Rise of American Economy from 1900 to Early 2000

Rise of American Economy from 1900 to Early 2000


The US economy has continued to grow over the last years at a strong pace and this has been notably as a result of the presumably healthy spending by both the government as well as the consumer of the country. The economic history incorporates the developments in the US economy that date back from the colonial era.  There are many factors that have played part in ensuring the growth of the economy. This paper will discuss how the factors that have cause this growth, the important events surrounding the growth in the economy with special reference to consumer spending which has been on the fore front as the strongest sector that has fuelled the growth of the US economy. The paper focuses on the growth of the U.S economy from 1900 to early 2000 with special reference to the great depression. This was the most devastating economic event that afflicted global economy and the United States was not left out. The essay will also review recently published books that elaborate the growth of the U.S economy.


The United States of America had a rather volatile economy which has continued to expand throughout the century. There are major contributing factors which have caused the uproar in the economy of the country, these include; territorial expansion, industrialization and immigration. The main cause of volatility was the poorly regulated system of banking and the laissez-faire approach by the government[1]. In the early 1800s the economy of the country was rather small and was greatly influenced by agriculture but by the end of the 19th century, the country had one of the best industrial economies of the world.

In terms of the land use in the country, there were vast natural resources that made the country to expand its territories in the 19th century and this played a distinct role in allowing new lands to be opened up and new business opportunities were created. This also led o immigration and allowed prime agricultural land to raise the surplus food.  In addition to this, the debate that took place between Alexander Hamilton and Thomas Jefferson in 1790 also shaped the manner in which the federal government would intervene in the country’s economy in the 19th century. Hamilton had he believe that he country should be in position to involve itself in economic affairs as well as banking, however, Jefferson on the other hand, was opposed to this idea of a national bank. Thus, the country was greatly divided on the idea of having a central bank. Most of the people felt that the national bank would be essential in regulation of the economy as well as mitigate effects of depression. The others, with the influence of Jackson and Jefferson felt the national bank was an unnecessary intrusion of the US government.

Thus, banking was solely controlled by the states and the paper currency was greatly valued while the bank notes greatly varied and were subject to speculation and corruption.[2] After the creation of the Federal Reserve, as will be discussed later in this document, the country was able to possess a permanent central bank. Jefferson then envisioned America to being an agrarian country and it increasingly became industrialized throughout the period of 1800. Thus, the second half of the 19th century witnessed the growth of crisscrossing of railroads as well as the development of steam engines, production equipment that were power driven and cheap labor force. Factories then began to dominate the urban areas and many people started flocking in the new industries. The American industry was thus revolutionized by assembly lines and innovations in the interchangeable parts.

The country witnessed success driven indicators in the stock market that allowed the economy of the country to boom, these included; participation by the labor force, consumer confidence and household wealth. These indicators are greatly used to measure the overall health of the U.S economy. By the year 1900, the United States had almost a half of the entire manufacturing capacity in the world. However, by the end of the 19th century, the US had already overtaken the United Kingdom with Great Britain in particular because of the production of steel and iron. The great gain by the United States was possibly because it was the fastest runner in a very slow race.

From the era of Reconstruction which was by the end of the century, there was a transformation in the economy and this marked by the development of large scale agriculture, industrial conflict, the upraising of the national labor, the massive expansion of business and the maturity of the industrial economy.[3] Agriculture was considered the primary employer of the nation but this was later replaced by industry. The economic interests in the US continued to expand its interests in the economy around the world and started emerging as a world power. The expansion in the business led to increase in the wealth because of the raw materials started becoming cheap to obtain and this drove the consumption up and the prices down. The most prosperous businesses included steel, food production industries, oil, textile and railroad.

Additionally, the decade was also marked by major innovations in technology such as the creation of the aviation and automobile industries. The Americans who entered the century riding horses could by the end of the very first decade be seen driving cars and flying airplanes. This was a remarkable transformation in just a decade. Most of the workers employed by the industrial base were mainly immigrants. About 8 million of the immigrants journeyed all the way to America in 1907 and most of the arrivals came from Russia, Austria and Italy. By the end of the decade, the entire population of the United States had risen to 9 million. In this decade, the men and women did not compete for jobs basically because of the rampant division of labor in accordance to gender. In the industrial revolution, the men already had opportunities and this gave them an upper hand in being able to claim for jobs that put emphasis on physical strength. The women on the other hand would be comfortable to low paying jobs that used light machinery.

By the year 1910, a third of the total workforce was female and a larger percentage of these women were involved in domestic service as well as agriculture and a smaller percentage was left in the industry. Children were not left behind, and were often exploited as social workers. However, regulation ended this practice and child labor was ended. In 1900 there were more than 300,000 children who had been working in the factories under minimal pay and these were mainly below the age of 15. The average wages for the union were 35 cents per hour as compared to the non union skilled pay of only 10 cents per hour. Additionally, the average work week in the entire decade was fifty five hours.

The greatest challenges was mainly faced by the unskilled laborers because their income was not able to support a family of even five even in cases when they worked at least 10 hours a day each day of the year.[4] Thus, the century started with expansion of businesses by merging with companies through horizontal integration.[5] This therefore led to elimination of competition. Most of the Americans started being concerned about the rise of big business by the use of cartels, trusts, pools and trade associations. This is because of the fear they had that the business groups would be able to destroy the image of America being considered as the land of opportunity where it was not possible for an individual to succeed by the use of their own efforts in business.

The rise in the big business coupled with poor conditions led to increase in conflict and tension between both the employees and their employers. For the entire decade most of the workers joined labor unions however, their efforts bore no fruits and the conditions at the workplace continued being unsuccessful. Most of the violent strikes mainly took place in the 1900s and most of these strikes needed interventions from the governments so as to be able to resolve the conflicts.  For instance, during the Anthracite Coal Strike, there was a notable difference in the lifestyle of both the workers and the owners. However, because of internal differences on the basis of nationality, political beliefs, race and gender, the union power continued being fragmented because of the loss in unity among the workers.

The 1900s showed massive founding of many corporations and these have continued to be fixtures in the economy of America. These include; Firestone Tire and Rubber company in 1900, the United States Steel company in 1901, J.C Penney company in 1902, The Pepsi cola company in 1902, Harley Davidson in 1907 and the General Motors corporations in 1908. Thus, it is this decade that made most of the people eager consumers especially when they had to spend money and time on advertising of the product. Despite the optimistic outlook in the US economy in 1900, the determination of most of the Americans was compromised by the sharp drop in the stock market in 1907.

The first signal of this sharp downfall was noticeably shown by a New based company, the Knickerbockers Trust Company[6]. This company drastically collapsed the entire banking and credit system.  Additionally, confidence was then restored back because actions of the treasury in the US together with capitalists being led by J.P. Morgan were able to stabilize the banks as well as corporations using their own funds. Despite the noticeable gap between the rich and the poor, the first decade led to increase in commercialism in the lives of almost all the people in America.

During the very first 10 years of the 21st century, the United States was met by tumultuous days. This was as a result of severe recession in the economy, meltdown in the housing, a major terror attack and a downturn in the stock market of the country. Since 1983, unemployment rates passed the 10% mark. There was increased in household wealth and a gain in the stock market. The net worth of the household dropped drastically by more than $15trillion during the period of recession.[7] However, in the early 2000, the economy was hit by recession that was on the basis of jobless recovery. Ever since the great depression, the great recession was the next big thing that hit the economy of the United Status. The mild recession in 1990 ended in early 1992 and this led the country to be hit by massive unemployment rate.

The growth of jobs was muted by great layoffs among the industries. As it has been seen, the most devastating impact that led to the great depression was suffering of the individuals. In just a short time, the output of the world coupled with the standard of living greatly dropped. Figure 2 in the (Appendix) shows the exponential growth of the GDP in the USA.  Thus, a quarter of the labor force in the industrialized countries was not able to find work in early 1930. Additionally, there was an improvement in the condition by mid 1930s but the total recovery had not been accomplished until when the decade ended. The response of the policies and the great depression change the economy of the world and hastened the end of the international gold standard. After the World War II as will be discussed later, a system of exchange rates of the fixed currencies was reinstated under the Bretton Woods system. However, the economies did not embrace the system because they had been convinced that they had already brought to the gold standard. By the year 1973, the fixed exchange rates had already been abandoned and most people favored the rates of floating.

The welfare state and the labor unions expanded greatly during the 1930s and the union membership in the United States had doubled between the year 1930 and 1940.[8] This was mainly because of the passage of the National Labor Relations (Wagner) Act and the severe unemployment as this encouraged collective bargaining.  In addition to this, there was the establishment of the old age/ survivors’ insurance and the Unemployment compensation insurance which were both passed as a result of the hardships of 1930. Most of the countries in Europe had already experienced the benefits of the union membership as well as the establishment of government pensions even before 1930.These trends increased greatly during the period of great depression. In most of the countries, regulation of the government economy especially in terms of financial markets greatly increased during the period of 1930.[9] For example, the United States established the Securities and Exchange Commission (SEC) in the year 1934 as a way of regulating the trading practices of the stock market and the stock issues. There was also the establishment of deposit insurance by the Banking Act in 1933 as a way of preventing the banks from dealing in securities. Thus, the deposit insurance became known after the World War II so as to do away with the banking panics and this was an exacerbating factor that influenced recession in 1933.

Important Events that contributed to Rise of America’s Economy

Great depression

The worst economic downturn in the history of the United States was the great depression. The great depression played an important role in developing macroeconomic policies that were intended to influence the upturn and downturn of the economy.

This started in 1929 all the way to the end of the year 1930.The great depression was caused by a combination of many factors ranging from the worldwide conditions to domestic matters. The effects of the great depression were felt across the world and were also the direct source of the rise in extremism in Germany and this led to the World War II. By the year 1933, rate of unemployment had already reached 25 and more than 6000 banks had already stopped business. It is this reduction in monetary contraction as well as reduction in spending that caused British economist, John Keynes to create ideas in the General Theory of Employment, Interest and money in 1936. Keynes’s theory believed that increase in the spending of the government, monetary expansion as well as tax cuts were greatly used to counteract the depressions.[10] This notion coupled with a growing consensus on the need for the government to stabilize employment and this also led to activist policy in 1930. Central banks and legislatures around the world are now in position to moderate recessions.

Causes of the great depression

·         Crash in the Stock Market

The major factor that led to the great depression was the crash in the stock market that took place on the summer of 29th of October in 1929.  It is widely believed that the crash in the stock market stemmed from the tight monetary policy of the U.S which was mainly aimed at limiting the speculation of the stock market. Just two months after the original crash that took place in October, most of the stakeholders had already lost more than $50 billion dollars. The stock prices had continued to rise more than four times from the low which was in 1921 to the highest peak in 1929. Between 1928 and 1929, the Federal Reserve had already raised interest rates with the belief that it would slow down the rapid increase in the stock prices. It is these high rates of increase that depressed the sensitive spending areas like the automobile purchase as well as construction. Most scholars believe that it is this boom in housing that led to excessive supply of housing.  Despite the fact that the stock market started gaining some strength and regaining its losses by the end of 1930, this was not enough to come to terms with the massive losses. This is because it reduced the aggregate demand for the Americans substantially.

Business investment as well as the consumer purchase of durable goods sharply fell after the stock market crash. This was possibly because the financial crisis brought about uncertainty on the future income and this made the consumers as well as the firms put off the purchase of durable goods. The crash considerably also depressed the manner of spending and made most people feel a lot poorer. Thus, due to the drastic decline in the business and consumer spending, the real output that had greatly declined also fell drastically throughout 1930. Since the great crash of the stock market was the major underlining factor that brought out a decline in employment as well as production in the United States.

·         Failures of the Banks and Banking Panics

Over 10,000 banks failed being operational throughout the period of 1930 and this made the deposits in the bank to become uninsured and this made the banks fail and many people losing their savings.  Additionally, the banks that were able to survive the turmoil however were concerned for their very own survival and were unwilling to even create loans for people. This is what exacerbated the entire situation and led to massive loss and reduced expenditures.

As a banking rule, interest must be paid on loans that banks make, but with debt rising quicker than the incomes some of the people could not keep up with repayments and it was at this point that people stopped paying and banks were in danger of going bankrupt. This is what caused the financial crisis as banks cut lending and people stopped borrowing from them and people started selling their assets to repay the loans. As a result, bursting of the bubble occurred resulting in sharp drop of the prices. The financial crisis of 2007-2009 highlighted the changing role of financial institutions and the growing importance of the shadow banking system, which grew out of the securitization of assets.

The banking panic arose once the depositors lost their confidence in the solvency of the banks. Thus, they demanded that the deposits of the bank be paid in cash. However, in such cases, the banks that hold a fraction of their deposits must be liquidate loans so as to raise the amount required. It is this particular process of very hasty liquidation that brought about the previous solvent bank to also fail. The U.S faced enormous banking panics throughout the fall of 1930 as well as he spring and fall of 1931 and 1932. Another wave of panic culminated with the national bank holiday which was declared by the hen President Franklin Roosevelt in March 1933. It is this holiday that led to the closure of all the banks and would only open after directives from the government inspectors after being solvent. Economic historians believed that the policies in the United States that had encouraged undiversified banks couple with the increase in farm debt in 1920s were the leading cause of the panics. The heavy farm debt mainly occurred during the World War I and was the major cause of escalating prices of agricultural goods. This had increased borrowing by the American farmers as they wished to increase the production by investment in machinery and land. Additionally, decline in the commodities in the farm after the World War II made it very difficult for the farmers to be able to keep up with the payments of the loan. Thus, the Federal Reserve didn’t do much to step the panics of the banks.[11]

The downward spiral begun when asset markets and the stocks crash and customers were unable to repay their loans and these turned banks insolvent. After the crisis, banks stopped lending and this in the long run lead to shrinking of the economy. The financial crisis that started in the wake of 2007 reached a climax with a wave of bank nationalizations across North America and Europe bailed. The very first high profile casualty of the 2007 financial crises was The Northern Rock Bank of England. It was one of the largest British mortgage lenders before being bailed out from the bank of England. Northern rock was unusual among UK mortgage banks in its heavy reliance on non retail funding. In the United States, over 68 U.S banks have also become insolvent as a result of the crisis and they have been taken over by F.D.I.C (Federal Deposit Insurance Corporation).The largest of these banks to be acquired included, Merrill Lynch Bank which was bailed out by The bank of America, The Bear Stearns bank and Washington bank which were bailed out by JP Morgan Chase.

·         Reduced purchasing across the board

With the crashing stock market coupled with fears of woes in the economy there was lack of purchasing by the individuals. This was followed by reduced number of items that were produced as well as a reduction in the total workforce. Thus, as the people continued to lose their jobs, they were still unable to pay for items that they had already bought and because of this, the items were then repossessed. This led to accumulation of inventory, unemployment rose above 25% and this meant a reduction in the overall spending to be able to help alleviate the situation in the economy.

·         International lending and Trade

Most scholars stress the need of international linkages as a way of coming to terms with the great depression. In the mid 1920s, foreign lending to both Latin America and Germany had greatly expanded but the U.S lending abroad had already fallen drastically between 1928 and 1929. This was mainly because of the high rates of interest as well as the booming stock prices in the market of the United States. The reduced foreign lending brought about contractions in credit as well as a considerable decline in output in the borrower countries. Germany had experienced inflation rates rapidly and because of this, the monetary activities hesitated to undertake expansion policy to bring about a slowdown in the economy because there was worry it would end up reigniting inflation. The reduction in foreign lending explains the reason why the economies of Brazil, Argentina and Germany turned down even before the beginning of the great depression in the United States. The worldwide rise in protectionist trade together with the enactment of the Smoot-Hawley tariff trade policies in 1930 created complications in trading in the U.S. The Smoot-Hawley tarrif was supposed to boost the incomes of the farms by reduction in foreign competition in the products of agriculture. However, most countries followed the directives both in an attempt to force a correction in the imbalances of trade and in retaliation. The policies were able to greatly reduce trade but were not the major cause of the Depression among the industrial producers. The protectionist policies greatly contributed to the decline in the prices of the world and in raw materials. This was the major cause of severe balance of payments problems for thr countries that produced the primary commodities such as Asia, Africa and Latin America and this brought about contractionary fiscal and monetary policies.

The Gold Standard

Economists believe that the Federal Reserve brought about great decline in the money supply of America so as to preserve the gold standard. It is under the gold standard that all the countries had to set aside the value of their currency in relation to gold and take monetary actions so as to defend the fixed price. The Federal Reserve expanded the supply of money in response to the banking panics and the foreigners were able to lose confidence in the commitment of the United States to the gold standard. This brought about outflows of gold forcing the United States to devalue. Additionally, if the Federal Reserve had not tightened the supply of money in the fall of 1931, there would have been a massive attack on the dollar and this would force the United States to abandon the gold standard. Because of the gold standard there were imbalances in the asset flows as well as the imbalances in the trade and this led to gold flows internationally. In the mid 1920s there was massive demand for the American assets like bonds and stocks which brought about inflows of gold to the United States. In addition to this, after the World War I, France returned to the gold standard together with its undervalued currency, the franc. This then led to substantial gold inflows and trade surplus.[12] Britain decided to go back to the gold standard after the World War I. However, because of wartime inflation, the pound was considered overvalued and this brought about deficits in trade as well as gold outflows after 1925.

When the economy of the U.S started contracting, the ability of the gold to flow out of different countries and towards the United States became intense. This was as a result of deflation in the United States made goods in America desirable to foreigners and the low income among the Americans led to a reduction in the demand for the foreign products. Additionally, central banks across the world also raised rates of interest as a way of counteracting the foreign gold outflows and the American trade surplus. The maintenance of the international gold standard needed monetary contraction across the world so as to match the one taking place in the United States. This led to a decline in the prices and output in countries around the world so as to match with the one in the United States. This led to a great decline in the prices and output in countries around the world and this closely matched the downfall in the United States.

In most countries around the world, banking prices and financial crises occurred in most countries beside the U.S. in 1931.there were payment difficulties in Austria’s largest bank, the Creditanstalt so as to set off a lot of financial crises and this was greatly evident in most of Europe. The countries that were greatly hit by the volatile financial markets and bank failures include Germany, Hungary and Austria. The banking crises around the world were hit by poor regulation and a reduction in the value of banks collateral making them more adaptable to the runs.

World War II

World War II played a critical role in the recovery of the economy of the United States since the depression. Despite the depression, the real GDP was above the pre-depression level by the year 1939. By 1941, the recovery was noticeable to about 10%. This clearly shows that the economy of the United States had already recovered way before military spending. At the start of the war, the economy of the U.S was below the trend and in addition to this; the rate of unemployment was an average of below 10% in 1941. The budget of the government grew very fast between 1941 and 1942 since the buildup of the military as well as the threat responded by the Federal Reserve. The policy of the monetary, the expansionary fiscal and the widespread conscription since 1942 returned the economy of the country to its trend path and led to a reduction in unemployment rate.

The World War II therefore played a critical role by completing the return of the country to a full employment. The role played by the expenditure of the military as well as fiscal expansion in the generating recovery varied in different countries. He United States just like Great Britain increased the spending of the military after 1937. On the other hand, France raised its taxes in the middle of 1930s so as to defend the standard of gold.[13] However, she ran huge budget deficits from 1936. The effects of the expansion of the deficits were counteracted by reduction in the French work week from 50 to 40 hours and this particular change raised the cost and at the same time depressed the production. Moreover, Fiscal policy was greatly used in Japan and Germany. The budget deficit of Germany as a percentage of the domestic product in increased at a very small rate in the recovery but substantially grew after 1934 because of spending on the public works. The government expenditures of Japan especially military spending rose from 35 to 40% of the domestic product between the year 1932 and 1934. This resulted in budget deficits. It is this fiscal stimulus together with the undervalued yen and the monetary expansion that brought the Japanese economy to its full employment. As has been seen, the World War II had a tremendous impact in the economy of the United States. Its aftermath led to significant changes in the arrangements of the institution in terms of its development and innovation. There were two seminal military R&D efforts exerted patterns that continue to have great influence to date. These two seminal military R&D efforts included the development of Radar and the Manhattan project. The Manhattan project was the most expensive and also the largest technological enterprise in the history of the United States. It developed the atomic bomb as well as influence the structure and the management of post war projects for the government in space, defense and in nuclear energy. It also created world class concentration of physical and talent infrastructure in applied and basic engineering.

The development of Radar that was mainly influenced by the Radar Laboratory at Massachusetts Institute of Technology also played a key role in the coordination of the military users, industrial manufacturers and academic researchers so as to demonstrate potential power of cross sectional linkages and interdisciplinary linkages. It is the success of these together with other wartime technological efforts brought a growing influence in policymaking by both engineers and scientists. Thus, the emergence of the cold war allowed support and increase in development of the establishment of the research that was built during the war. The major elements in US science and technology policy from hat time have included the following aspects;

Thus, the large corporations dominating U.S industry continue to establish strong technological strongholds after the war. There was also a long term expansion in employment of engineers and scientists as well as many companies created research facilities.

During the period of 1950 and 1960, most of the U.S companies continued to expand their horizons to the international arena on the basis of the competitive strength that was gained in the US.[14] Additionally, the emerging multinational corporations in the U.S also did not hesitate to establish the facilities for production rather than just depend on the exports and this is after the strength of the U.S dollar.

Military technology

The industrial and technological innovation in the United States describes the emergence as one of the World’s most technological nation. The rapid industrialization between the 1900s to the early 2000 was successful because of the available land, he diversity in climate, the absence of landed aristocracy as well as the prestige of entrepreneurship. The available capital coupled with the free market of coastal waterways also contributed to the rapid industrialization. The fast transport by the large railroad that was built between in the mid of the 19th century and interstate Highway system was also built in late 2000s. The early industrial and technological development was greatly facilitated by the military and was simply because of unique influence of the social, economic and geographical factors. The lack of workers also kept the United States wages higher as compared to European and the British workers because it provided incentives to be able to mechanize the tasks. The population of the United States also had unique advantages as compared to the British subjects because of the high skills in literacy. The information and technology on building textile industries was provided by Samuel Slater who had studied and also worked in the British Textile mills for years. Additionally, the broad knowledge on scientific revolution as well as industrial revolution helps to facilitate understanding of the invention and construction of new technologies and businesses.

The United States was able to gain leadership in the world in most of its technological aspects and industries of the Second industrial revolution. This included the use of automobiles, steel and electrical machinery. This was because of the development of large scale techniques. The World War II as has been described in the previous topic explain how the war spurred great changes in the innovation of the United States and the effects were felt for a very long time. The impacts included the role in supporting R&D, role of the entrepreneurial firms as well as focus that was on the defense needs in the commercialization of the new technologies.

From the beginning of the 1960s, most of the industries in the United States had suffered because of international competition. In the past decade, the industry in the United States had great progress in being able to adapt to the flexible systems of production as well as linking development of technology to markets and products.[15] Till to date, the United States has continued being strong in terms of innovation especially in information technologies as well as other related fields such as biotechnology. By the end of the cold war, as well as the new challenges of competition internationally, the economy of the United States has continued to rise rapidly because of the transformation of technology, research and innovation. Just like Japan, most of the key features seen in the development of technological innovation were long standing. For instance, there has been an inflow in the use of technologies from abroad and this had greatly helped in the industrial development in the United States.[16] The use of the military is a consistent feature which has greatly helped in pushing for innovation in the United States. Despite the fact that the United States has continued to maintain a small establishment for the military in its history and military science, this has greatly influenced civilian innovation even before the World War II and this includes the development of mass production and milling machines.

Between the end of the Civil War and the outbreak of the World War I was marked by sharp growth in the economy and industrialization. Some of the major factors that contributed to growth and innovation were greatly similar to those that were then enjoyed by Japan during the half century and this is because of the World War II. The environment of the US economy allowed low spending of defense because the high barriers in trade encouraged expansion of the manufacturing industries as well as the inflow of foreign technologies. Just like the access of Japan to the integrating economy that has allowed intensive manufacturing to be able to prosper as well as allow population to increase and the development of transportation infrastructure.

The main challenge in this was the management of a heterogeneous work force which was brought about by division of operations into unskilled tasks that were relatively narrow. The US manufacturing industries was characterized by rapid and suitable mass production operations as compared to those of other countries.[17] By the year 1913, the productivity of the US per capita income greatly exceeded that of Great Britain. During this period, innovation did not depend on indigenous scientific research. The US government did not see the importance of science as a public function that was legitimate until after the end of the World War II. However, it also di not support development of technology as well as innovation both directly and indirectly because of the policies that were linked to specific purposes for the nation.

The well known policies that supported growth of infrastructure as well as key institutions included the railroads and the land grant colleges. Additionally, towards the late 19th century and early 20th century, there was a remarkable establishment of governmental agencies that were needed to support the diffusion and development of applied technologies. These included National Bureau of Standards, the Agricultural Research Service as well as the US Geological Survey. Due to the new antitrust laws that were enacted; the companies in the US were mainly constrained from the use of informal price fixing agreements between the control markets and the firms. Most turned to industrial research and innovation and horizontal mergers so as to allow growth and differentiation.

From the beginning of the 1950s, the small entrepreneurial firms have been able to play a critical role in the development as well as the commercialization of new technological aspects in the United States. This pattern in innovation has become greatly unique throughout the world. This particular trend has been directly and indirectly supported by the change of the federal role of innovation in the United States. For the very first post war decades, there was a great impact in the emergence of computer industries as well as semiconductor industries. The increase in support for basic research in the universities meant that most of the innovations were pioneered to provide opportunities for researchers to be able to establish companies so as to commercialize the upcoming technologies.

Since the U.S military was willing to bring out the products of the small firms, this allowed the start ups o be able to develop very fast by focusing early efforts on marketing on the single customer. The fundamental technologies were able to develop in the large firms and these were mainly made available to the newcomers at a very reasonable term because of the antitrust policies of the United States. Time continued to pass and most of the small companies were able to achieve success, the financial institutions were also established so as to provide the risk capital to be able to fund the start ups. The growth of the high technology manufacturing region was mainly because of the supportive market as well as the entrepreneurial technical talent. The procurement as well as the military R&D pronounced impact on the postwar innovation. This particular influence has continued to be felt through direct military.

A great example is seen by the jet engine which was developed in Europe and which has continued to be effective and greatly applied by the U.S companies in commercial aircraft and in the military.[18] This has also allowed the United States to be able to establish leading positions in the industries. Military funding has continued to support major innovations in the computers and in microelectronics. However, the product demands from the weapons system have brought large contribution to development of industries than the direct R&D support.

Competitiveness crisis

In the late 90th century, the manufacturing companies in the U.S as well as the industries lost competitiveness in the domestic market and in the international market. In the case of automobiles, steel and consumer electronics, loss of competitiveness constituted the flip side of the gains by the Japanese. In the automobile industries for example, the companies in the U.S for example did not experience serious foreign competition. Thus, there was emphasis on more profitable cars and this left a window of opportunity that made the Japanese able to exploit in the 1970s when the shortage in gasoline led to a demand for the smaller cars.[19] When the fundamental barriers were breached, there was a flexible production and this resulted in higher quality vehicles that were produced by the Japanese firms. These made them increase market share rapidly. In the case of consumer electronics, the productivity of the Japanese as well as the cost advantages brought about an increment in the market share gains and thereby a decline in the profitability for the US competitors. The companies and industries in the U.S that have experienced the greatest competitiveness problems have been the same ones in which the Japanese advantages of flexible production could be put to work for maximum impact. An increase in competition led to increase in the costs as well as an unfavorable macroeconomic environment and this was combined so as to lower the returns to R&D investments and this has led to slow economic growth in the US.

In the early 2000, the competiveness problems mounted but there were a number of responses from the government and industries. The limited protection of trade encouraged investments by the foreign manufacturers and his spurred the business alliances between the overseas companies with the U.S. Throughout this time, the manufacturers in the U.S appeared to have made great progress in the modification and the adaptation of flexible production in regards to the automobile industry. Despite challenges in Japan, the computer and semiconductor industries, the position in high technology as well as the U.S Government have taken great initiatives to be able to link the efforts if R&D with the needs in the market.[20]

In addition to the broad initiatives, there has been the establishment of engineering research centers and this is by the National Science Foundation which has greatly led to the facilitation and promotion of commercial application of technologies. This includes those developed in research, education and in the universities. Additionally, these new programs that have been able to support the commercially relevant technologies like the Advance Technology Program have resulted to rapid expansion of commercial technologies. Over the years there have been significant changes that have been able to occur with other dimensions of federal involvement in the U.S and the technological growth has been the major contributing factor to the rise in the economy of the United States.


It can be concluded that despite the major downfall in the economy of the US in the early 1900 coupled with a rather volatile economic growth, the country has over the years been able to come to terms with the poorly regulated system of banking and competitiveness to be a country with one of the best industrial economies of the world. The roaring economy started thriving because of  new advanced technologies such as household appliances, automobile as well as other mass produced products that have led to a vibrant culture of consumers that has been able to stimulate growth.




Fig 1: The Size of the government and economic growth in the United States government revenues


Fig 2: Exponential growth of U.S and Canada Gross Domestic Product (GDP)