Knowledge that Transforms

JN an earlier paper we have reported that manufacturing plants in two digit industries tend to cluster around an expansion path characterised by constant input output elasticities [4]. We have also argued that the nature of the path provides a motivation for the plants to grow, and this motivation has been further strengthened by the shifts of the path that took place. The question of differential rates of growth exhibited by the different plants still remains. Given an expansion path that excludes any optimal plant size, why should some plants exhibit a higher rate of growth than others? The question may be paraphrased in other ways. What determines a change in market share? 1 What is the source of competitive advantage enjoyed by some plants and not by others so that they grow at different rates? As we have shown elsewhere [5], part of the answer is in the nature of the expansion path and the relative position of the plants along the path. In this paper we will investigate whether the deviation of plants from the expansion path is also relevant in explaining their growth performance. The paper is in three sections. In the first section we analyze the duration of competitive advantage enjoyed by the plants. Where plants possess only a temporary competitive advantage randomly distributed among all the plants, a lognormal size distribution of plants ensues. On the other hand, where plants enjoy a persistent competitive advantage, the resulting systematic relationship between size and the rate of growth leads ultimately to a concentration of the market in the hands of a few large plants. The duration of competitive advantage depends on the source of competitive advantage. In the second section we focus on technology difference-measured by the different deviations of plant observations from the expansion path in a certain directionas a possible source. It is found that advanced technology contributes to the likelihood that a plant could maintain or expand its share of the market. However, superiority in technology of a given plant turns out to be generally transitory and appears to be related to the age of its machines and equipment. This suggests the hypothesis that, with technological progress, the natural life of machinery and equipment dominates the extent and the outcome of technology competition. Competition for market also comes from new entries. In the final section we find that new plants in an industry are characterized by greater capital intensity and therefore enjoy a competitive advantage at times of rising wages. In fact, the great significance of entry and exit indicates that the market share change is to a large extent related to the building of new plants and the abandoning of old plants. It is in this connection that technological progress and the change in the relative price of factors have the most significant impact on the competition for market.

aggregate scrappage rate divided by the rate expected from aging alone (M*t). The coefficient of determination is 0.64, indicating almost two-thirds of the variation of the actual scrappage rate from its trend in explained by changes in turnover and prices. In chart 2, values of the trend (M*tKt) are plotted as a dotted line and values of expected scrappage (St) as a dashed line. The continuous line represents the Polk aggregate observed scrappage values. Correlation of the estimates of the dashed line with the Polk estimates yields a coefficient of determination of 0.90.

T HIS paper analyzes negotiated settlements over a 17-year period. The analysis uses annual data for manufacturing as a whole, for individual manufacturing industries, and for building construction as a special case. Various comparisons are made. The wagesettlement series for manufacturing is compared with increases in straight-time average earnings in manufacturing and the unemployment rate in manufacturing; settlements are also compared with earnings increases for individual manufacturing industries, suggesting some conclusions with respect to wage drift and the wage-price guidelines of the Kennedy and Johnson administrations. Likewise, settlements are compared for eleven manufacturing industries and construction, indicating the contrasts among them and the effects of changes in industry differentials upon the structure. Such comparison raises questions concerning the influences of the wage-price guidelines on negotiated increases in various types of industry beginning in 1962. Finally, negotiated increases in building construction are compared with such increases for manufacturing as a whole and with the relative unemployment rate for construction workers, indicating disparate developments and the consequent pressures on negotiations in manufacturing, especially the mass production industries.

CLASSIC studies by Kuznets have found that in more developed countries the size distribution of income among persons and among families has become less unequal during the twentieth century [15, 16]. The significance and magniture of this secular equalization of personal incomes can be estimated from time series only when cyclical behavior of the distribution of income is statistically separated from secular trend.' A purpose of this investigation is to propose an aggregate model that incorporates cyclical factors that are hypothesized to displace the distribution of income from its secular or equilibrium trend. Annual personal income data for the Netherlands are used to estimate the model and test the hypotheses implicit in it. The following conclusions emerge: (1) income inequality has decreased markedly in the Netherlands during the last fifty years; (2) secular equalization of incomes stems from the inseparable effects of the increased labor share of income and its more equal distribution; (3) the secular trend is stronger when variation in income associated with age and sex characteristics of the population are eliminated; (4) aggregate disequilibrium in factor markets that induce cyclical change in price and employment levels appears to account for much of the behavior of income inequality; (5) the distributional effect of changes in the price level has reversed and the effect of change in labor productivity has increased in the period since the Second World War.

Edward J. Mitchell, Explaining the International Pattern of Labor Productivity and Wages: A Production Model with Two Labor Inputs, The Review of Economics and Statistics, Vol. 50, No. 4 (Nov., 1968), pp. 461-469

IT is generally recognized that the international monetary crises of late 1967 and early 1968 were precipitated by large, continuing deficits in the United States balance of payments. Underlying these deficits was a steady erosion of the United States surplus on current account, which fell from 8.5 billion dollars in 1964 to 4.8 billion dollars in 1967. Despite government programs restricting foreign investment by United States residents,1 therefore, the overall deficit on a liquidity basis reached a level of 3.6 billion dollars in 1967. The resulting outflow of dollars and gold greatly reduced the confidence of speculators and central banks in the ability of the United States to maintain the international value of its currency. It is of course no coincidence that this deterioration in the current account position of the United States accompanied a rapid expansion of its military commitments in Southeast Asia. But the amount of the deterioration which may be attributed to the War in Vietnam is a point at issue. The Administration has estimated the direct foreign exchange cost of the War to be about 1.5 billion dollars.2 Many have argued, however, that if secondary and indirect effects are taken into account, the total impact on the balance of payments has been much greater. In this paper, we shall attempt to reach a more satisfactory estimate -or range of estimates -of the total effect of the War on the balance of payments. In so doing, we shall try to answer the question: What would the United States balance on current account have been in 1967 if real expenditures had been lower by the amount channeled into the military effort in Southeast Asia? The wording of this question perhaps requires further explanation. We shall assume that the multiplier effects of this hypothetical difference in expenditures could have been completely and precisely offset by monetary and fiscal policy. Thus we suggest that in the absence of the military build-up, expenditures for consumption, investment and government purposes other than the War would have been identical with those that actually occurred. In addition, it must be recognized that part of the increase in military expenditures would have been spent even without the Vietnam War build-up. The men now serving in the armed forces would have eaten, for example, regardless of whether they were in military or civilian roles. For this reason, we exclude domestic expenditures on military pay, provisions and accommodation from our calculations, and consider only those expenditures which may clearly be assigned to the expanded campaign in Vietnam.3 One may note several possible effects which this military spending may have had on the United States current account balance: 1) Increased direct foreign purchases of food, services and finished goods to supply the military effort. 2) Greater purchases of foreign goods to be used as inputs in United States defense production. 3) Deterioration in the United States net exports, due to both war-stimulated inflation and to supply bottlenecks in those sectors of production most affected by the increased spending. In the following sections, we shall examine each of these effects in turn. By summing the three components we hope to provide a relatively accurate and comprehensive picture of the balance of payments impact of the War. * The authors are grateful to Robert Triffin and Richard Cooper for their helpful comments and suggestions. 1 Note that this practice of restricting capital cannot be continued indefinitely without worsening the balance on current account, because it will of course reduce United States earning assets abroad. 2 U.S. Treasury Department, Maintaining the Strength of the U.S. Dollar in a Strong Free World Economy (Washington, 1968), p. 103. 'As noted below, foreign military purchases of food, etc., by the United States will be included in the direct current account impact of the War.

We do not find the relatively large prediction errors for all the regressions tested in 1965-IV surprising since the HWI rose an unprecedented 40 points from 1965-III to 1966-1, and other measures Rfi p1a1tSin., kbt, 1,,zr -nkaA,t,q npont,d t.0njrwor heating. In this same period, the nonfarm job openings series of the Bureau of Employment Security also increased dramatically, as did new hires in manufacturing. (Possibly there is a greater impact of the industrial cycle on the nonindustrial job market than has been previously recognized.) Moreover, the build-up of conventional type arms for Vietnam which got underway at the same time resulted in a shift of procurements from the West Coast to the Great Lakes and New England regions, which together have a heavier weight in the HWI.8 Tltis inip-esJing, tlit evem cru&de measures of tob vacancies may be quite sensitive indicators of pressures in the labor market. Certainly, job vacancy measures, when analyzed with care, deserve much more attention than they have received in the past.