, predicts that they will grow nearly 50 percent.

Rising consumer spending on health care is obviously spurring a vigorous debate in Congress over how we will ultimately pay for health services and products. It is an important debate and will no doubt be ongoing as the industry continues to evolve. But there is no question that this rapidly increasing demand is fueling robust job growth and will continue to do so for many years to come.

Another broad area of consumer spending that continues on the rise is housing. Today, the homeownership rate is nearly 70 percent, the highest ever in this country. Nearly 70 percent of the American people own homes. Last year, more houses were bought and sold than ever before in our Nation's history and new-home sales increased by 22 percent.

The rate of spending on real estate in 2004 is still very strong. While new-home sales have tapered slightly over the past 2 months, they are still up nearly 13 percent over the past 12 months, an almost unprecedented increase. In addition, second homeownership is growing rapidly as well. Fueled by baby boomers with empty nests, spending on second homes now exceeds $19 billion a year. That is nearly double what it was 10 years ago.

Of course the housing boom spurs growth in sectors like real estate and construction, but a number of related sectors benefit as well, marketing, finance, home improvement and insurance among others. The housing sector directly accounts for about 13 percent of total gross domestic product in any given year. But this figure is expanded by another 6 percent when you include the indirect boost in spending on items like utilities, furniture, and other housing-related expenses. The multiplier effect is 1.4 to 1.6 in real estate, or, in other words, for every $1 spent on housing, GDP increases by $1.40 to $1.60. Because of this, a dramatic increase in homeownership is very good news for our economy.

The increased spending on housing has also had a direct impact on employment in related sectors. In the past year, real estate employment, including brokers and agents, grew by 24,000 jobs. Architectural and engineering services grew by 7,000 jobs, and the BLS predicts 18 percent growth over the next 4 years.

An interesting twist to this homeownership trend is that while more Americans own homes than ever before, people are spending less and less time at home. One effect this is having on consumer spending and in turn job creation is greater reliance on services than goods. For example, homeowners are increasingly likely to hire a lawn specialist rather than purchase new lawn mowers. This, of course, mirrors the overall trend in our labor force in which more and more workers are finding jobs that provide skilled and often individualized services.

Another growing area of our consumer spending can actually be found in the increasingly significant spending habits of teenagers and college students. Spending in these age groups has grown extremely quickly in recent years. While this category generally doubled every 10 years for most of the second half of the 20th century, it tripled during the 1990s.

So what are these consumers spending their money on? One trend among members of Generation X and Generation Y, particularly males, is that they are watching less and less TV and are turning to other forms of entertainment, particularly the Internet, computer gaming and DVDs. While spending on TVs increased by 5 percent last year, spending on other forms of electronic entertainment like video gaming jumped by almost 11 percent. The result has been growing employment in high-tech entertainment industries. For example, companies that create Web content like eBay and Yahoo have created several thousand new jobs in just the last few months.

Growing Internet use has also spurred growth in online advertising and e-commerce. Large employers in these sectors like Amazon.com and Google are also hiring at a rapid rate for the first time in several years. Employment in Internet publishing and broadcasting is on the rise, growing 7 percent in the past year. This trend appears to have staying power, with the BLS predicting growth in these sectors of over 21 percent in the next 4 years. But demand for Internet content and computer gaming and the jobs they help create are obviously just a narrow slice of the much bigger high-tech picture, and demand for high-tech products overall is just a narrow slice of the total impact that the industry has on our economy at large.

As I discussed earlier, the high-tech boom has been the key factor in the emergence of our 21st century economy and the productivity revolution that ushered it in. Experts and analysts agree that our 1990s tech boom was to a great extent made possible by the falling prices of IT hardware. As demand met supply, companies across America incorporated high-tech products and services in their business plans and the results were nothing less than revolutionary. This process resulted in job creation in fields like systems administration and IT product manufacturing.

But looking at the impact of the high-tech boom in terms of job creation in directly related fields is like saying the significance of the invention of the wheel was that it created wheel-producing jobs. The real significance of the information technology revolution is that it went hand in hand with our productivity revolution. It fundamentally changed how business does business and made American workers tremendously more productive. And it unleashed a powerful new wave of innovation and entrepreneurship.

Online advertising and computer gaming are just the very tip of the iceberg. The high-tech boom has, for example, enabled 430,000 Americans, nearly half a million Americans, to make their entire living by selling and buying on eBay. As I said, that is nearly half a million Americans who run their own business by using a service that was not in existence just 10 years ago. Our IT and productivity revolutions are giving more and more Americans the ability to work independently.

And this is incredibly good news. A recent FedEx survey found that while 10 percent of Americans own their own business, two-thirds said they dreamed of owning their own business some day, and an astonishing 55 percent said that they would leave their current job and start a business if they had a chance to do so. Almost half of the respondents, according to that survey, said that the primary reason they would start a business was that they wanted to do something that they loved or enjoyed.

By making opportunities for entrepreneurship cheaper and more accessible, the Internet and our high tech economy are helping millions of Americans realize their dream of being their own boss and doing something that they love. This powerful American drive to innovate and create and work independently is at the crux of our productivity revolution. American innovation led to the creation of new information technologies, but it did not just stop there. IT products do not integrate themselves into the economy. Hard working and creative Americans harnessed technology, incorporated it into nearly every aspect of our lives, and brought about a wave of productivity that is transforming our entire economy.

This productivity revolution about which I have been speaking has been sustained as Americans continue to find new ways of harnessing these technologies. The Internet, for example, instantly changed how we viewed communications. But it takes time for new advancements to be fully implemented. Even today with PCs and millions of businesses, schools, and homes across America, we are only just beginning to understand the ways that technology can facilitate the things we do every day. As with any technological advancement, there are always lag times between invention, marketing, mass production, and full implementation. As creative Americans learn more and more about the technologies they are using, they will continue to drive our productivity revolution.

As I discussed earlier, productivity growth is the single greatest factor in improving our quality of life and economists across the board and observers have come to that same conclusion. The average productivity growth

throughout most of the latter half of the 20th century meant that the American standard of living would double every 40 years. But the 1990's productivity revolution has accelerated that rate so much that we are now on track to double our standard of living every 25 years, a generation faster than it was increased before.

This is hugely significant to any working family. For any parent working hard to ensure that their kids have the best education and the best opportunities possible, doubling the standard of living a generation faster makes all the difference in the world. And this is why any economic debate, whether it centers on trade or taxes or regulation, should come down to productivity. As policymakers, the question we should always be asking ourselves is, are we empowering Americans to be more productive or are we hindering them?

Today I believe that we are on the right path. Productivity growth continues to strengthen our economy and the effects can be seen in virtually every economic indicator. Growth in GDP, gross domestic product, as we all know, is very strong, running at over 4 percent for 2004. Consumer confidence, industrial production, and home ownership, as I said, are all on the upward trend, and job creation is booming. The Bureau of Labor Statistics' Household Survey shows the creation of 1.5 million jobs since last August, 1.5 million jobs created since last August. Even the Payroll Survey, which does not count for any of the self-employed workers about whom I have been speaking, workers and independent contractors, that we know are rapidly increasing in number, that survey, the Payroll Survey, shows 1.1 million new jobs created since August and over 800,000 jobs created in the first 4 months of this year alone.

But as Will Rogers once said, ``Even if you are on the right track, you will get run over if you just sit there.'' Today we have a number of opportunities to tear down remaining barriers to innovation and entrepreneurship, our chief engines of the productivity revolution.

American companies face a number of factors that restrain productivity. Factors like frivolous litigation and excessive regulation diminish the ability of U.S. companies to boost their productivity the way they would like, thereby hindering job creation. The National Association of Manufacturers estimates that these barriers from frivolous litigation raise the cost of doing business in this country by as much as 25 percent. Those extra costs can be formidable to any company, especially small businesses, and they are holding Americans back from their full productivity potential. Our pro-growth productivity agenda must focus on our efforts to break down these barriers, and I am very happy that this week out of the House we were able to pass the American Jobs Creation Act of 2004, which is specifically designed to decrease the tax burden for job creators so that we can again have an even greater incentive for job growth.

Unfortunately, there are many politicians, led by our colleague Mr. Kerry, who is, as I said, the presumptive Democratic presidential nominee, they are advocating just the opposite, just the opposite to the things that we have been pushing and, frankly, the policies that have led to the very positive growth about which I have been speaking. They are proposing policies that would actually reduce our productivity, a proposition that should be unthinkable in today's economy.

Remarkably, the Senator from Massachusetts claimed in a recent speech to the Teamsters members in Las Vegas that his policies ``will make American businesses more competitive'' and give Americans ``a chance to get ahead.'' And yet Senator Kerry has actually proposed raising taxes on companies that have boosted their productivity and competitiveness by investing in growing overseas markets. He wants to renegotiate trade agreements that have made companies more productive by opening up new markets for American exports and reducing costs through inexpensive high-quality imports.

But we know that the key to strengths being our economy and improving the standard of living for Americans is through productivity growth. We also know that tearing down barriers to innovation, not erecting new ones, is the key to increasing our Nation's productivity.

Today we are at an economic crossroads, Mr. Speaker. Our decisions will have far-reaching effects that could impact our ability to grow and create new opportunities for many years to come. The choice is quite simple: Do we allow our productivity revolution to progress and continue to raise the American standard of living more quickly than ever before, or do we change course and adopt policies that slow productivity, stifle innovation, and diminish our ability to improve our quality of life?

Mr. Speaker, I believe the latter choice is really no choice at all, and I have confidence that this Congress will instead choose to continue down the path toward a brighter future for all Americans.