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Achieving growth in a slowly reviving economy: the B.E. Economists focus on measures to create a broader economic base.

The recession has been over for more than six months. At least that's what the economic pundits say. So why aren't you making more money, consuming more goods or feeling more financially secure?

There are manifold reasons for doubt and wariness. They include: a federal deficit of more than $282 billion; a projected average economic growth rate of less than 3% per annum through 1995; stagnant consumer spending; the loss of 1.6 million jobs (600,000 from the management/professional ranks) since July 1990; and an estimated 1.1. million out-of-work individuals who are no longer even looking for jobs.

The bad news doesn't stop here. The United States moved only reluctantly from the go-go 1980s to the slow-slow 1990s: Now states, municipalities, businesses and consumers--all of whom helped to build the public and private debt bomb--are afraid to borrow and they face lenders who are afraid to lend. Last decade's buy-now, pay-later fiscal policy has contributed to an estimated 800,000 consumer bankruptcies per year. And unlike other recessions since World War II, the 1980s' burgeoning deficits and growth-at-any-cost philosophy have created problems that cannot be attacked with the traditional, now fiscally suicidal antidotes of government spending and tax reductions.

Not all the economic news is awful, however. In fact, some points of light include: inflation's descent to a projected 4.3% for 1991; the continued expansion of service jobs in selected industries; manufacturing's upswing for more than six months; the increased affordability of homes (except in the Northeast and on the West Coast); the extraordinary drop in mortgage interest rates; and the steadiness of exports, thanks to a weak dollar.

Last September, the BLACK ENTERPRISE Board of Economists convened in Washington, D.C. Over two days, the economists discussed and debated the nascent recovery and other issues, such as education's role in determining employment and income; the regional impact of the rolling recovery; the challenges facing African-American mayors and the prospects for economic development of Third World nations. Board members Andrew F. Brimmer, David H. Swinton, Marcus Alexis and Courtney N. blackman presented reports at the meeting, while board members Bernard E. Anderson, Edward D. Irons, Gerald D. Jaynes, Emmett J. Rice and Earl G. Graves participated as discussants. (Due to a scheduling conflict, board member Margaret C. Simms, deputy director of research for the Washington, D.C.-based Joint Center for Economic and Political Studies, was unable to participate.) The climate facing African-Americans was summed up by BE Publisher and Editor Graves: "As 1992 approaches, we will face the emergence of a single European market; major mergers of money centers and the emergence of national banks; and the growing belief that continued layoffs and international market instability may lead to a short-lived recovery."

A Bumpy Road To Recovery

During the first day's discussion, Andrew F. Brimmer, president of Brimmer & Co. Inc., a Washington, D.C.-based economic consulting firm, made what some American businessowners and new unemployed professionals might characterize as a classic economic understatement. "The recession ([defined as at least two consecutive quarters of declining growth in gross national product]) which began in the summer of 1990 had run its course by the end of last sprint," he said. "However no sharp rebound in economic activity should be expected."

Moreover, the growth Brimmer projects in the first nine months of 1992 will occur at a decelerating pace. During the first three quarters, the gross national product (the total value of goods and services produced or GNP) will grow a mediocre 3.1%, 2.9% and 1.9% respectively. In the final quarter, he projects a GNP rate of 2% and a year average of 2.5%. Those figures appear somewhat robust, when compared to the -0.3% rate (this despite projected upticks of 3.1% and 2.6% in the last two quarters respectively) Brimmer projects for 1991. However, the fact that most economists agree an economy must grow at least 2.5% per annum to provide new jobs, sheds a gloomier light on Brimmer's 1992 GNP projections.

There are predictable factors behind the slow upward trend. America is engaged in a rolling, regional recovery (minus the significant trigger of the Persian Gulf War-driven oil hike) mirrorring the rolling recession that began August 1990. Brimmer projects that unhurried economic growth will continue, led by disposable income increases, that in turn drive consumer spending.

The recovery was led in part by an unexpectedly aggressive Federal Reserve System lowering short-term interest rates. In January 1991, Brimmer wrote that the federal funds rate, which banks charge to each other for overnight loans to meet reserve requirements, might drop to 7.25% by June 1991 and 30-year U.S. government bond rates might decrease to 8.5%. But, at the end of June 1992, in an attempt to loosen a logjam in lending, the Federal Reserve exceeded Brimmer's projections: Federal funds were lowered to 5.86% and 30-year-bonds, to 8.32%.

When major banks obtain funds more cheaply, they decrease their prime rate, or the interest rate for their best customers. In 1992, Brimmer projects that by the end of June, federal funds rates will drop to 5.6%, while 30-year U.S. bond rates will fall to 7.63%. Despite lowered rates, bank lending to companies and individually borrowers may continue to be weak. The glut of 1980s bad loans has tightened credit scrutiny to the degree that "the continuation of the credit crunch is one of the factors, which is making for the $(slow$) recovery," says Emmet J. Rice, a former Federal Reserve Bank board member and international consultant. "It is a drag on the economy."

The African-American Economy

"The relative economic position of black Americans deteriorated over the last year, and the outlook is for little improvement over the year ahead." That sober assessment opened Brimmer's annual overview of the economic status of African-Americans.

The recession held few ameliorating effects for African-Americans. For example, the creation of millions of service jobs in the 1980s only served to provide an inadequate paycheck for men and women who once held high-paying--now obsolete--manufacturing jobs. And during the recession, Brimmer says, "blacks job losses were proportionately greater than the losses recorded for employees generally."

The numbers are stark. From the peak to the trough of the recession, black employment dropped by 207,000 or 1.7% of total black employment. Moreover, the decline in black employment represented 15.3% of the total decrease in employment, even though blacks were only 10.19% of total employment at the economic peak in June 1990. From June 1990 to June 1991, black unemployment rose from 10.7% to 13.1%. During the same period, unemployment in the total civilian labor force rose from 5.3% to 7%.

The weak recovery holds little promise of relief. The relative labor-market position of blacks may continue to erode. By December 1992, Brimmer projects blacks may equal 10.9% of the civilian labor force, but hold only 10.18% of total jobs.

Few are surprised that blacks have less seniority and higher layoffs rates in factory jobs, says Brimmer, but in this downturn, "black professionals and white-collar employees also faced more unemployment and loss of income." Consequently, total money income for blacks has stagnated. Money income dropped from 7.52% in 1988 to 7.38% in 1989 to 7.39 in 1990 and a projected 7.4% for 1991, and in 1992 the black share may be only a projected 7.42%. This also widens the black income deficit, defined as the difference between black representation in the total labor force and their proportion of total money income.

Education And Training A Priority

There is little doubt that the 21st century work force will place a premium on such skills as communication, computation, human relations, trainability, flexibility and educability. David Swinton, dean of the School of Business at Mississippi's Jackson State University, says the relationship between increased personal earnings and increased education or training has been documented amply. "Increasing the quantity and quality of African-American human capital has been a principal component of the strategy to improve the absolute and relative position of African-Americans," he says. "However," he adds, "it is also well-known that a significant amount of racial inequality has persisted beyond that which can be accounted for by educational differences."

Structural and technological changes in the economy increase the demand for educated workers. Between 1976 and 1988, wage and salary employment in nonagricultural goods producing industries fell from 29.5% to 24.1%, while manufacturing's share fell from 24% to 18.5% over the same period. By contrast, service jobs grew from 70.5% to 75.9%. The Bureau of Labor Statistics projections say 18 million jobs will be created before 2000--an average increase of 1.2% annually. Goods-producing jobs will only expand 428,000, but 16.7 million new service jobs are projected. These include growth in technician-and related-support occupations by 31.6%; professional, service and managerial occupations by 24%, 22.6% and 22% respectively; and marketing and sales jobs by 19.6%. Administrative support and precision-craft occupations are expected to grow at below average rate, but still rise 11.8% and 9.9%, while agricultural jobs are expected to decrease 7.7%.

Since the early 1970s, the real earnings of all males have stagnated. But Swinton notes there have been significant changes in the ratio of black male to female earnings. Between 1970 and 1989 he says, the earnings of black female high school graduates increased from 55% to 71% of that of black male high school graduates. He also states that the earnings of those with four or more years of college to those with less education is graphic. Black females with four or more years of college in 1989 earned 3.27 times the income of black females with one-to-three years of high school. By contrast, the black males' advantage, in the same groups, is only 2.4 times over the same time period. This is not to say that black male college graduates' value has not grown. In 1970, their median earnings were 46% greater than high school graduates; their advantage in earning power had grown to 75% by 1989.

The earnings' ratio of black women to white women has eroded as more white females entered the work force. In 1970, black womens' median earnings were generally higher than those of white women at every level except the elementary school level. By 1989, the black college-educated women's median earnings advantage shrank from 29% to 11%. Swinton's conclusion: racial inequality is attenuated for females by education at almost every level, while only graduate education seems to reduce racial inequality for males.

The probability of full-time employment for blacks, Swinton says, increases up to the college graduate level. Black males have a 54% probability of being fully employed if they have an elementary school education, but an 82% probability if they have four years of college. By contrast, black women workers have a lower probability of being employed full-time year-round at all education levels than black males.

However, Swinton notes that correlations between education and job growth do not always exist across the board. "Indeed many occupations that have the highest absolute growth are heavily from the service and trade occupational groups and have relatively low-skill requirements," he explains.

Gerald Jaynes, Yale University professor of economics and Afro-American studies, dismisses such exceptions to the rule of education as a key to long-term employability. Even if one million restaurant or cleaning jobs are created, he questions, who knows if they will not go to Hispanics or Asians by self-selection? And those jobs are not a step up, Swinton asserts, but "the kinds of jobs that we have historically had."

New jobs demand new skills. Unfortunately, Brimmer says, many blacks join the work force with the wrong skills. And although most of the job-related training workers receives comes through their employer, training generally begins at least two levels above entry-level positions in many industries, according to Brimmer. In fact, according to the Alexandria, Va.-based American Society for Training and Development, the most educated workers are also the most likely to receive the training necessary to continue their advancement and increase their earning power.

Building A Business Environment

In 1992, urban economies continue to suffer through a crisis of diminishing federal funding and increasing urban need. For example, between 1976 and 1989, total federal spending in the cities of Atlanta, Detroit and Gary, Ind., fell by about 33%, but over the same period big cities became home to crack, AIDS, increased homeless and resurgent tuberculosis.

These ills confront mayors, including newly elected black mayors in cities, such as Kansas City and Denver, who are charged with marshalling their limited resources to maintain and expand business in their cities. this "places a premium on mayors who have not only political skills, but analytical and managerial talents as well," says Marcus Alexis, Northwestern University professor of economics.

The Federal Reserve Bank's July 1991 summary of current economic conditions in its 12 regional districts presents a mixed picture for these mayors. On the retail level, a modest recovery is expected by the end of 1991. Sales were reported flat in nearly 50% of the districts, and declines were noted in New York, Cleveland and Richmond, while Atlanta, Minneapolis and Dallas reported moderate increases. Manufacturing, as noted by Brimmer, will see gradual growth in orders and production into 1992. Capital goods and construction machinery companies are projecting a rebound. The manufacturing order rate was mixed in Atlanta, Boston and San Francisco. Demand for consumer durables is projected to return, but capital equipment

CIVILIAN LABOR FORCE AND

EMPLOYMENT/UNEMPLOYMENT,

BY RACE 1990-1992
Category 1990 1991 (*) 1992 (*)
CIVILIAN LABOR White 85.9% 85.7% 85.6%
FORCE Black 10.8% 10.9% 10.9%
 Other races 3.3% 3.4% 3.5%
 Total number (+) 125,174 126,129 127,730
EMPLOYMENT White 86.6% 86.4% 86.3%
 Black 10.1% 10.1% 10.2%
 Other races 3.3% 3.4% 3.5%
 Total number (+) 117,574 117,621 119,623
UNEMPLOYMENT White 74.7% 75.6% 74.7%
 Black 21.7% 20.8% 21.6%
 Other races 3.6% 3.6% 3.7%
 Total number (+) 7,600 8,508 8,107
(*) Estimates.
(+) Number in thousands.
Source: Prepared by Brimmer & Co. Inc., Washington, D.C.,
September 1991.


MONEY INCOME, BY RACE

1989-1992

(in billions of dollars)
Category 1989 1990 1991 (*) 1992 (*)
WHITE $3,049.5 $3,233.0 $3,332.9 $3,536.4
BLACK 251.7 267.4 276.1 293.8
OTHER RACES 107.9 117.5 122.0 129.9
TOTAL INCOME $3,409.1 $3,617.9 $3,731.0 $3,960.1
(*) Estimates.
Source: Prepared by Brimmer & Co. Inc., Washington, D.C.,
September 1991.


industries remain weak in Atlanta, Boston, Chicago, Dallas and Philadelphia. Of course, growth in orders signals labor demand. Longer work hours were reported in Atlanta and Philadelphia, while St. Louis and Chicago has seen fewer steel and truck factory downtimes.

The New Third World Order?

Few economists see their theories vilified and lionized in their lifetime. But Sir W. Arthur Lewis, the late Princeton University professor emeritus of economics and founding member of the BE Board of Economists, who died last year at 76 (See In The News, Sept. 1991), was not the average economist. The board discussed the economic future of black Third World nations as it relates to Lewis' theories.

Courtney N. Blackman, retired governor-general of the Central Bank of Barbados says the power of Lewis' models and theories about agricultural production, regional integration or creating a foundation for sub-Saharan Africa and Caribbean island economic growth derived from the realistic nature of Lewis' assumptions. "He had little use for purely abstract theory," says Blackman. "He therefore lay great stress on psychology and institutional transformation."

Third World states can succeed Lewis said. But during the firebrand 1960s and 1970s, his ideas that they should create an entrepreneurial class and capitalist sectors (where investment combined with indigenous unemployed workers could pull a population out of subsistent economies) raised nationalist ire.

Ironically Lewis, reviled by "socialist" leaders, was an eloquent critic of the unequal trade relationships between so-called Third World and First World countries. "A farmer in Nigeria might tend his peanuts with as much diligence as a farmer in Australia tended his sheep, but the return would be very different," he wrote in 1977 in The Evolution of the International Economic

Order. "The terms of trade are bad only for tropical products, whether agricultural or industrial, because the market pays tropical unskilled labor, whatever it may be producing, a wage that is based on an unlimited reservoir of low productivity food producers."

The answer: transform the tropical state's food sector so farmers receive higher prices and use the agricultural surpluses to feed urbanites. This, Blackman wrote will "create the basis for industry and modern services."

Of course, Lewis wrote, a developing nation's leadership

[TDO]

must be ready to succeed. And that has not always been the case in sub-Saharan Africa. There, between 1961 and 1987, overall economic growth has average 3.4% per annum as in many states despotic, unelected, corrupt, so-called socialist leaders set bad prices and examples. During that period, the region's real GNP was nearly $ 135 billion or about that of Belgium, which has only 10 million inhabitants. Between 1970 and 1984, market share for three main agricultural exports--coffee, cocoa and cotton--fell by 13%, 33% and 29%, respectively. Meanwhile the sub-Saharan population growth rate was more than 2.5% (doubling to about 450 million between 1965 and 1987), while food production grew only 1.4% between 1970 and 1985.

According to the Lewis model, reversible factors contribute to sub-Saharan Africa's low growth, including:

* Failure to create a competent, incorruptible civil service.

* Failure to maintain the physical and educational infrastructure.

* The favoring of industrial development over agriculture.

* Failure to support secondary and tertiary education as crucial to growth.

* Poor management of public sector enterprises.

* The discouragement of foreign investment.

The Caribbean islands were also well-placed to prosper. But the preconditions for takeoff were ignored for similar reasons, plus a seeming inability to cooperate regionally. The result: chronic unemployment and agricultural performance below the 1961 level or stagnation.

Some observers say Lewis' models succeeded best in Asia in states such as Taiwan and South Korea, which stress investment and agricultural and entrepreneurial development. Edward Irons, dena of the Clark/Atlanta University School of Business agrees, but downplays the example. Asian states, he says, did well because the western United States sought lower labor costs and poured in billions of investment dollars. U.S. foreign policy also played a role in the development of Carribean nations, says Bernard Anderson, president of The Anderson Group, a Philadephia-based economic and management advisory firm. "It is interesting to look at the potential of the Caribbean countries in places where the United States could have provided capital to take advantage of certain types of manufacturing operations, but did not."

Lewis never said economic development is easy. In a 1970 United Nations pamphlet, The Development Process, he wrote, "Growth responding exclusively to external demand is precarious. To attain maturity, a country must internalize its engine of growth, form its own cadre of entrepreneurs and managers, develop its own source of savings, respond more to its own wants and its own innovations, and acquire greater economic flexibility and adaptability."

Recent moves by a score of African and Caribbean nations to expand their free market and adopt multi-party electoral systems may bear Lewis out.

Prognosis for 1992

The reports submitted by the BE Board of Economists indicated the following projections for the coming year:

* The U.S. economy faces a projected average economic growth rate of less than 3% per annum through 1995. This will be just enough to stimulate job creation.

* The relative economic position of black Americans deteriorated over the last year, and the outlook is for little improvement over the year ahead.

* African-American employment may equal 10.9% of the civilian labor force by December 1992.

* Total black money income has stagnated. The total black share may be only 7.42% this year.

* Increasing the quantity and quality of African-American human capital, with a focus on education and training, is key to a strategy to improve our absolute and relative position in the nation.

* African and Caribbean states can thrive if they selectively allow foreign investment, create incorruptible civil services, maintain the physical and educational infrastructure and free their agricultural sector from government control.
COPYRIGHT 1992 Earl G. Graves Publishing Co., Inc.
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Title Annotation:Black Enterprise Board of Economists
Author:McCoy, Frank
Publication:Black Enterprise
Date:Jan 1, 1992
Words:3429
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