By Gerard Baker in Jackson Hole, Wyoming Published: August 25 2000 17:14GMT | Last Updated: August 26 2000 02:30GMT High-tech driven gains in productivity, the key to the remarkable improvement in US economic fortunes in the last few years, are continuing to accelerate, Alan Greenspan, chairman of the Federal Reserve, said on Friday. In remarks just days after the central bank opted to hold interest rates steady in the face of continuing rapid economic growth, the Fed chairman expressed his confidence that the increase in the rate of growth of productivity - workers' output per hour - had some way to run yet. Mr Greenspan told the Kansas City Fed's annual symposium on monetary policy that it was difficult to find "credible evidence" that the underlying rate of productivity growth had stopped increasing. He dismissed the notion that the improvements in productivity were largely cyclical - reflecting greater utilisation of resources by businesses in a period of rapid demand growth. "Even after stripping out the significant impact on productivity acceleration of the recent shape of the business cycle", productivity growth was still rising, he said. But Mr Greenspan cautioned that history dictated that the extraordinary period of acceleration in productivity increases, and of sustainable overall economic growth, would come to an end sooner or later, as the returns on new investments eventually diminished. And, addressing the main subject of this year's symposium, global economic integration, he warned that when it did arrive, an economic slowdown would strengthen the appeal of those who opposed economic globalisation. Much of the rapid integration of the global economy and financial markets that had taken place in the last few years had been the result of exceptionally strong world economic growth. "Any notable shortfall in economic performance from the standard set in recent years runs the risk of reviving sentiment against market-oriented systems even among some conventional establishment policymakers, he said. Mr Greenspan said policymakers needed to "understand and, if possible, address the concerns that give rise to the desire to roll back globalisation." The Fed chairman repeated his view that European countries and Japan had not benefitted as much as the US from the high-tech investment of the last decade because of employment laws and practices that prevented companies from substituting capital equipment for labour. He noted that it was a "particular irony" that Europeans had been finding investments in the US increasingly attractive in the last few years. Among the leading economies, only the US has recorded a sharp acceleration in productivity growth recently. For 20 years until 1995, US productivity growth averaged just under 1.5 per cent per year, anaemic by the standards of the previous 20 years or so. But in the last five years, output per hour has gradually accelerated. Cancelling out the wild fluctuations of the quarterly figures, the most reliable measures of productivity suggest it is growing at a trend rate of almost 4 per cent per year. Since potential , non-inflationary growth is the sum of productivity growth and labour force expansion, the US's sustainable growth rate would appear to be somewhere between 4 and 5 per cent per year - which is roughly the current rate of expansion On Tuesday, the Fed left short-term interest rates unchanged for the second straight meeting of its policy-making open market committee. Though it warned again that the risks to the economy still seemed to be tilted towards inflation, most financial sector economists interpreted the steady policy as a sign the central bank is broadly content with current conditions. _______________________________________________ Crashlist resources: http://website.lineone.net/~resource_base To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/crashlist
