US Economy – Main Features and Structure

US Economy - Main Features and Structure

The United States of America is the largest power in the world. The country is located in all climatic zones, which is conducive to agriculture and tourism, has more than one hundred kinds of minerals. As for the natural resources, the largest share in the volume of products of the mining industry in terms of value is energy resources (90%): oil, coal, natural gas, uranium. About 75% of metal production accounts for iron ore and copper. At the same time, up to 50% of the needs of the national economy in mineral raw materials are satisfied with the help of imports. In particular, the United States does not have reserves of such strategic metals as chromium, manganese, tungsten, and cobalt. With five percent of the world’s population, the country produces a fifth of the world’s production of copper, coal, and oil.

US agriculture supplies the world market with 50% corn, 20% beef, pork, lamb, and about one-third of wheat. The USA is the largest global buyer (13% of world imports) and seller (18% of world imports). Moreover, which is typical for the American economy, state-owned enterprises can be counted on one hand (the postal service and the nuclear research commission), even the airlines and the telephone system in the United States are privatized. The main efforts of the government are focused on the development and enforcement of antitrust legislation. The essence of this system is to prevent collusion of large companies (trusts) and establish monopoly prices for goods and services.

The main features of the US economy, the place and role of the United States in the global economy

The American economic model is characterized by such fundamental features as the globalization of business and the information revolution. The globalization of business means the integration of a country and its economic entities into the world economy. Over half of the incomes of large American corporations are created abroad: the development of foreign trade and foreign investment has gained tremendous importance.

In turn, the United States also receives advanced foreign investment goods and technology. The country has numerous branches and subsidiaries of European and Japanese firms. In the late 1970s, foreign trade was associated with about 17% of the US economy, then by the end of the 1990s, the US economy was already a quarter dependent on exports. The strong foreign policy positions of the United States, the leadership of the American model of economic development determine the leadership of the United States in the process of globalization. No other country in the world is able to oppose a more successful growth model. The United States benefits even from the fact that previous economic theories have always been considered unacceptable.

The strengthening of the dollar as a result of the global monetary and financial crisis and military operations in Yugoslavia led to a decrease in US exports and a significant increase in imports. The US trade balance deficit has reached unprecedented proportions, it is estimated at over 240 billion dollars. Any other country would have long been faced with serious difficulties, with the decline of domestic production and the displacement of domestic goods from the domestic market. Nothing like this happens in the economy of the United States. The growth of imports has led to an increase in supply, lower prices, a wide choice among consumers has created over 2 million jobs in the service sector and forced domestic manufacturers to be more competitive. Local companies were able to re-equip their production facilities through cheaper Japanese and European equipment, which would serve as an additional growth factor.

The information revolution is the second powerful source of growth for the US economy. The country is experiencing a real information boom: digital technologies are being improved, new companies are constantly being formed, new industries are emerging. Silicon Valley is the center of American technology (California), where more than a dozen new companies are formed every week. Until recently, the country’s economy was driven by the automotive industry and housing construction, now information technology is the engine of development, which provides, according to rough estimates, one-third of the total economic growth. The United States has no equal in the field of computer science and information technology. Business Week 75 magazine has made up the rating of 100 companies in the field of information technology, the first sixteen of them are US companies.

  1. Dell Computer – Computers and peripherals;
  2. Solectron – Sale of programs and equipment;
  3. Cisco systems – Computer networks;
  4. EMC – Computers and peripherals;
  5. MCI Worldcom – Telecommunication systems;
  6. Inctomi – Internet technologies;
  7. Sun Microsystems – Computers and peripherals;
  8. Microsoft – Software;
  9. Lexmark International Group – Computers and peripherals;
  10. Tellabs – Telecommunication equipment;
  11. Ibm – Computers and peripherals;
  12. Comverse Technology – Telecommunication equipment;
  13. Flextronics International – Sale of programs and equipment;
  14. Qwest Communications – Telecommunication services;
  15. Lucent Technologies – Telecommunication equipment;
  16. Airtouch communications – Telecommunication systems.

Globalization of business

The globalization of business and new information technologies have led to a restructuring of the US economy. Globalization has opened new markets for American goods and services, has stimulated production, oriented to the foreign market. The global market has allowed American companies to become competitive, product quality has increased, costs and prices have decreased. Trade barriers largely remained in the past, foreign companies gained access to the American market, their activity is in the blessing of the American economy. Cheap goods and cheap labor are becoming widely available. Global supply is increasing due to the growth in global demand, and the largest economy in the world — the US economy — makes a significant contribution to these processes.

Information technologies, in turn, influence the whole complex of industries. With the help of information technology, it is possible to increase labor productivity and management efficiency, reduce costs, reduce equipment, which is no longer necessary, and make commerce much easier using global computer networks. The peculiarity of the new economy lies in the fact that modern technologies are constantly improving, not allowing the product life cycle curve to fall down.

US labor market

A new economy would be unthinkable without a flexible labor market in the United States. Every American changes jobs every five years or more often. Labor in the US is mobile, and it may suddenly move from the West to the East Coast of the country and vice versa, if new jobs with a high level of pay appear there. The life of Americans was changed by the motorization of the country and the presence of beautiful roads; the highly developed information, transport and housing infrastructure of the country opened up new opportunities for all job seekers. For example, Montgomery County, Ohio, has seen the job market increase by 1.3% over the last year. A lot of foreigners work in the USA, attracted by higher wages than in their homeland. Foreigners represent both the best intellectual potential of European and Asian countries, as well as numerous unskilled labor. But the economic development of the country is not so smooth. There are some problems that remained unsolved in the 1980s and 1990s.

Social inequality in American society

The new economy made the rich richer and the poor poorer. Reagan’s reforms were carried out to improve the living standards of the middle class of Americans, and the upper middle class won the most from this. Reaganomics led to a huge differentiation of income. The richest Americans make up 1% of the population and control 45% of the country’s total financial resources. The average salary of managers is about 2.5 million dollars per year, and incomes of the poorest families do not exceed 15 thousand dollars per year for a family of four. There are about 15% of the population (40 million people) of the least wealthy Americans in total.

Finance and credit

Financial markets are also experiencing a real boom cut off from the real sector of the economy. Shares of information companies are growing by leaps and bounds, but this growth is practically not worth the creation of any material goods and services. The USA is one of the largest debtors in the world, and the amount of dollars circulating abroad is not secured by any reserves. The United States could be in a very difficult situation if the euro had pressed the dollar as a reserve currency and means of payment on the world markets. In this regard, the US was profitable monetary crisis of the 1990s, because thanks to it, the former demand for the dollar has recovered and now through the system of international financial organizations, the States can dictate conditions and issue cash loans to the affected countries. The battle in Kosovo in 1999 was followed by the US government in order to weaken the position of the euro and introduce a new “Marshall Plan” for Eastern Europe. The US economy is a huge soap bubble in the form of an overheated financial market, an overvalued dollar, and a pyramid of external and domestic debt. Having hit the countries of Latin America, Southeast Asia and Russia, the crisis of the late 1990s took the risk of its spread to the overheated US market.

Savings and investments

Compared with Western Europe and Japan, the USA has a rather low level of investment savings (15.4% of GDP). The fight against inflation has led to lower interest rates and no interest of the population in savings. Americans prefer to put free money into circulation in the financial markets, buying securities. This replenishment of the financial market stimulates the exorbitant growth of speculation on it. From 1998 to 1999, there was a significant increase in personal fortunes, which was associated with a boom in the stock market. In just one year, the number of billionaires in the country increased from 79 to 268. The second explanation for the low level of savings is the consumer attitude towards the lives of Americans themselves. They prefer to spend money acquiring new things, getting an education, traveling. On the one hand, the economy of the United States suffers from a weakening of its internal investment potential, which forces us to turn to external investment resources. On the other hand, the US economy is at the innovation stage of its development: the decline in the share of investment in GDP is compensated by the creation of new technologies that facilitate the re-equipment of production and intensification of agriculture.

The impending aging of the population

The aging population threatens the United States to a lesser extent than the countries of Europe and Japan, but rather soon they will face a predominance of the number of pensioners in the population structure. In 1998, people over 65 accounted for 12.3%, in 2015 – 15.1%. The country will have to revise the national tax system and increase social spending.

The problem of competitiveness

The danger of the emergence in the United States of new competitors in the world markets in the face of the rapidly developing countries of Southeast Asia and Central and Eastern Europe could have been somewhat postponed. The economies of most of these countries have been seriously affected by the crises of the late 1990s, they need serious structural changes and cannot be considered as a competitor to the most powerful economy in the world. Only China can turn into a serious counterbalance, although Beijing practically loses to Washington in all positions except the size of the population. In addition, the economic development model of Japan and China is much weaker than the American one. The competitiveness of the American economy and the competitiveness of American goods have lost their attractiveness due to the rise in the dollar in the summer of 1999 to almost all world currencies.

Europe is a competitor for the United States by product, but by no means by technology. The structure of the US economy is distinguished by its pronounced post-industrialism.

US Agriculture

US agriculture is notable for the development of its agro-industrial complex (AIC), reflecting an effective combination of science, agriculture, transport, and industries processing agricultural raw materials. The agro-industrial complex is a single technological chain, starting in scientific laboratories with the creation of new plant varieties, then the production process in the field under continuous computer control, harvesting and transportation for subsequent storage and processing, and completes the production cycle through the distribution network. In the United States, the availability of agribusiness contributes to the high competitiveness of American agriculture. The main crops for agriculture are practically all known species of plants (wheat, corn, fruits, vegetables, cotton, etc.), animal husbandry is also developed (especially poultry farming). The United States is the world’s largest grain producer.

US industry

American industry is distinguished by the priority of high technologies that create products based on the most advanced technologies. Investments in the production of steel have become one of the engines of economic growth in the United States in the 1990s. Capital investments correspond to about 11% of GDP. Over half of all investments in the industry account for the acquisition of computers and informatics. Based on the introduction of advanced technologies in the production process, there has been a significant reduction in costs and an increase in labor productivity. In the US, the entire spectrum of industries is developed, starting with the traditional ones (mining, metallurgical, petrochemical), and ending with the most modern (aerospace, microelectronics, production of new materials, etc.). The production of telecommunications, vehicles, modern industrial equipment, consumer durable goods are of greatest importance. The highest incomes (70% increase in profits in the mid-1990s) come from the electronics and electrical industries.

US service sector

The service sector – the main branch of the American economy – is developed in almost all directions. These are traditional tourism, banking and commerce, education and medicine. Recently, priority has been given to the development of consulting, marketing and management services, as well as new fast-growing information technologies. The service sector provides 80% of the total employment growth in the country. The number of people employed in the field of intangible production grows and there is a release of highly paid jobs in the industry due to increased labor productivity, automation and mechanization of jobs.

Transport services are of great importance for the economy. All types of transport are developed, the country has an excellent transport infrastructure. Rail transport is the leader in the field of cargo transportation, while road and air transport are the most important in passenger traffic.

Category: Finance

Tags: Business, financial