Dreier Calls for a Modernization of Our Economic Statistics

April 6, 2006

Mr. Speaker, every day Americans are living the 21st century economy. We use BlackBerries and cell phones to stay in touch and stay in business. We order birthday presents online. We buy German cars made by American workers in South Carolina. We use Google to find restaurant recommendations. We treat previously debilitating illnesses with innovative pharmaceutical products, non-invasive surgery techniques and cutting-edge medical devices. ���

Nearly every aspect of our daily lives is impacted by our high-tech, innovation-driven, globally engaged economy. It has so thoroughly revolutionized our lives that it almost seems absurd to point out that the modern economy is vastly different than the economy of the 1930s and 1940s. And yet our methods for measuring this economy remain much the same as they did during the Great Depression and the era that followed. ���

Gross domestic product is still calculated by tallying industrial investments like heavy machinery and taking an old-economy view of exports and imports. Mr. Speaker, under this system new factory equipment counts as a long-term investment, but R&D does not. And an iPOD which became a global powerhouse band on the strength of its superior design and savvy marketing strategies, developed by Apple in my State of California, is simply counted as another good imported from China, where the final product is assembled. Clearly, these methods do not fully account for the essential role that knowledge and innovation play in our global economic leadership. ���

Our economic strength here in the United States is no longer based solely on the goods we produce but on the ideas that we as innovative, creative Americans create. We add value and increase productivity, not by manufacturing more widgets, but by improving the widget's design, by making the global distribution of widgets more efficient, by marketing, financing and servicing widgets. ���

The full value of innovation, knowledge and best practices can be difficult to ascertain, but they have replaced mere goods as the bedrock of our Nation's economy. ��

�Michael Mandel at Business Week demonstrates how Wal-Mart is an excellent example of this. Few companies have revolutionized their industries the way that Wal-Mart has revolutionized the retail world. Its operational and managerial innovations have made it a global leader that its competitors fail to emulate at their peril: the big-box format; the everyday low prices; the electronic data interchange with suppliers; the highly sophisticated data analysis, done to such detail that inventory managers know to order extra strawberry Pop-tarts when the weather gets bad, because the data crunchers have discovered that customers stock up on them just before a storm. ���

Mr. Speaker, these innovations and best practices, developed by Wal-Mart and copied by its competitors, have led to enormous productivity gains throughout the retail industry and our economy at large. ��

�A study conducted by the McKinsey Global Institute in 2002 found that 25 percent of the major jump in productivity that came during the second half of the 1990s was due to gains in the retail sector, of which Wal-Mart is clearly a major contributor.

According to the study: ``More than half of the productivity acceleration in the retailing of general merchandise can be explained by only two syllables: Wal-Mart.'' By innovating its operational structure, Mr. Speaker, Wal-Mart became one of the single greatest contributors to American productivity at the height of the tech stock bubble. ��

�This is an instructive and remarkable fact, that a single company made a major contribution to the productivity of the world's largest economy, not by building new factories or buying new equipment, but by developing new ideas and applying them so successfully that they transformed their company and their entire sector. ���

And yet, as Mandel points out, these operational innovations, less tangible than a widget but far more valuable, do not get counted in our gross domestic product calculation. They are not tallied as an investment, nor are they counted as an export when Wal-Mart buys stores overseas and applies their innovations and best practices abroad. ���

Recent GDP numbers have certainly demonstrated tremendous economic strength, with 17 straight quarters of growth, 3.5 percent of GDP growth last year, and projections of nearly 5 percent growth for the first quarter this year. Mr. Speaker, when knowledge economy intangibles are included, the positive economic outlook becomes all the brighter for us as a Nation.