Wealth

Off the Books: The Benefits of Free Enterprise That Economic Statistics Miss

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America's consumer culture is all around us. It's along our highways, studded with shopping malls, fast food joints, and flashy neon signs. It's in our homes, filled with gadgets, furnishings, toys, and closets of clothes. It permeates the media, where ads tell us happiness and sex appeal are as close as the nearest store. It's even within us, at least to the extent that we tie status and identity to the cars we drive, the clothes we wear, and the food we eat.

That's our reputation: a consumer-driven, somewhat crass, shop-'til-you-drop society. As the world's wealthiest nation, we I consume a lot, but the portrait of Americans as consumption crazed misses as much as it captures. We're not working just to acquire more goods and services. Most of us strive for something broader: a balanced life.

Consumption is part of that, of course. We buy myriad things: Chevrolet cars, Sony TV sets, Levi's jeans, Nike sneakers, McDonald's hamburgers, Dell computers. But our wish list doesn't stop there. We also want leisure time, a respite to enjoy life. We want pleasant working conditions and good jobs, so earning a living isn't too arduous. We want safety and security, so we don't live in fear. We want variety, the spice of life. We want convenience, which makes everyday life a little easier. We want a cleaner environment, which enhances health and recreation.

A full description of a balanced life would entail much more, with considerations for family and friends, perhaps even spirituality. Here we want to focus on the components of happiness that clearly depend on the market but are not reflected in the gross domestic product (GDP). Our free enterprise system provides much more than the goods and services we consume; it furnishes ingredients of a balanced life that are often overlooked in discussions of economic performance.

Capitalism creates wealth. During the last two centuries, the United States became the world's richest nation as it embraced an economic system that promotes growth, efficiency, and innovation. Real GDP per capita tripled from 1900 to 1950; then it tripled again from 1950 to 2000, reaching $35,970.

The wealth didn't benefit just a few. It spread throughout society. For many people, owning a home defines the American Dream, and 68 percent of families now do—the highest percentage on record. Three-quarters of Americans drive their own cars. The vast majority of households possess color televisions (98 percent), videocassette recorders (94 percent), microwave ovens (90 percent), frost-free refrigerators (87 percent), washing machines (83 percent), and clothes dryers (75 percent). In the past decade or so, computers and cell phones have become commonplace.

As people become wealthier, they continue to consume more, but they also look to take care of other needs and wants. They typically choose to forgo at least some additional goods and services, taking a portion of their new wealth in other forms.

Consider a nation that rapidly increases its productive capacity with each passing generation. Workers could toil the same number of hours, taking all of the gains as consumption. They may choose to do so for a while, but eventually they will give up some potential material gains for better working conditions or additional leisure. Hours of work shrink. Workplaces become more comfortable. In the same way, we give up consumption in favor of safety, security, variety, convenience, and a cleaner environment.

Less Work, More Play

In the early years of the Industrial Revolution, most Americans were poor, and they wanted, above all, more goods and services. These factory workers sharply improved their lives as consumers, even though for most of them it meant long hours of toil in surroundings we'd consider abominable today. As America grew richer, what workers wanted began to change, and leisure became a higher priority.

Few of us want to dedicate every waking hour to earning money. Free time allows us to relax and enjoy ourselves, spend time with family and friends. Higher pay means that each hour of work yields more consumption—in essence, the price for an hour of leisure is going up—but we're still choosing to work less than ever before. According to economists' estimates and Department of Labor figures, the average workweek shrank from 59 hours in 1890 to 40 hours in 1950. Although today we hear stories about harried, overworked Americans who never seem to have enough time, the proportion of time spent on the job has continued to fall. Average weekly hours for production workers dropped from 39 in 1960 to 34 in 2001.

Since 1950 time off for holidays has doubled, to an average of 12 days a year. We've added an average of four vacation days a year. Compared to previous generations, today's Americans are starting work later in life, spending less time on chores at home, and living longer after retirement. All told, 70 percent of a typical American's waking lifetime hours are available for leisure, up from 55 percent in 1950.

Even at work, Americans aren't always doing the boss's bidding. According to University of Michigan time diary studies, the average worker spends more than an hour a day engaged in something other than assigned work while on the job. Employees run errands, socialize with colleagues, make personal telephone calls, send e-mail, and surf the Internet. More than a third of American workers, a total of 42 million, access the Internet during working hours. The peak hours for submitting bids on eBay, the popular online auction site, come between noon and 6 p.m., when most Americans are supposedly hard at work.

With added leisure, the United States has turned arts, entertainment, and recreation into a huge industry. Since 1970, attendance per 100,000 people has risen for symphonies, operas, and theaters as well as for national parks and big-league sporting events. The annual Communications Industry Forecast, compiled by New York?based Veronis, Suhler & Associates, indicates that we watch an average of 58 hours of movies at home each year. Yet Americans go out to an average of 5.4 movies a year, up from 4.5 three decades ago.

The number of amusement parks has increased from 362 in 1970 to 1,164 today. The number of health and fitness facilities has more than doubled, to 11,241. Adjusted for inflation, per capita spending on recreation nearly quadrupled in the last three decades. Leisure and recreation are even important enough to have become an academic subject: 350 colleges and universities offer degree programs in it.

The explosion of leisure spending and activities confirms the addition of more free time to our lives. If we hadn't reduced our hours of work, we couldn't spend as much time and money as we do on entertainment and recreation. Americans may find themselves pressed for time, but it's not because we're working harder than we used to. We're busy having fun.

Better Work Too

As the Industrial Revolution arrived in the 19th century, workers migrated from family farms to factories, from the Old World to the New World. They saw their paychecks rise but became, like Charlie Chaplin's character in Modern Times, mere cogs in a vast engine of mass production. Work was often brutal. Early factories were noisy, smelly, and dirty; they were cold in the winter and hot in the summer. The labor itself was repetitive, physically exhausting, and often dangerous. It was a time of mind-numbing repetition, standing on assembly lines, nose to the conveyor belt. To eke out a meager living, employees toiled an average of 10 hours a day, Monday through Friday, plus another half-day on the weekend. Breaks were few and far between. Work rules were draconian: no talking, no eating or drinking, not a minute late punching the time clock.

We've come a long way since then. For the most part, modern work takes place in a clean, well-lit, and air conditioned environment. A growing number of modern workplaces offer on-the-job amenities previous generations didn't even contemplate, such as on-site day care for children, exercise facilities, and concierge services. More and more employees are getting paternity leave, stock options, personal days off, and paid sabbaticals.

Jeans, sport shirts, and slacks are in. Ties and pantyhose are out. A July 2000 survey by the catalog retailer Land's End found that dress had become more casual in the previous five years at more than 80 percent of Fortune 500 firms.

More Americans than ever are free to choose the time and place for work, as long as the job gets done. In 1997, 28 percent of American workers were on flexible schedules, double the percentage in 1985. With laptop computers, cell phones, fax machines, electronic mail, and the Internet, fewer employees are tethered to the office. Telecommuting began with a handful of workers three decades ago. By 2001, 29 million Americans worked at least part of the time away from their companies' places of business.

Work isn't just more pleasant. It's also safer. Occupational injuries and illnesses, as tallied by the National Safety Council, are at an all-time low of 63 per 1,000 workers. The number of Americans killed on the job has fallen to a record low of 38 per million workers, down from 87 in 1990 and 214 in 1960.

Safer workplaces come in part from fewer accidents in such dangerous occupations as construction and manufacturing. At the same time, our economic base is shifting toward services, where jobs are less risky. The nature of the work we do is changing too. For most Americans in past generations, long days on the job involved tasks that were repetitive, physically exhausting, and often dangerous. Modern work is more likely to require analytical and interpersonal skills. Fewer employees make their livings with their backs and hands.

Jobs Rated Almanac 2001 provides a handy database of 300 occupations, ranked from best to worst. To focus on working conditions rather than pay, wages are taken out of the equation. Once that's done, it's clear our employment base is shifting in a positive direction. Since 1970 the 30 best jobs—including computer scientist, legal assistant, and engineer—have risen from 9 percent to 13 percent of total employment. At the same time, the 30 worst occupations—from logger to textile mill worker—have declined from 13 percent to 9 percent of all jobs. The trend toward better jobs is likely to continue. The Bureau of Labor Statistics estimates that the 10 best jobs will grow by 27 percent through 2008, while the 30 worst jobs will expand by just 7 percent.

Making workplaces more pleasant takes money. The added expense figures, along with wages, into the overall bill for labor. Companies pay it to attract new workers and retain those already on board. Employers shouldn't care whether the money goes for wages, time off, or working conditions. By their decisions on where to work, employees reveal their preferences.

Safer Lives

Although concerns about security have come to the fore since September 11, we shouldn't forget how far the United States has already come in making life safer. The toll of death and disease has been steadily reduced. Annual deaths per 1 million people are at an all-time low. The age-adjusted death rate has fallen by two-thirds since 1900. Fatalities from nearly all major diseases, tracked by the U.S. Centers for Disease Control and Prevention, have declined sharply from their peak rates. The rate of fatalities per 100,000 due to natural causes has fallen from 767 in 1950 to 422 in 1998, the most recent year for which data are available. The incidence of accidental deaths, both at home and on the job, is declining. So are fatalities associated with floods, tornadoes, and hurricanes.

Gains in transportation safety have been dramatic. In the five-year period ending in 2000, according to the Federal Highway Administration, annual deaths on American roads averaged 16 per billion miles driven, compared with 53 in the five years ending in 1970 and 83 for the post?World War II years. The Air Transportation Association reports that deaths per billion passenger miles flown fell from 16.7 a year in 1946?50 to 1.3 in 1966?70 to 0.14 in 1996?2000.

As a wealthy nation, we can afford to spend time and money to reduce life's risks. We can buy alarms for our homes and cars. We can buy insurance on our property and our lives. We can reduce the financial risks of illness and old age by taking part of our pay in health benefits and retirement savings.

We can also shift resources to the military to create an even more fearsome fighting force. During World War II, defense spending per capita averaged $3,475 a year in today's dollars, or 29 percent of total output. Today, each American's share of the defense budget comes to $1,079, just 3 percent of GDP.

Making America a safer place owes much to advances in engineering and technology. Divided highways, better roads, anti-lock brakes, radial tires, and air bags are reducing the highway death toll. More-sophisticated weather forecasting gear provides warnings of severe weather, so we can take refuge in time.

New medicines and treatments have reduced the incidence of fatal diseases. More are probably on the way. The stock market values the nation's 10 largest pharmaceutical companies at more than $1 trillion, an indication that we expect their sales to grow from future advances in health.

Greater safety and security didn't come about by accident. It's what we, as a people, wanted. We put a high value on our lives and physical well-being, and we're willing to pay the costs of protecting ourselves against the sometimes unpleasant facts of life.

Life is inherently risky, and protecting ourselves must be weighed against the considerations of cost and convenience. We'll never achieve a perfect safety record. In an uncertain world, we possess the wealth to afford more safety and security and the know-how to provide it, if that's what we decide we want.

Convenience and Variety

By introducing industrial efficiency to his factories, Henry Ford brought the automobile within the reach of an emerging middle class. The miracle of mass production delivered the goods but didn't adapt easily, so all Model T's looked alike. Ford's attitude can be summed up in what he reputedly said about the car's paint: "The consumer can have any color he wants, as long as it's black." Ford's company still makes black cars for drivers who want them, but it now offers a rainbow of colors: red, green, aquamarine, white, silver, purple.

The U.S. marketplace teems with variety. Just since the early 1970s, there's been an explosion of choice: The number of car models is up from 140 to 239, soft drinks from 50 to more than 450, toothpaste brands from four to 35, over-the-counter pain relievers from two to 41.

The market offers 7,563 prescription drugs, 3,000 beers, 340 kinds of breakfast cereal, 50 brands of bottled water. Plain milk sits on the supermarket shelf beside skim milk, 0.5-percent-fat milk, 1-percent-fat milk, 2-percent-fat milk, lactose-reduced milk, hormone-free milk, chocolate milk, buttermilk, and milk with a shelf life of six months. Not long ago, the typical TV viewer had access to little more than NBC, CBS, ABC, and PBS. Today, more than 400 channels target virtually every consumer interest—science, history, women's issues, Congress, travel, animals, foreign news, and more.

Like variety, convenience has emerged as a hallmark of our times. Companies compete for business by putting their products and services within easy reach of their customers.

In 1970 the nation's lone automated teller machine was at the main office of the Chemical Bank in New York. Now ATMs are ubiquitous—not just at banks but at supermarkets, service stations, workplaces, sports facilities, and airports. All told, 273,000 machines offer access to cash 24 hours a day.

Remote controls are proliferating, the newest models incorporating voice-activated technology. Computers and digital devices go with us everywhere. A cell phone is no longer a pricey luxury: The average bill fell from $150 a month in 1988 to $45 in 2001 in constant dollars. No wonder 135 million Americans now own mobile telephones. The number will continue to rise as prices continue to decline and more of us seek the peace of mind and convenience that come with communications in the pocket or purse.

Convenience stores are in nearly every neighborhood. Just one firm, industry leader 7-Eleven, has increased its locations from 3,734 in 1970 to 21,142 today. The Internet may be the ultimate convenience store, bringing shopping into the home. We're buying music, clothing, software, shoes, toys, flowers, and other products with a click of the mouse. Last year, a third of all computers and a fifth of all peripherals were sold online. Thirty-three million buyers ordered books on the Internet, accounting for $1 of every $8 spent in that category.

Convenience and variety aren't trivial extravagances. They're a wealthy, sophisticated society's way of improving consumers' lot. The more choices, the easier access to goods and services, the better. A wide selection of goods and services increases the chance that each of us will find, somewhere among all the shelves, showrooms, and Web sites, products that meet our requirements. Convenience allows us to economize on the valuable commodity of time, getting what we want more quickly and easily.

A Cleaner Environment

The environment presents a textbook case for tradeoffs between consumption and other aspects of life. Traditionally, economists teach that markets undervalue clean air, fresh water, pristine vistas, and endangered species because they aren't owned, like factories, houses, or other private property. Without clear title and market prices, there's little economic incentive to reduce pollution or husband resources. The nation's natural assets end up underpriced and overexploited.

Our desire for a balanced life mitigates the classic dilemma of market failure and the environment. A wealthier nation possesses the time, money, and inclination to shift the balance from exploiting the environment to preserving it. We want clean air and water for reasons of health, recreation, and aesthetics. We've developed a sense of moral obligation toward lesser species. We find unspoiled nature pleasant—although we tend to want clean linens and good food along with it.

Our desires have had a dramatic effect in recent decades. Levels of such major air pollutants as particulate matter, sulfur oxides, volatile organic compounds, carbon monoxide, and lead were at their peaks in 1970 or earlier. Levels of nitrogen oxides peaked in 1980. Water quality has improved since the 1960s, when authorities banned fishing in Lake Erie. Through government and private foundations, we're spending billions of dollars every year to preserve natural areas from development and save threatened species from extinction.

Capitalism's penchant for innovation is helping us act on our concern for the environment. We've developed less polluting gases for air conditioning systems, so we can stay cool at a lower cost to air quality. Fish farms are creating another compromise, providing salmon for our dinner tables while reducing fishing for wild species.

Taking better care of the environment is a natural extension of economic progress. At one time, the air in Pittsburgh was very dirty. It was the price we were willing to pay for all those consumer goods the industrial age offered. It wasn't that we liked pollution; it was just that the price of cleaner air was too high. Today, having grown richer, we can afford the pollution controls that have made Pittsburgh's air sweeter than an ocean breeze. Exploitation of the environment is worst in poor countries, where the economic imperative lies in producing the food, goods, and services needed for daily life. Wealthier countries possess the means and motive for a balanced life, and they do a better job of taking care of their surroundings.

Beyond Statistics

The statistics that measure our economy are reasonably good at counting the value of the cars, clothing, food, sports gear, jewelry, and other goods and services we buy. When we choose an additional hour off over additional income, though, GDP shrinks with the loss of the hour's income and output. We don't count leisure as an economic benefit because we haven't assigned a dollar value to it, even though we opt for time off because it improves our lives.

When it comes to many aspects of a balanced life, our economic barometers come up short. Safety and security are all about preventing bad things from happening. Increased spending on highway safety registers in GDP, but we don't track how much better off we are because of the accidents, injuries, and deaths we avoid. If investing in prevention works, it can actually reduce total output, at least the way we measure it, because less money is spent treating the sick and injured, repairing damage, and replacing lost property.

Variety makes products more valuable by giving us the designs, colors, and features that fit our preferences, but the statistics count everything as plain vanilla. How conveniently our wants and needs are fulfilled doesn't matter to GDP. A cleaner environment makes for a better country, but it may come at the cost of economic growth.

Inflation-adjusted GDP figures indicate economic growth at an annual average of 3 percent during the last two decades. GDP may be entirely accurate as a tally of how much our farms, factories, and offices produce, but it's increasingly inadequate as a measure of how well the economy provides us with what we want. Our ability to choose a balanced life is one of the market's most important success stories.

Some may argue that it isn't the market that makes a balanced life possible. They might concede that our economy produces abundant goods and services, but they credit government agencies, with their regulations, and unions and pressure groups, with their advocacy, for everything else. History tells us government and advocates play their roles, but they aren't the ultimate source of progress. They don't foot the bill for the choices we make to gain a balanced life. Whatever we want must be paid for, and money ultimately comes from the economy.

Companies improve working conditions because they can afford to, not simply because workers, unions, or government agencies demand it. The dismal work environments in now-defunct socialist nations—all supposedly designed to benefit the worker and eradicate the capitalist—provide a powerful testament to the fact that good intentions are hollow without the ability to pay.

The main role of collective action has been to act as a voice for what we want. Environmental groups formed as the result of our desire for cleaner air and water. When we take our preferences for leisure and better working conditions to unions or elected officials, they help create consensus among employees and lower the cost of communicating these desires to employers.

In the long run, we cannot afford any component of a balanced life—be it consumption, leisure, easier workdays, safety and security, variety and convenience, or environmental cleanup—that we don't earn by becoming more productive. When counting our blessings, we should first thank the economic system. Not federal agencies, not advocacy groups, not unions.

Our quest for a balanced life will never end. The U.S. economy, now recovering from its first recession in a decade, will make our society wealthier in the years ahead. We'll take some of our gains in goods and services, but we will also continue to satisfy our desires for the less tangible aspects of life.