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The american economy from roosevelt to trump

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VittorioValli

TheAmericanEconomyfromRoosevelttoTrump


VittorioValli
DepartmentofEconomicsandStatistics“CognettiDeMartiis”,UniversityofTorino,Torino,
Italy

ISBN978-3-319-96952-7
e-ISBN978-3-319-96953-4
https://doi.org/10.1007/978-3-319-96953-4
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Preface
In1978,IpublishedabookontheUSeconomicsystem.Aftermorethan30years,Ireturned
towriteaboutthelargestandmostpowerfuleconomyintheworldandonitseconomicand
politicalrelationsinaverydifferent,butequallyimportant,historicalphase.Thefirstedition
ofthisbookwaspublishedbyCarocciin2010.ItwaswritteninItalianandhadaconsiderable
successintherelativelyrestrictedItalianmarket.
ThisEnglisheditionofthevolumeisnotonlyafullyrevisedandupdatedversionofthe
bookbutanewedition.Itaddstwoimportantchapters.Chapter5isdevotedtotechnical
progressandtothestrongaccumulationofphysicalcapitalandknowledge,whichhavebeen
adistinctivefeatureofAmericaneconomicsuccessforoveracentury.Theothernewchapter
isdedicatedtotheeconomicconsequencesofDonaldTrumpinthefirst18monthsofhis
presidency.AlsoObama’spresidencyandthecriticalmatterofthedeclineoftheAmerican
economyhavebeenmorefullyanalyzed.
Aremarkmustbemade:theRooseveltinthetitleisnotFranklinDelano,butTheodore
Roosevelt,sincemybooktakesessentiallythemovefromthebeginningofthetwentieth
century.
Ihavenotwrittenathoroughanddetailedeconomichistory,butIhavetriedtogivean
interpretationofthemainlong-termeconomictrendsinthecountryfrom1870uptonow.I
didnotdosoasaneconomichistorian,butasamacroeconomist,focusingonlyonthemain
changesandsomecrucialturningpointsoftheeconomyoftheUS.
Theinterpretativeline,theredthreadofthebook,isthefollowing.
Intheperiod1870–1913,theUShadanimpressiveeconomicdevelopmentandamuch
fasterrateofgrowththanmostothercountries,becomingthemajoreconomyintheworld.
Thishadbeenlargelyduetothegreatadvantageofthefrontier,thatis,thepossibilityto

movewestusinguntappednaturalresources,newlandstocultivate,newpastures,new
mines,andsoon.Thisfavoredlargeimmigrationinflowsandbothextensiveandintensive
investment,technologicalprogress,andeconomiesofscale,facilitatingtherapidgrowthof
theeconomy.
Intheearlytwentiethcentury,thesebenefitsgraduallyweakened.TheUS,however,could
successfullycontinueitsrapideconomicascentbecause,since1908,ithadgraduallyreplaced
thosebenefitswiththeonesderivedbytheFordistmodelofdevelopment.
DespitethegreatdepressionundergonebytheUSeconomyaftertheWallStreetcrashof
1929andthroughoutthelostdecade1929–1939—whentheFordistmodelworked
backwards—theFordistmodelcouldbepartiallyreactivatedaftertheconclusionofthe
SecondWorldWar.
Sincethe1950s,thedominatingUSeconomyhadbeenslowlylosinggroundbecauseof
theoutbreakofsomecreeping,deepweaknessesintheAmericandevelopmentmechanism
andintheFordistmodelitself.TheUShadgraduallybecomealargenetimporterofenergy
andwasgrowingataslowerpacethanseveralWesternandEasternEuropeaneconomies,the
SovietUnion,Japan,andthefourAsiantigers.ThisledtheUStotryanothersolution,namely,
theattemptatgraduallybuildingupaglobaleconomicempire.SinceBrettonWoods,theUS
hadstronglypushedtowardstheestablishmentofthedollarasthekeycurrencyofthe
internationalmonetarysystem;ithadmadeahugemassofforeigndirectinvestment;ithad


favoredagradualprocessofliberalizationoftheinternationalmovementsofgoodsand
capitals,sustainingfromtheearly1970sagrowingeconomicandfinancialglobalization;it
hadtakenpartinmajorwarsinKorea,Vietnam,andtheMiddleEast.Thedominancein
finance,technology,andtheinterneteconomy,accompaniedbyanextensivepoliticaland
militarypower,couldtemporarilyrelievetheUSfearsthatglobalizationcould,inthelongrun,
destabilizetheverysourcesofitseconomichegemony.ThecrisisoftheSovietUnionandof
theSovietblocinthelate1980sandthebeginningofthe1990sseemedtopromisethefull
achievementoftheAmericanaimsandtomarktheendofhistory,withthefinalprevalenceof
westernliberaldemocracy.

Buthistoryteachesusthathistoryneverends:ithasalwaystrendsandcycles,reversalsof
fortune,suddenupheavals,gradualascentsordecline.
Unregulatedglobalizationandtechnologicalchangesfinallyledtoagreatbacklash.The
rapidindustrializationandtechnologicalcatchingupofJapan,SouthKorea,andthenChina
andotheremergingcountriescontributedtoacceleratetheUSdeindustrializationand
indirectlyincreaseUSeconomicinequalities.Wehave,moreover,witnessedthepassageof
partofEasternEuropetotheEUafterthedissolutionoftheSovietUnion;thebooming
expansionoftheChineseeconomyand,since1992,thatofIndia;thegrowingtensionsinthe
MiddleEast;theattackonthetwintowersonSeptember11,2001;thewarsinAfghanistan,
Iraq,Syria,andLibya;theadventandsemi-defeatofISIS;thedesireforresurgenceofRussia
andofemergingpowers;thegreatrecession;thedramaofmigrantsandrefugeesfromLatin
America,MiddleEast,andAfrica;theBrexit,andsoon.
Thereactiontoapartoftheseeventshasbeenthebrutalrecoursetoarmsandwarsofthe
twoBushadministrations,themorenuanced,butundecided,Obama’sinternationalpolicy
andtheroughavowalofAmericafirstandofprotectionistmeasuresofTrump’spopulist
policy.Allthisisleadingtowardsanimperfectmultipolarworld,muchmoredifficultand
complexthantheasymmetricbi-polarismprevailinginthe1946–1989years,frozenbythe
hardequilibriumofcoldwarandnuclearterror.AphaseofgradualdeclineoftheAmerican
economicpowerhadtakenitsfirststeps.
Ineconomicmatters,thegreatrecessionofthe2007–2010yearshasprovedtheinner
fragilityofaneconomydominatedbybanksandmultinationalsandinwhichthepolitical
decisionsareheavilyinfluencedbytheinterestsofthebigfinance,thebige-corporations,the
multinationals,andthesuper-rich.
IntheUS,PresidentObamasavedthemajorityoffinancialinstitutionsandsomebig
industrialcorporationsandhelpedtherecoveryofthecountrybystimuluspackages.Hetried
alsotoputsometimidlimitstotheunrulyactionofmajorfinancialgroupsandtoextendthe
healthcoveragetothemajorityofthepopulation.Finally,hetriedtotakesomestepstoward
a“green”policy,butatthesametime,hefavoredtheexpansionoffrackingtechniquesinthe
extractionofoilandgas,whichreducedtheUSenergydependencebutcausedsevere
environmentaldamageinvastzonesoftheterritory.Obama’smajordomesticfailureisdue

tohistimidreformistandgradualistapproach,whichcouldattenuate,butnotarrest,the
continuingriseofthegreatfracturesintheUSeconomyandsociety:therapidlyincreasing
dividebetweentherich,thepoor,andthedecliningmiddleclass,betweenracesandreligions,
betweenimmigrantsandnatives.Thesefractureshaveindeedbeentheculturemediumof
DonaldTrump’spopulistappeal.
PresidentTrumphasannouncedandthentriedtocancel,orreduce,theeffectsofObama’s


policiesonhealthandongreenpolicies.Healsoproceededtoextendanti-migrationwalls,to
repudiatesomemultilateraltradeagreementsandtoraisesometariffs,totryreducingoffshoringandattractforeigninvestment.Hefinallycuttaxation,inparticulartocorporations
andtorichpeopleashimself.Hispopulistpolicyhashelpedhimtogainthepresidential
election,buthiscontroversialpersonality,fullofhaughtinessandofracistandsexist
elements,andhisintricatelinkswiththeinterestsofthearmindustry,theoilandcoal
corporations,theconstructionindustry,andbigfinance,canpreludetoevengreatersocial
fractures,totradewars,andtoadangeroussceneryininternationalrelationsandinthe
socialandenvironmentalarenas.
VittorioValli
Torino,Italy


Acknowledgments
DuringmanyyearsofworkontheAmericanEconomyandoncomparativeeconomic
development,Ihaveaccumulatedmanyintellectualdebts.ThefirstoneistowardHarvey
Leibenstein,HollisB.Chenery,GregoryGrossman,andCarloMariaCipolla.Ioriginallymet
theminBerkeleyin1966–1967andthenonseveralotheroccasions.Thefirstthreescholars
gavemeatastefortheanalysisoftheproblemsofeconomicdevelopmentandofcomparative
studies;thefourth,agreateconomichistorian,thepleasureofcombiningeconomicsand
history.AnotherimportantdebtistowardAngusMaddisonandseveralItalianeconomists,in
particularPaoloSylosLabini.OfAngusMaddison,Iappreciatednotonlytheimpressivework
ofreconstructionandanalysisofmacro-economicdata,widelyusedinthisbook,butalsothe

vastknowledge,clarity,andconcisioninwriting.OfSylosLabini,Igreatlyappreciatedhis
exceptionalcapacityofskillfullycombiningeconomictheorywithsocialfactsandhisrelevant
policyinsightandgenerouscivilcommitment.Adebtisalsoduetofriendsandcolleagues
whoreadorreviewedtheItalianortheEnglisheditionsofthebookandgavemehelpful
commentsandsuggestions,andinparticular,NicolaAcocella,GiovanniBalcet,GianCarlo
Bisacchi,TerenzioCozzi,SilvanaDalmazzone,EnricoFilippi,DinoMartellato,Ferdinando
Fasce,AngusMaddison,IgnazioMusu,GiulianoPetrovich,SanjayReddy,SalvatoreRossi,
MarcelloSignorelli,RenataTargettiLenti,PierangeloMariaToninelli,GianniToniolo,and
MaurizioVaudagna.ParticularthanksareduetoLuigiOddo,whohasskillfullyprovidedthe
updatingofmostfiguresandtablesfortheEnglisheditionofthevolume.
IfinallythanktheeditorsofthepublisherCaroccifortheirimportantcontributiontothe
ItalianeditionofthebookandLauraPaceyandClaraHeathcockofPalgraveMacmillanfor
theirverykindandcompetentsupervisionofthenewEnglisheditionofthebook.
Anyerrorsoromissionsare,ofcourse,mycompleteresponsibility.


Contents
1TheBirthofaGreatEconomicPower
1.​1TheEconomicAscentoftheUS
1.​2TheEconomicConsequencesoftheFrontier
References
2TheFordistModelofEconomicDevelopment
2.​1TheConceptofFordism
2.​2TheFordistModelofEconomicDevelopment
References
3TheGreatDepressionandtheNewDeal
3.​1TheWallStreetCrash
3.​2TheGreatDepression
3.​3TheNewDeal
3.​4TheDebateontheGreatDepressionandtheNewDeal

References
4ReturnandCrisisoftheFordistModelofDevelopment
4.​1TheWarandItsConsequences
4.​2TheReturntotheFordistModel:​1946–1969
4.​3TheCrisisoftheSecondWaveoftheFordistModel
References
5CapitalAccumulation,TechnologicalProgress,andKnowledge
5.​1TheMainDeterminantsofEconomicDevelopment
5.​2CapitalAccumulation
5.​3TheRoleofTechnologicalProgress
5.​4TheImportanceofKnowledge
5.​5StructuralChangesintheUSEconomy
5.​6RobotsandtheE-Economy
5.​7SummingUp
References
6TheGlobalPoweroftheUS
6.​1AfterTeheranandYalta


6.​2TheMainPointsofStrengthoftheUSEconomy
6.​3TheEconomicConsequencesoftheWars
6.​4Economic,Military,andPoliticalPowers
6.​5TheUSandtheTurinIndexofEconomicPower
References
7MainWeaknessesintheAmericanEconomicPower
7.​1TheDependenceonForeignOilandOtherRawMaterials
7.​2TheEnvironmentalProblemintheUS
7.​3PhasesofAscentandDeclineoftheUSEconomy
7.​4FromSurplustoStructuralDeficitintheUSBalanceofCurrentAccounts
7.​5TheWeakeningoftheDollar

7.​6RisingInequalitiesinWages,Income,andWealth
7.​7TerrorismandOrganizedCrime
7.​8TheWitheringoftheAmericanDream
7.​9TheErosionofDemocracy
References
8TowardaGlobalEconomicEmpire
8.​1TheInstruments
8.​2Post-warAidsandtheMarshallPlan
8.​3ThePathtowardTradeLiberalization
8.​4ForeignDirectInvestmentandtheGrowthoftheUSPresenceintheWorld
8.​5TheUSandtheThirdWaveofEconomicandFinancialGlobalization
8.​6TheFinancialSupremacy
8.​7IdeologyandtheAmericanLifestyle
8.​8TheInfluenceofMediaandInternet
8.​9ThePowerofArmsandDiplomacy
References
9TheGreatRecession
9.​1WhytheGreatFinancialCrises?​
9.​2TheUSSub-primeFinancialCrisis
9.​3TheGreatRecession
9.​4TheInadequacyofControls


9.​5PossibleRemedies
9.​6AComparisonwiththeGreatDepression
References
10Obanomics
10.​1Obama’sIdeasonEconomics
10.​2Obama’sResponsetotheGreatRecession
10.​3TheIndustrialandInnovationPolicy

10.​4ObamaandtheEnvironment
10.​5Obamacare
10.​6Inequality,Taxation,andtheMiddle-ClassCrunch
References
11TheEconomicConsequencesofDonaldTrump
11.​1PopulismandTrumpism
11.​2DonaldTrump’sVictoryinthe2016PresidentialElection
11.​3TheRelationswithEconomicandFinancialPower
11.​4AmericaFirst
11.​5TheNeo-ProtectionistPolicy
11.​6TheReformTaxBill
11.​7Trump’sPolicyonHealthCareandEnvironment
References
12America’sDecline?​TowardanImperfectMultipolarWorld
12.​1America’sDecline?​
12.​2China:​TheOtherEconomicGiant
12.​3TheRoleoftheEuropeanUnion
12.​4Russia,Japan,India,andOtherEmergingPowers
12.​5TheNongovernmentalPowers
12.​6TheFragilityofInternationalOrganizations
12.​7Conclusions
References
StatisticalAppendix
Index


ListofFigures
Fig.1.1Theeconomicconsequencesofthefrontier



Fig.2.1TheFordistmodelofdevelopmentintheUS


Fig.3.1ThegreatdepressionintheUS


Fig.3.2Fascistcorporatismversusdemocraticneo-corporatism


Fig.4.1USrealoutputperhourandrealadjustedhourlyearnings:1950–2017


Fig.5.1Thepyramidofeconomicdevelopment


Fig.6.1Economic,political,andmilitarypowers


Fig.7.1USoildependencefromabroad:1949–2017


Fig.7.2BalanceofcurrentaccountsintheUSeconomyinpercentofGDP:1960–2016


Fig.7.3USdollarratesofexchange:1968–2017


Fig.7.4Theerosionofdemocracy



Fig.8.1USexportsandimportsofgoodsandservicesintheUS:1950–2016


Fig.8.2USoutwardandinwardFDIstocksinselectedyears:1980–2016


Fig.9.1RealGNPinthegreatdepressionandinthegreatrecession



Fig.10.1EcologicalFootprintandBio-capacityintheUS:1961–2014


Fig.12.1TotalGDPinChina,Russia,andIndia:1978–2017


Fig.12.2Theeconomicascentofselectedemergingcountries:1978–2017




ListofTables
Table1.1PopulationintheUSandotherselectedcountries:1820–1913


Table3.1IndicatorsonthegreatdepressionintheUS


Table4.1RatesofchangeofGDPandpercapitaGDPinselectedeconomies:1950–1973



Table4.2Mainreasonsfortherapidgrowthofselectedeconomiesintheyears:1950–1973


Table5.1KnowledgeindicatorsintheUSandotherselectedcountries


Table5.2EmploymentbysectorofeconomicactivityintheUS(%):1870–2017


Table6.1Population,GDP,andpercapitaGDPintheUS,SovietUnionandRussia:1950–1991


Table6.2Selectedinternalindicatorsinselectedcountries


Table6.3Exports,stockofoutwardFDI,andpersonsemployedinR&D


Table6.4TheTIEP:1952,2008,and2017


Table7.1PhasesofascentanddeclineoftheUSeconomy:1870–2017


Table8.1Selectedindicatorsoneconomicglobalization:1980–2016


Table8.2SelectedindicatorsoftheUSinthethirdglobalizationwave



Table9.1ThegreatrecessionintheUSandinselectedEUcountries



Table9.2RealGDPandrealpercapitaGDPinthetwoUSgreatcrises


Table9.3Acomparisonbetweenthegreatdepressionandthegreatrecession


Table10.1Annual%rateofchangeofrealGDPinselectedareasorcountries:2007–2017


Table10.2Harmonized%unemploymentratesinselectedareasorcountries:2007–2017


Table10.3Federalreceipts,outlays,deficits,anddebtaspercentofGDP:2007–2019


Table12.1TheUSandChina:selectedindicators


TableA1PopulationintheUSandintheselectedcountries(million)


TableA2TotalGDPinPPP,notadjustedtoICTprices,intheUSandinselectedcountries
(US=100)



TableA3GDPper-capitainPPP,notadjustedtoICTprices,intheUSandinselectedcountries
(US=100)


TableA4MacroeconomicindicatorsintheUSandinselectedcountries:1952–2017


TableA5MacroeconomicindicatorsfortheUSintheperiod1980–2017


TableA6OtherindicatorsfortheUSintheperiod1980–2017


TableA7Full-timeandpart-timeemployeesbyindustryintheUS:1950–2017




©TheAuthor(s)2018
VittorioValli,TheAmericanEconomyfromRoosevelttoTrump
https://doi.org/10.1007/978-3-319-96953-4_1

1.TheBirthofaGreatEconomicPower
VittorioValli1
(1) DepartmentofEconomicsandStatistics“CognettiDeMartiis”,UniversityofTorino,
Torino,Italy


VittorioValli
Keywords TheAmericaneconomy–TheeconomyoftheUSinthe1870–1908period–The

frontierintheUSeconomy–TheeconomicascentoftheAmericaneconomy

1.1 TheEconomicAscentoftheUS
Inthelastdecadesofthenineteenthcentury,theUShadbecomethemaineconomicpowerin
theworld.AccordingtoMaddison’sestimatesoftotalGrossDomesticProduct(GDP)in
purchasingpowerparities(PPP),in1872theUSsurpassedthemainindustrialpowerofthose
years,theUK.1ThenitsurpassedtwopoorerbutmuchmorepopulouscountriessuchasIndia
andChinain1876andaround1886respectively,becomingthecountrywiththelargesttotal
GDPintheworld.
Whilein1870,China,India,andtheUKhadatotalGDPinPPPlargerthantheUSby93%,
37%,and18%,respectively;in1913,thesituationhadradicallychanged:theUShadatotal
GDPinPPPs2.1timeslargerthanChina,2.3timeslargerthantheUK,2.5timeslargerthan
India.2
Intheyears1870–1913,theUShadaccomplishedagreatrelativeeconomicascent.With
thisconceptImeanaprolongedperiod(twodecadesatleast),inwhichtherateofgrowthof
theeconomy,measuredbytheaverageannualrateofchangeofpercapitaGDP,is
significantlyhigherthantheworldrateofgrowth.Inthoseyears,thepercentannualrateof
changeofpercapitaGDPoftheUShadinfactbeen1.82,whiletheworldaveragehadbeen
1.3.3Thelastquarterofthenineteenthcenturyandthefirstyearsofthetwentiethcentury
sawtheformationoftheUSeconomicdominance,whichclearlymanifesteditselfinthe
followingyears.
Inthatperiod,theperceptionofsuchaprofoundchangeintheworldeconomicequilibria
was,however,verylimited.Inthosedays,therewerenosyntheticeconomicindicators,such
asGDP,anditwasthereforeverydifficulttoperceiveandcorrectlyassesstheimportanceof
worldeconomictransformations.Moreover,thegreatWesternEuropeanpowers,theUK,
France,andGermanyhadavastcolonialempire,sotheireconomicstrengthwasaugmented
bytheimportanteconomicandfinanciallinkswiththeircolonies.
Therewas,moreover,aremarkableignoranceofwhatwashappeningoutoftheirnational



boundariesoroutoftheirempireseveninsomeoftheprominentpoliticalleaders.Education
atschoolwasthen,asitistoday,stronglynationalistic,andinEurope,euro-centric,butits
effectswerenotattenuated,asitnowhappens,byextensivetravellingabroad,themassive
diffusionofinternationalmediaandthewidespreaduseofinternet.
Inanycase,thecolonialempires,thoughvastandpowerful,weregiantswithclayfeet.
Theyweredestined,inthelongrun,todissolve,asithappenedinthree-fourdecadesafterthe
SecondWorldWar.Theywere,infact,underminedbyfourintrinsicweaknesses.
Fromtheeconomicpointofview,theEuropeanempiresweresubstantiallybasedonthe
principlecenter-periphery.Therapidgrowthofindustryandofmoderntertiaryactivities,and
soafastereconomicgrowth,wasmainlyconcentratedinthecenteroftheempire,whilethe
periphery(thecolonies)actedmainlyasfurnishersofrawmaterialsandasamarketfor
manufacturedgoods.Itfollowsthattherewasaveryunequaleconomicgrowthinthecenter
andintheperipheryofsuchempiresandthereforelargeandgrowingtensionstowardsa
socialandeconomicresurgenceofcolonies.
Withincolonialempires,therewere,moreover,greatethnic,linguistic,andreligious
differences,whichinthelong-runcontributedtounderminetheirexistence.
Themarkeddifferenceincitizenshipstatusamongtheinhabitantsofthecenterandofthe
peripheryoftheempirescontributedtoinducethediscriminatedordisadvantagedpeopleof
thecoloniestorebellionandtoafiercesearchforindependence.
Finally,therewasastrongterritorialdiscontinuitywhichmadethemovementsofarmies
andsecurityforcesinalltheempire’szonesdifficult,costly,andtime-consuming.Itisnotby
chancethatinafewdecadesaftertheSecondWorldWarallcolonialempiresdissolvedwhile
theUS,China,India,andRussia,whichhadafullorquasi-completeterritorialcontinuity,
couldsurvive,althoughsince1947IndiahadsufferedfromthedramaticIndia-Pakistan
partition,andin1991therehadbeenthedissolutionoftheSovietUnion.
TheprodigiouseconomicascentoftheUSintheyears1870–1913ismainlyduetothree
elements:
1.



2.
Theconsequentrapidexpansionofpopulationandoftechnicalprogress,andthereforeof
Theexistenceofthefrontieruntilthebeginningofthetwentiethcentury

realproductivityandrealGDP

3.

Theactivation,whentheadvantagesofthefrontierbegantograduallyshrink,ofthe
fordistmodelofdevelopmentthatcontributedtoprolongthepossibilityoftherapid
economicgrowthoftheUSeconomy



1.2 TheEconomicConsequencesoftheFrontier
Afterreachingindependence,andinparticularduringthenineteenthcentury,theUSfully
utilizedacrucialandpeculiargrowthdeterminant:thefrontier,namely,thepossibilityto
movewesttoexploitnewnaturalresources.4
Inthewest,therewereabundantarablelands,pastures,minesforgoldandother
importantminerals,coalandoilfields,forests,waterresources,buffaloes,furs,fish-richlakes,
rivers,andtheocean.


TheexistenceofthefrontierhadpermittedtheUStodisposeofenoughfoodandnational
resourcestobeabletorapidlyexpanditspopulation.TherapidgrowthoftheUSpopulation
wasduetotheacquisitionofvast,newterritories,oftenatthecostoftheexterminationofa
largepartofthepreexistingindigenoustribes,andtothepositivedemographicnaturalrate
andtothecontinuouslargenetinflowofimmigrants.
WhileevenintherichestEuropeancountries,suchastheUKandFrance,thepopulation
wasgrowingveryslowly,intheUSitwasgrowingveryfast.AswecanseeinTable1.1,in1820

thetotalUSpopulationwaslessthanhalfoftheUKpopulationandlessthanonethirdof
France’s,butin1870ithadalreadysurpassedthelevelofthetwogreatEuropeanpowers,and
in1913,ithadmorethandoubled.
Table1.1 PopulationintheUSandotherselectedcountries:1820–1913(inmillions)a
Years France Germany UK Italy US
1820 31.3

24.9

21.2 20.2b 10.0

1870 38.4

39.2

31.4 27.9

40.2

1913 41.5

65.0

45.6 37.2

97.6

Source:Maddison(2003),pp.36–37,81–82
aWiththepresentborders
bBeforeunification,butassumingthepresentborders

Therapidexpansionofthepopulationcontributedtoanincreaseinthedemandforgoods
andservices,stimulatingamassiveriseintheinvestmentofenterprisesandofpublicand
privateinvestmentininfrastructures,suchasrailways,roads,ports,schools,andhospitals.
Theexistenceofthefrontieralsoledtoastrongtechnologicalprogress,asitisshownin
Fig.1.1.ThemerepossibilityforspecializedworkersintheeasterncoastorinChicagoto
movetotheWestincreased,ceterisparibus,thecontractualstrengthofskilledworkersvis-àvistheirentrepreneurs,andthereforethepossibilityofobtainingwagerises.


Fig.1.1 Theeconomicconsequencesofthefrontier
Source:Ourelaboration

This,togetherwiththepressureoftheascendinglaborunionsinthelastdecadesofthe
nineteenthcentury,pushedtheenterprisestoinnovateandinvestmoreinnewlabor-saving
machinesandinmodernplantsinordertobeabletoincreaselaborproductivityandto
maintainacceptableprofitmargins.Theseformsofintensiveinvestmentgenerallyembodied
newtechnologies,thereforeleadingtoageneralriseintheleveloftechnologicalprogressand
oflaborproductivity.
Inordertoattenuatetheriseinwages,therewasalsothegrowingrecoursetoalarge
massofimmigrants,madepossiblebytheexistenceofthefrontier.Butatthesametime,the
frontierinducedalsotomakeextensiveinvestmentaimedatincreasingproductivecapacity
andemployment.Theriseinpopulationandconsumptionrequiredinfactnewrailwaylines,
newroads,bridges,houses,andshops.Itwasnecessarytosupplynew-bornandimmigrants
withfood,clothes,andothergoodsandservices.Allthiscontributedtoraiseinvestment,
production,andemployment.Theriseinunitwagesandinemploymentledtoarapid
increaseintotalwagesandthereforetheconsumption,andthisinducedtomakefurther
extensiveinvestmentinordertoadaptthelevelofproductiontothecontinuousrisein
demand.Theriseinproductivecapacityled,incertainsectors,tolarge-scaleeconomies,
whichcontributedtoincreaseinproductivityandthereforeinternationalcompetitiveness.
Exportsgrewandtheirrevenuescontributedtofinanceimportsandtosustainthevalueof



theUSdollar.Theeconomiesofscalealsofavored,incertainsectors,economicconcentration,
andthustheconstitutionofverylargecorporations.Thepresenceoflargenumbersof
workersinthevastplantsofthemajorcorporationsfavored,ontheotherhand,thebirthofa
countervailingpower,5namely,theconstitutionofpowerfullaborunionsandofliberalor
leftistpoliticalparties.Themassiveriseofbothintensiveandextensiveinvestmentledtoa
rapidgrowthofGDP,percapitaGDP,andlaborproductivity.TherateofchangeoftotalGDPis
approximatelyequaltothesumoftherateofchangeofpopulationandtherateofchangeof
percapitaGDP.6IntheUS,boththeaddendagrewveryfast,sotheirsumgrewevenmore
rapidly.ThispermittedtheUStoreachandthensurpassandrapidlydistancetheleveloftotal
GDPinPPPoftheothermajorindustrializedcountry,theUK.In1872,theUShadinfact
surpassedtheleveloftotalGDPoftheUK,whichhadbeenthelargestindustrialpoweratthe
time.Aboutthreedecadeslater,in1905,theUSpercapitaGDPcametoexceedthatoftheUK
andthenrapidlyoutdistancedit.TheUSlaborproductivity,measuredbyGDPdividedby
employment,whichin1870was88%ofthatoftheUK,overtookitintheearlytwentieth
centuryandin1913exceededtheUK’slevelbyabout15%.7
In1913,theUSnotonlywasthelargesteconomyintheworld,butalsothemostadvanced
intermsoftheaverageleveloftechnology,percapitaGDP,andlaborproductivity.The
existenceofthefrontier,thelackofafeudalheritage,andotherhistoricalandcultural
elementswerealsoabletoinjectsignificantamountsofdemocracyandfreedominAmerican
societyaswellasaconsiderablesocialmobility.8Whileinthenineteenthcentury,thelatter
workedalmostexclusivelyforwhiteAnglo-Saxonmenandmuchlessforwomen,blacks,
Hispanics,andAmericanIndians,nonetheless,ithadallowedtheemergenceoftheso-called
AmericanDream,theabilityofeachmantobeabletosuccessfullyforgehisfuturecountingon
hisskillsandcommitmenttowork.
However,in1913,theadvantagesofthefrontier,whichwerethehighestinthenineteenth
century,hadlargelyvanished.Mostofthewesternlandshadalreadybeensoldorrented,
manyminesofgoldandothermineralshadalreadybeendiscoveredandexploited,the
buffaloesexterminated,andlargeforestsdestroyed.Anumberofresources,suchaslargeoil
fields,thenonlypartiallydiscoveredandputintoproduction,stillremainedtobeexploited.

Moreover,landsinseveralwesternstatesandtheMidwestwerestilllargelypubliclyowned
andcouldberentedatpricesfarlowerthantheaverageEuropeanprice.Thisallowedto
cultivateonlythemostfertilelandsandtoapplyextensivecultivation,whichwasmore
profitablethantheintensiveoneprevailinginmanypartsofEuropeandAsia,whichwere
muchmoredenselypopulated.
Since1908,however,theUScouldbegintoreplacesomeofthedecliningadvantages
associatedtothefrontier,withthebenefitsarisingfromtheFordistmodelofdevelopment.The
introductionofthismodelcanbetracedbacktotheopeningofthefirstlarge-scale
automotiveplantproducingwithlargeassemblylinesacarmuchcheaperthanprevious
models:thefamousFordModelT.Thismodelwasproducedinover17millionunitsfrom
1908to1927.Itdidcostatthebeginningabout$850,lessthanhalfthepriceofcompeting
models.Thepricefurtherdiminishedovertimeduetoeconomiesofscaleandproduction
improvements,reaching$285forthebasicversionin1926–1927.Cars,whichpreviously
werealuxurygoodforafewrichpeople,becameamass-product,accessibletomiddle-and
upper-middleclasspeopleandeventoagrowingshareofworkersinthecarindustry.This
wasthebeginningoftheFordistphaseofAmericaneconomicdevelopment.Itwassimilarin


someaspectstotheoneprevailinginWesternEuropeandJapanabout40yearslater,inthe
1950sand1960s,andinemergingcountrieslikeChinaintheyears1980sand1990sandin
theearlytwenty-firstcentury.
TheFirstWorldWar,whichtheUSenteredalongsidethealliedforcesagainsttheGerman
andAustriantroops,onlypartiallyinterruptedthefordistphaseintheUS.Thewar,whichled
toalargenumberofcasualtiesandatemporaryreductionofcivilianproductioninsome
areas,had,however,allowedtheUStomoveitsproductiveforceandFordistmethodsof
productionfromtheciviltothemilitarysectorandtotransfersubsequentlysome
technologicalmilitaryadvancementstothecivilsector.Overall,theFirstWorldWar,although
causingabout117,000UScasualties,lefttheUSstrengthenedmilitarily,politically,and
economically,significantlyincreasingitseconomicpowerintheworld.


References
Beard,C.A.,andM.R.Beard.1921.HistoryoftheUnitedStates.London:Macmillan.
Denison,E.F.1974.AccountingforU.S.EconomicGrowth.Washington,DC:BrookingsInstitution.
deToqueville,A.1835–1840.DeladémocratieenAmerique.ItaliantranslatedbyG.Candeloro.LademocraziainAmerica.
Milano:BUR,1999.
Galbraith,J.K.1967.TheNewIndustrialState.Princeton:PrincetonUniversityPress.
Gordon,R.J.2016.TheRiseandFallofAmericanGrowth:TheU.S.StandardofLivingSincetheCivilWar.Princeton:Princeton
UniversityPress.
[Crossref]
Habakkuk,H.J.1962.AmericanandBritishTechnologyintheNineteenthCentury.Cambridge:CambridgeUniversityPress.
Kuznets,S.1966.ModernEconomicGrowth.NewHavenandLondon:YaleUniversityPress.
Landes,D.S.,P.Higgonet,andH.Rosovsky.1991.FavoritesofFortunes:Technology,Growth,andEconomicDevelopmentsince
theIndustrialRevolution.Cambridge:HarvardUniversityPress.
Maddison,A.2001.TheWorldEconomy:AMilleniumPerspective.Paris:OECD.
[Crossref]
———.2003.TheWorldEconomy:HistoricalStatistics.Paris:OECD.
[Crossref]
———.2007.ContoursoftheWorldEconomy,1-2030AD;EssaysinMacroeconomicHistory.Oxford:OxfordUniversityPress.
Mammarella,G.2003.StoriadegliStatiUnitidal1945adoggi.RomaandBari:Laterza.
North,D.C.1961.TheEconomicGrowthoftheUnitedStates,1790–1860.UpperSaddleRiver,NJ:Prentice-Hall.
Pianta,M.1988.NewTechnologiesacrosstheAtlantic:USLeadershiporEuropeanAutonomy?HemelHempstead:Wheatsheaf.
Teodori,M.2008.StoriadegliStatiUnitieilsistemapoliticoamericano.Roma:NewtonCompton.
Turner,F.J.1920.TheFrontierintheAmericanHistory.NewYork:HenryHolt.Italiantransl.Lafrontieranellastoriaamericana,
Bologna,ilMulino,1959,1975.
Valli,V.1978.Ilsistemaeconomicoamericano:1945–1977.Milano:Etaslibri.
Vaudagna,M.1981.CorporativismoeNewDeal,IntegrazioneeconflittosocialenegliStatiUniti(1933–1941).Torino:Rosenberg.
Williams,W.A.1961.TheContoursofAmericanHistory.Cleveland:TheWorldPublishingCompany.Italiantransl.Storiadegli


StatiUniti,Bari,Laterza,1964,2vols.


Footnotes
1 SeeMaddison(2001,2003,2007).TotalGDP,thoughbeingaveryroughandincompleteindicator,givesusanideaofthe
economicsizeofacountry.ThemeasuresinPPPtakeintoaccounttheactualpurchasingpowerofacurrencyindifferent
countriesandsotheypermitmorereliablecomparisonsamongcountriesthantheonesbasedonofficialratesofexchange.


2 SeeMaddison(2001),p.261.


3 SeeMaddison(2003),p.263.


4 OntheimportanceofthefrontierintheUSeconomicdevelopment,seeforexample,Turner(1920),Williams(1961),
Habakkuk(1962).FormoregeneralviewsonthemainaspectsofAmericaneconomicdevelopmentsince1870,seeBeardand
Beard(1921),North(1961),Kuznets(1966),Denison(1974),Valli(1978),Vaudagna(1981),Pianta(1988),Landesetal.(1991),
Mammarella(2003),Teodori(2008),Gordon(2016).


5 SeeGalbraith(1967).


6 TherateofchangeofGDPisequaltotherateofchangeofpopulationplustherateofchangeofpercapitaGDP,plusthe
productofthetworatesofchange.Sincelasttermisverysmall,forapproximatecalculationsitisusuallyomitted.


7 SeeMaddison(2001),p.349.TotalandpercapitaGDPandlaborproductivityareallcalculatedinPPPGearyKhamis(GK).


8 OntheparticularcharactersofAmericandemocracy,seetheclassicalbookbyAlexisdeTocqueville(1835–1840).





©TheAuthor(s)2018
VittorioValli,TheAmericanEconomyfromRoosevelttoTrump
https://doi.org/10.1007/978-3-319-96953-4_2

2.TheFordistModelofEconomicDevelopment
VittorioValli1
(1) DepartmentofEconomicsandStatistics“CognettiDeMartiis”,UniversityofTorino,
Torino,Italy


VittorioValli
Keywords Fordism–Fordistmodelofdevelopment–AmericangrowthintheFordistphase

2.1 TheConceptofFordism
AntonioGramsci,inAmericanismandFordism,1introducedtheconceptofFordism,whichwas
thentakenup,withsomewhatdifferentmeanings,bymanyotherauthorsandschoolsof
thought.
GramscilaidspecialemphasisontheTayloristorganizationofworkandproductioninthe
largeFordistfactory,accompaniedbyrisingwagesthatfacilitatedthereluctantconsentof
workerstooperateinworseworkingconditions.Taylorismentailedlargemechanizationin
factories;specializationandfragmentationoftheproductionprocess;ceaselessrepetition
andsimplificationoftasks,gestures,andmovementsofworkers;increaseoftheintensityand
paceofwork;andincreasedcoerciononworkersandpressureonlaborunions.Thecommon
factoryworkerwassubjecttohigheralienationandlargelylosttheneedtousemuchof
her/hisbrainandparticularskillsinthejob.
Anyonewho,eventemporarily,hasexperiencedorobservedworkattheassemblylineof

anoldFordistfactoryknowsthatthefastandcontinuousmechanicalrepetitionofafew
gesturesrequirestheuseofalimitedportionofthebraintoavoidinjurytotheworkerorthe
damageofhandledpieces.Thisleadsthemindtowander,anddaydreamingcontributestoa
gradualintellectualimpoverishment,ifthereisnocorrectiveactionofrobustintellectual
activitiesoutsideworkingtime.
Gramsci,however,thoughtthatthistypeofworkinanycaseallowedtheworkerstothink
morethanbefore,andthiscouldleadtorebellion,sothatentrepreneursusedtointroduce
varioustrainingactivitiesfortheirworkers,partlyinordertocounterthisdanger.
Gramsciargued,moreover,thatFordismincreasedproduction,productivity,andprofits
andthereforeallowedforwageincreasesthatdiminishedtheresistanceofworkers.He
believedthatFordismhadbeenrootedfirstandmostsuccessfullyintheUS,whileithad
encounteredseriousobstaclesinItalyandtherestofEuropeinthe1920sand1930s.This
happenedbecauseintheUStherewerenoresidualsofthefeudalregime,therewasno
oppositionofparasiteclasses,therewasastrongbusinessandfinancialautonomyandalegal


systemthatallowedindustrialandfinancialconcentration.
Gramsci,however,inhisanalysisunderestimatedtheimportanceofthemuchlargersize
oftheUSmarket,comparedwitheachindividualEuropeancountry,andofitsfasterrateof
growth.So,inthoseyears,intheUS,theimportanceofeconomiesofscalewasmuchmore
sizablethaninthesmallerandlessdynamicEuropeanproductivesystems.After1914,most
Europeaneconomieswerealsoheavilyprotectedbyalongseriesoftariffsandquotas,only
partiallyremovedaftertheFirstWorldWar,butre-enforcedinthe1930s.
IfFordismisassociatedwithHenryFordandhisModelT,someaspectsofthesame,like
Taylorismandtheproductionchain,hadalreadybeenintroducedintheslaughterhousesof
Chicago,whileothers,asthestrongriseinwagesandthereductionofworkinghours,were
introducedintheFordcorporationlaterthan1908and,althoughfinallydecidedbyHenry
Ford,derivedlargelyfromatoughconfrontationwiththeunions.
Anotherkey-aspectofFordismwas,infact,asubstantialgrowthinwagesandalargecutin
workinghours.In1914,HenryForddecidedtoraisetheminimumwageto$5perday,more

thandoubletheaverageofothercompanies,andreduceworkinghoursfrom9to8perday
usingthefacilities24hoursadayonthreeshifts.Itwas,however,notagenerousand
spontaneousdecisionbyHenryFord,buttheoutcomeofahardstrugglewiththeunionsin
theyears1908–1913,anditwasmadepossiblebytheenormousproductivitygainsresulting
fromthenewplantsandproductionmethods.
Thechainofproductiveinterdependencieswascrucialtothegeneralizationofthemodel
toothersectors.Thecarisproducedwithrawmaterialsandcomponentsofthesteelindustry
andofmanyothersectors,whichinturngettheirsuppliesfromfirmsinothersectors.
Moreover,carsandothermotorvehiclesneedgasoline,saleandrepairshops,roads,bridges,
andsoon.Manyofthecompaniesprovidingthesegoodsorserviceshadlargeeconomiesof
scaleandcouldalsoadoptFordistmethods.
AnothermorecomplexconceptofFordismisduetotheFrenchschoolofregulation,which
flourishedintheyears1970sand1980swithauthorssuchasAglietta,Boyer,Mistral,Lipietz,
andothers.Theregulationschool,nourishedbyinfluencesofMarxismandstructuralism,was
bornwiththe1976bookbyAglietta,ATheoryofCapitalistRegulation:TheUSExperience.This
approachisbasedontwofundamentalconcepts:“regimesofcapitalaccumulation”and
“modesofregulation”.2Thefirstconceptinvolvesaperiodofrelativestabilityinthemargins
ofprofitsandtherateofgrowthofcapitalaccumulation.Whentheparadigmchangesandthe
economyentersastructuralcrisis,theregulationmodechanges,thatis,thereisa
transformationoftheentireseriesofsocio-politicalandinstitutionalelementsthatseekto
restoreprofitsandaccumulation.TheFordistperiodisidentifiedbytheseauthorsespecially
intheyears1945–1969.Inthisperiod,inseveralcountries,thereweremassproduction,
massconsumption,Taylorism,macro-economicKeynesianpolicies,andallthisledtohigh
ratesofgrowthofconsumption,investment,andprofits.Betweenthelate1960sandearly
1970sthatsystemwentintocrisisbecauseofenergycrises,inflation,labordisputes,and
globalization,whileKeynesismwentintocrisisinmanycountriesasthemaininspirationto
macro-economicpolicy.
Theapproachoftheregulationschoolhassomeattractiveness,butamajorweakness
consistedintheoverlyambitiousattemptatjointlyexplainingverycomplexeconomic,social,
andpolitical-institutionaltransformations.Sinceatpresentwelackasatisfactoryintegrated

socialscienceandanadequateapproachtotherelationsbetweenmicro-and


macroeconomics,itisprobablywisertofocustheanalysismainlyonitsmacro-economic
aspects,aswillbedoneinthenextsectionwithmyconceptoftheFordistmodelof
development.
Itisalsoimportanttostressthelargetimelag—about40years—passingbetweenthe
beginningoftheFirstFordistwaveintheUSandtheSecondFordistwaveinWesternEurope
andJapan,startinginthe1950s.Therewasanothersubstantialtimelag—about30–40years
—passingbetweenthesecondandtheThirdFordistwave,mixedwithsomeToyotist
elements,operatinginChinaandtheninIndiaandinseveralotheremergingcountriessince
the1980s.3

2.2 TheFordistModelofEconomicDevelopment
Ifwedonotconsiderthecrucialmicroeconomicaspects,suchastheworkingconditionsin
factories,andthemoregeneralpoliticalandinstitutionalaspects,andtryonlytoisolatethe
macro-economicfundamentalrelationsofFordism,wecanoutlinewhatIhavecalledthe
FordistmodelofEconomicdevelopment,thatisrepresentedinastylizedwayinFig.2.1.

Fig.2.1 TheFordistmodelofdevelopmentintheUS

Theessentialelementsofthemodelaretheeconomiesofscale,ofnetwork,andofscope
andtheriseinunitwages.Around1908,theUShadalargeandrapidlyincreasingmarket.
LargemanufacturingfirmssuchasFordcorporation,couldobtainstrongeconomiesofscale(a
riseinscale,i.e.thesizeofproduction,couldreduceunitproductioncosts)andeconomiesof
network(e.g.,alargenetworkofsalesandassistanceforveryfewautomobilesisvery


expensive,but,ifitregardsalotofcars,theunitcostsaredrasticallyreduced).
Intheautomobileandtruckindustryorininterrelatedfields,likeoil,onecanalsoobtain

economiesofscope(scopeeconomies),thatis,lowercostsachievedthroughthejoint
productionofdifferentproductsorbyachievingseveralobjectiveswiththesameinputs
(sameequipment,sameresources,andsameknow-how).
Thevarioustypesofeconomies(scale,network,andscopeeconomies)cansharply
increaselaborproductivityandtherebyreducetheunitcostsofproduction.Thebenefitsof
strongproductivitygrowthcanberedistributedinthreeways:(a)increasingwagesfor
employees,(b)reducingthepricesofgoodsproduced(inourcasethecar)andthen
stimulatingastronggrowthinthedemandforcars,(c)increasing,ifpossible,profitmargins
andevenmore,giventhestrongriseinsales,totalprofits.Highprofitsandhighexpectations
ofincreasedsalesleadtolargerextensiveinvestment(newplants,newmachines,etc.).4This
willundoubtedlydeterminefurtherincreasesinproductivecapacityandoutput.Therewill
alsobeariseinintensiveinvestmentaimedatreducinglaborcoststhroughnewlaborsaving
technologies.Totalinvestmentcancontributetoincreasetechnicalprogressandknowledge,
determiningsoafurtherriseinproductivity.5Astronggrowthinbothintensiveand
extensiveinvestmentleadstoanincreaseinemployment,which,intandemwiththeincrease
inwagesperemployee,causesariseintotalwages.
Thispromotesariseinconsumptionwhich,joinedtotheexpansionofinvestment,leads
toincreaseddomesticdemand.Inturn,increasedproductivityconductstogreater
internationalcompetitivenessandhencetomoreexports(inthecaseoftheFordT,this
occurredmainlyinCanadaandtheUK)andthishelpstoincreaseaggregatedemand.The
lattercarrieswithitafurtherincreaseinGDP,inthesizeofthemarket,thenineconomiesof
scale,productivity,andsoon.Allthiscreatesadevelopmentthatfeedsonitself,creatinga
sortofvirtuouscircleofdevelopment.
Thisvirtuouscirclewasinnowayrestricted,intheyears1910and1920,onlytothe
productionofcars,but,bythechainsofproductiveinterdependence,itextendedtomany
othersectorsofindustryandservices.Morecarsmeantmoreroads;morebridges;more
tunnels;moresalesagentsandcarrentals;andmoreservicestations,garageforrepairs,and
carinsurances.Itmeantmorerawmaterialsandcomponents,thusmoresteel,moretires,
moreelectricbatteries,moreleatherorfabricfortheinterior,morepetrolandgasoline.In
turn,thelargeFordistfirmsofsteel,tire,oroilindustriescouldtriggersimilarvirtuous

circles,througheconomiesofscale,productivitygains,wageincreases,andsoon.
Besidestheautomobileindustryandtheinterrelatedsectors,othermanufacturing
sectorshadsimilareffectsontheUSeconomy,althoughinferiorinsize.Therewasarapid
developmentintheproductionoftractors,trucks,motorcycles,airplanes,electrical
householdappliances,electricity;inbankingandinsuranceservices;andsoon.TheFordist
modelbecamedominantintheUSintheyears1910and1920sinceitwasgeneratedbya
varietyofeconomicsectorswithsignificanteconomiesofscaleornetworkeconomies.There
was,however,anoriginalsininthisrapidgrowth,namelythestrictinterrelationofthe
Fordistmodelwitholigopolisticindustryandofthelatterwithbigbanksandfinanceandwith
therapidriseinstockmarketvalues.Itthuspreparedtheviolentcrisiswhichculminatedin
thecollapseofWallStreetin1929andinthegreatdepressionofthe1930s.


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