COMMENTARY

Is Greenspan Job Prescription a Wonder Drug?

March 2004

By Donald J. Pfundstein*
for New Hampshire Business Review

Last month I reported on two very different encounters that produced identical results. A senior corporate executive and attendees of my nephew’s birthday party — very different people — drew identical conclusions. Manufacturing and better-paying white collar jobs will continue to be lost overseas. Those attending the party and the executive also separately concluded that investment in leading-edge technologies is our best defense against chronic job losses.

Federal Reserve Board Chairman Alan Greenspan recently addressed these precise issues in remarks titled, “The Critical Role of Education in the Nation’s Economy”, (see federalreserve.gov) . These remarks were delivered on Feb. 20 before the Greater Omaha Chamber of Commerce. That’s one heck of a chamber of commerce meeting! I searched but could not find whether the Oracle of Omaha, Warren Buffett, attended or perhaps even invited the chairman.

If you haven’t had a chance to read Greenspan’s remarks or some report of them, I would suggest you check out the link noted above. As is always the case, Greenspan lays out a convincing argument — this time on investment in education.

Greenspan explains that economic growth depends on four critical factors: “The state of knowledge and skill of a population; the degree of control over indigenous natural resources; the quality of a country’s legal system, particularly a strong commitment to rule of law and the protection of property rights; and … the extent of a country’s openness to trade.”

After noting that the rule of law is probably the most important factor in the United States, Greenspan stressed that our education system must prepare people with skills adequate for our economy. Elsewhere he noted that real income depends on a worker’s intelligence and skill. Where these are high, a worker is able to transition to a new job more easily than an individual without such attributes, albeit not without pain.

Chairman Greenspan emphasizes that general capabilities in mathematics, writing and communication are the keys to higher wages over time. This, he suggests, can be achieved through our system of two-year institutions of higher education or community colleges. We have all recognized the benefits that the New Hampshire Community Technical College System provide our economy. This emphasis on lifelong training schools seems to make good sense.

After outlining the four critical underpinnings of economic growth, Chairman Greenspan asks bluntly, “But where will these jobs come from?” The answer: “products, industries and jobs that never before existed.” In short, the intellectual capital of our people. I like to think this supports my call for renewed and continued investment in the research and development of cutting-edge technologies. This investment goes beyond the admittedly critical investment in education. Going to Mars is a good thing, because it represents an investment in the research and development of cutting-edge technologies and processes. These new technologies create jobs. They lead to the “products, industries and jobs that never before existed.”

Shortly after Greenspan’s speech, some economists started questioning whether his emphasis on education will be enough. The Monday after his remarks were delivered, a Web site posting for CNN Money by Mark Gongloff noted that the jobs we’re losing are being lost to foreign workers who not only speak English, but are also just as skilled as our workers. In short, just as educated.

This is particularly true, noted Gongloff, in societies such as China and India, where education is valued and the developing state of the economy allows for a much lower cost structure. Our jobs are going to people overseas who are well-educated, capable employees who can enjoy a high standard of living that costs the outsourcing companies substantially less than the services provided at home.

I hope Greenspan’s prescription is a wonder drug. Our economy needs a miraculous tonic in order to create jobs.

*Donald J. Pfundstein is admitted in New Hampshire.

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