NIC RESEARCH STUDY ENTITLED "THE UNITED STATES IN THE GLOBAL ECONOMY IN THE EARLY 21ST CENTURY"

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00435R000100040007-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 9
• Document Creation Date: December 27, 2016
• Document Release Date: March 8, 2013
• Sequence Number: 7
• Publication Date: April 29, 1988
• Content Type: MEMO

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CONEOENTIAL
The Director of Central Intelligence
wasmntoloc.28505
National Intelligence Council
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
VIA: Chairman, National Intelligence Council
FROM: David D. Gries
Vice Chairman
NIC #01530-88
29 April 1988
SUBJECT: NIC Research Study Entitled "The United States in the
Global Economy in the Early 21st Century"
Last January I mentioned my plan to start a research project on how the
US economy would compare to other key economies in the early 21st century.
The outline for this project (attached) is now out for comment to elements
of the CIA, the Intelligence Community and outside consultants. Relying
primarily on charts and graphs to convey findings, the project will examine
where the US economy is today in relation to the global economy, where
current trends are leading the US economy in relation to the global economy
and what factors could change this scenario. Ken Brown of the NIC Analytic
Group is helping me.
Although this is an unusual kind of project--and hence will probably be
called a research study rather than an Estimate--I believe there is a
policy-level audience for it. Secretary Shultz has shown interest in
analyses that examine the future of the world economy, and a new
administration could find some of the conclusions relevant to policy issues.
The project should be completed by July.
Attachment: As Stated
David D. Gries
CONFI TIAL
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CONFIDENTIAL
SUBJECT: NIC Research Study Entitled "The United States in the Global
Economy in the Early 21st Century"
VC/NIC/DGries:j1m (29 Apr 88)
Distribution:
1 - DDCI
1 - ER
1 - C/NIC
1 - VC/NIC Chrono
CONFIDENTIAL
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NIC #01530-88
UNCLASSIFIED
THE UNITED STATES IN THE GLOBAL ECONOMY IN THE EARLY
21ST CENTURY
The purpose of this project is to present data that shed
light on these basic questions:
Where does the US economy stand in relation to the
rest of the world, and what changes are currently
taking place?
Where will likely trends take the US economy (again,
in relation to the rest of the world)
by the early 21st century?
What factors would alter these scenarios and lead to
improvements in the ostensible outcomes of these
trends?
The following is an outline of the paper that is planned.
It will consist mainly of graphs and tables, identified below
in brackets [], most of which will pertain to the United
States, Japan, and major European nations; in some cases data
for the East Asian NICs will be included. The text is meant
to give a brief, objective interpretation of the data.
I. The United States in relation to the world
The US standard of living is still the highest, by most
measures, though not far above that of the major industrial
nations.
[GNP, measured in terms of purchasing power parity, US et al.]
[Home ownership, auto ownership, telephones per capita, US et
al.]
The US economy is changing. The shift to service
industries continues, as it does in all industrial countries,
though the share of output originating in manufacturing is
fairly stable. US share of manufacturing jobs is also stable.
[Share of output in services, US et al. This would shows
service share of each country's output, for several years.]
[Share of jobs in manufacturing, US et al . This would show
each country's share of the total number of manufacturing
jobs, for several years.]
UNCLASSIFIED
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Despite these-shifts, the number of jobs continues to
rise, and at a much faster pace than in other industrial
countries.
[Trends in number of employed, US et al.]
The US economy continues to "internationalize," which is
in accord with worldwide trends. Internationalization has
many dimensions. Exports as a portion of GNP have risen
steadily for most major countries. Capital flows have
increased greatly, and stock ownership by foreigners has
increased. Linkups among technology producers have
multiplied.
[Trends in Exports/GNP, US et al.]
[Trends in gross trade surpluses and deficits, world totals,
as tabulated in unclassified data in OGI report.]
[Foreign ownership of US equities and Japanese equities.]
[Trends in international linkups in technology, as tabulated
in unclassified data in CIA report.]
By several measures, the United States' share of the
world economy is diminishing somewhat. The US share of world
GDP and exports is declining slowly. While it is hard to
measure industrial "competitiveness," the United States is a
leader in fewer industries than in the past. In international
finance, the Japanese dominate the list of the largest
financial institutions. The dollar, though still the key
currency, is relatively less widely held than in years past.
It must be emphasized, however, that the changes have been
gradual, and that the United States remains economically
preeminent by most measures.
[Trends in shares of world GDP, US et al.]
[Trends in shares of world exports, US et al.]
[For selected years, the number of industries in which
countries (US, Japan, Germany, UK, France, and "all others")
have a 20 percent or greater share in world exports.] This
chart also illustrates increasing internationalization, since
progressively fewer industries are dominated by any one
country.
??
[Ranking of top ten financial institutions, with national
affiliations.]
[Trend in share of world monetary reserves held in dollars.]
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The military balance, measured in terms of resources
devoted to the military, has:not changed much. The burden of
defense varies significantly from country to country.
[Military spending as percent of GNP, several years, US et
al.]
[Military personnel per capita, US et al.]
While change in the global economy is to be expected,
some trends are disturbing. Productivity growth in the United
States seems to be chronically slower than in other industrial
countries. Consequently, growth in real hourly earnings has
been relatively slow. The low rate of savings in the United
States requires capital inflows in order to maintain
investment in factories and equipment. Worldwide, debt has
grown rapidly during the past decade, and this reduces the
stability of the world economy.
[Trends in output per worker, US et al.]
[Trends in hourly earnings, US et al.]
[Savings as percent of GDP, US et al.]
[Trends in private and public debt, US et al., world totals.]
II. Where are current trends leading?
Judging strictly from the numbers, the United States will
have a smaller role in the world economy at the turn of the
century. Its share of the world's gross domestic product and
industrial production will be somewhat smaller. Its share of
population will decline somewhat too, though not nearly as
much as that of Western Europe.
[Forecast of shares of world gross domestic product, US et
al.]
[Forecast of industrial production, US et al.]
[Forecast of shares of world exports, US et al.]
[Forecast of shares of world population, US et al.]
(Note: The above forecasts are by Data Resources, Inc.)..
The United States' smaller economic share is not merely a
consequence of a smaller share of the world's population.
Because of slow productivity growth, US living standards will
not improve as rapidly as those in Japan and some other
industrial countries. A decline in the portion of the
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population that is-in the labor force will also contribute
somewhat to lagging living standards.
[Forecast of GDP per capita, US et al.]
[Forecast of dependency ratios, US et al.]
Technology will be perhaps the most enduring advantage
that the United States has. The United States will continue
to be the major center of scientific research, though other
nations--particularly Japan--will catch up in some aspects.
The United States will maintain its lead in many significant
technologies and will probably show the greatest growth in the
use of computers and other high-tech products. The US will
continue to be a magnet for graduate students in science from
all over the world.
[Forecast of use of high-tech equipment, US et al.]
[Forecast of technology leadership areas (?)]
[Foreign student enrollment (?)]
Though the US share of the world economy will be smaller
than it is now, no other nation will become a clear leader.
Much of the international growth will take place in Asia,
where only Japan is in any position to challenge the United
States for economic leadership. Thus, economic power will be
spread more widely without the United States necessarily
falling behind any particular country.
III. sources of possible change in this scenario
Declining relative economic power has unattractive
implications, particularly for foreign policy. Can anything
be done to change the outlook presented? This report makes no
policy recommendations, but merely tries to list the sources
from which change could come. The data that follow are
intended to show how well the United States currently compares
with other nations with respect to these sources of economic
growth.
Technological progress has been identified by virtually
every economist who has studied the subject as the most
important source of economic growth during this century. The
United States will continue to spend more money than any other
nation on R&D, though Japan is catching up rapidly. Other
nations are taking advantage of US universities and
laboratories in order to advance their own scientific
capabilities. About half of US R&D goes to military
applications (far more than in Japan or Europe), which have
much less commercial payoff than private R&D. Basic research
as a portion of all R&D is somewhat lower in the United States
than in Europe, though about the same as in Japan.
UNCLASSIFIED
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[Trends in spending on research and development (government
and private), US et al.]
[Trends in spending on basic research, US et al.]
[Trends in the number of foreign science students in the
United States.]
[Number of researchers: Japanese in US, US in Japan]
[Trends in the number of US patents issued to residents of
foreign countries.]
The share of GDP invested in new plant and equipment is
smaller in the United States than in other major industrial
countries, an ominous sign for future economic growth. Some
research has concluded that the cost of capital is higher, in
the United States than in Japan.
[Forecast of fixed investment as share of GDP, US et al.]
[Hatsopoulos data on the high cost of capital, US vs Japan]
Workers' skills are an important ingredient in economic
growth. Skills are reflected somewhat in productivity
measures (which also are influenced by the quality of plant
and equipment that workers are given to use), and it has
already been shown that productivity growth is lagging. The
skills of the labor force in the year 2000 are foreshadowed by
the quality of education now being imparted; by that measure
the United States lags badly, particularly in science and
mathematics.
[Comparisons of general scholastic achievement, US et al.]
[Comparisons of scholastic science achivement, US et al.]
Much has been written about the superiority of certain
Japanese management techniques. In recent years, US companies
have tried to copy some of these methods, though no data are
available to measure the extent of such changes, much less
their effects. US business has, according to a variety of
reports, made progress in reducing the number of levels of
management and in pruning away excessive corporate staff.
[Ratio of managers to production workers, for selected
industries, US et al.] ?
[Other comparisons, yet to be documented, that will illustrate
differences in managerial techniques, mobility, remuneration.]
UNCLASSIFIED
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Entrepreneurship and the dynamism of small firms: the
United States appears to have an advantage stemming from the
vigor of its small-business sector. New, small high-
technology firms have made many product innovations. Venture
capital is much more plentiful in the United States than in
Europe or Japan.
[Venture capital funds, US et al.]
Government actions can help or hinder growth. High
taxes, interference with market prices, and and over-
regulation are generally regarded as negatives. Government
spending as a portion of GDP has been drifting upwards in most
industrial nations. Japan has the highest taxes on income
(though on a relatively narrow base of taxed income). Several
nations do not tax capital gains, though the United States
does. The United States has the highest degree of private
ownership of major sectors of the economy. Agriculture (one
of the few areas where comparable data on subsidies are
available) is generally highly protected and subsidized.
[Government spending as percent of GDP, US et al.]
[Social spending as percent of GDP, US et al.]
[Budget deficits as percent of GDP, US et al.]
[Tax rates on personal income, corporate income, capital
gains, US et al.]
[Degree of privatization of key sectors, US et al.]
[Subsidies to agriculture, US et al.]
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