which grew at a per capita increase of only 1 percent per year, and is now one of the poorer members of the European Common Market. On the other hand, Japan has surpassed even the high American growth rate in the period since the Meiji Restoration, which began in 1868. With a GNP growth rate of more than 5 percent since 1930, Japan has become the second-largest economy in the world.

Such is the power of compounding over long periods of time. Differences of a few tenths of a percentage point, which may not appear very significant in the short term, are an enormous economic and social achievement when viewed in the long term. Thus, it is of concern that the U.S. real GNP growth rate recently dropped to about 2.5 percent at the height of a long 5-year economic recovery. The basic question facing the United States today is whether it will be like the United Kingdom, while Japan and the Far East eventually outdistance it, or whether it will maintain a more prominent position of economic, and hence strategic, leadership.


It is obvious that the United States could have achieved its growth in per capita income in either of two very different ways: (1) by using more resources or (2) by getting more output from each unit of resources. How much of the long-term rise in per capita incomes is attributable to each?

For many decades economists approached this issue of rising per capita incomes as if it were primarily a matter of using more resources, especially capital equipment, all essentially unchanged. The first serious attempts at providing quantitative estimates came during the 1950s, and the answers came as a big surprise to the economics profession.

When, in the mid-1950s, Moses Abramovitz (1956) and Robert Solow (1956, 1957), among others, looked at the quadrupling of U.S. per capita incomes between 1869 and 1953 and asked how much of the observed growth could be attributed to the use of more inputs, the answer was about 15 percent. The residual—the portion of the growth in output per capita which could not be explained by the use of more inputs—was no less than 85 percent. What seemed to emerge forcefully from these exercises was that long-term economic growth had been overwhelmingly a matter of using resources more efficiently rather than simply using more and more resources.

Abramovitz was himself very circumspect in interpreting his findings, calling it “a measure of our ignorance.” Others attached the label “technological change” to that entire residual portion of the growth in output which cannot be attributed to the measured growth in inputs, and thus equated it to the growth in productivity. Productivity in this sense (multifactor) measures the efficiency of the inputs of both capital and labor, although the

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