The economy of the United States is the largest of any country in the world, and was estimated to be worth $13.81 trillion in 2007. This has been generated with a relatively low rate of unemployment and high levels of research and development, funded both by government and by the private sector. The result has been that the U.S. economy has been able to maintain a very high level of output per person, a situation it still maintained in spite of the economic downturn in 2008–09. The main problem, however, is that the United States has managed to generate the largest external debt of any country in the world.
A Brief History
The first Europeans who arrived in North America recognized the economic potential of the continent, and the abundant resources. As a result, the British attempted to establish colonies, such as Roanoke and Jamestown, but they were unsuccessful. They did manage some trade with the Native Americans, but there were not sufficient migrants there to generate their own internal demand. This came about during the 17th century, and especially from the early 18th century when the pioneers opened up farmland— often after wars with the Native American inhabitants—and there was an emergence of towns across what is now called the United States.
Certainly the early settlements in North America imported most of their goods from Britain, but gradually a manufacturing industry began to emerge, especially after the American War of Independence (1775– 83), after which the United States started cutting its ties with Britain—although there was still some trade through Canada and the Caribbean. The United States also began trading more with France and the Netherlands, both allies in the War of Independence.
This period of breaking trade links with Britain coincided with the Industrial Revolution, which saw the emergence of machinery and factories capable of producing cloth and later many other items at far cheaper rates than had henceforth been the case. The British had always been protective of their industrial designs, and when the capitalist Samuel Slater (1768–1835) left Britain for New York in 1789, before he departed, he memorized the information needed to set up a mill—knowing that any such plans concealed in his luggage would get him into trouble—and built his own mill in Rhode Island, earning him the title of the “Father of the American Industrial Revolution.”
The U.S. economy was transformed soon afterward with the invention of the cotton gin by Eli Whitney, which led to the creation of a large slave plantation society—there were many slaves up to that point, but slavery was rapidly becoming unprofitable in many parts of the United States. And during the War of 1812, Francis Cabot Lowell was able to take designs for a cotton mill to the United States, and was able to build a mill in northern Massachusetts, capable of turning raw cotton into cloth.
This in turn led to the growth of the cotton industry, which soon became one of the main sources of wealth in the southern states, leading to the emergence of very large plantations and exporting cotton to Europe and elsewhere in the world. The result of the building of U.S. factories was that many items were no longer imported to the United States, and indeed the United States became an exporter of some of them. It had transformed from being a source of furs, timber, and tobacco to being a viable economic unit with its own large and wealthy home market.
The growth of the U.S. economy led to a major enlargement of the U.S. merchant navy. Before the War of Independence, U.S. ships had the protection of the British Royal Navy. Without them, they were at the mercy of many pirates operating from North Africa, and problems over piracy led to the Tripolitan War of 1801–05 and the war with Algiers in 1815. These were the first projection of U.S. military power overseas, and with the newfound confidence, it was not long before U.S. traders started operating throughout the newly independent countries of Latin America, and also in east Asia, where they sourced pepper and other spices. In 1854, Commodore Perry forced an entry to Japan, and there U.S. traders found a ready market for their produce. And there were even U.S. businesses involved in shipping ice to India at the time, well before the availability of refrigeration. Much of the ice would melt during the journey, but enough would survive to make the voyage profitable.
The American Civil War changed the nature of the U.S. economy and showed that the industrial power of the northern states was far more powerful than the agriculturally based economies of the South. However, the Confederates managed to establish a small navy, and their merchant raiders attacked and sank U.S. ships around the world, causing many shipping companies to experience so much trouble insuring their ships that they sold a large part of their fleets, ensuring that the British retained their control of much of the world’s trade until the 1910s.
After the American Civil War, the westward expansion of the United States saw the country having access to far more land and raw materials than the early settlers could have dreamed of. Railroad companies mapped routes throughout the country, opening up new areas, creating new towns, and conversely also causing the decline in others that were bypassed by the railroads. The boom in railroad shares led to an early stock market boom, with the railroads becoming essential not just for human transport but also used for postal services, transporting cattle, and for raw materials. With migrants flocking to the United States, it was emerging as the largest and most powerful single market in the world.
It was in this climate that many of today’s major U.S. companies had their origins. Global business today is dominated by some of these companies, and also their offshoots—although some have completely changed the focus of their business (and indeed some have changed the entire nature of their business).
In terms of media, the largest media organization in the world, News Corporation (or News Corp), run by Australian expatriate (and now a U.S. citizen) Rupert Murdoch, operates from its headquarters in New York City. Some of the best-known newspapers in the world operate from the major cities of the United States: Boston Globe (founded 1872, circulation 720,000); Chicago Tribune (founded 1847, circulation 1 million); Los Angeles Times (founded 1881, circulation 1.2 million); New York Times (founded 1851, circulation 1.2 million); San Francisco Chronicle (founded 1887, circulation 600,000); St. Louis Post-Dispatch (founded 1878, circulation 350,000); USA Today (founded 1982, circulation 2.3 million); and Washington Post (founded 1877, circulation 1 million). As well as the papers, and the periodicals such as Forbes (founded 1917, circulation 900,000); Fortune (founded 1930, circulation 933,000); Harper’s Bazaar (circulation 750,000); Harper’s Magazine (circulation 200,000); Newsweek (founded 1933; circulation 3.1 million); Time magazine (founded 1923; circulation 4.5 million), and many magazines, there are also the headquarters of the news agencies Associated Press (founded 1848); Bloomberg Business News, the Dow-Jones News Service, and United Press International (founded 1907).
Television stations range from the Public Broadcasting Service (PBS), and Columbia Broadcasting System (CBS) to Ted Turner’s Cable News Network (CNN, launched on June 1, 1980, now a subsidiary of Time Warner), based in Atlanta, Georgia; and Rupert Murdoch’s Fox News (launched in 1996). Many television programs made in the United States are shown around the world, helping to fund their makers, but also spreading U.S. culture, and in recent instances providing opportunities for merchandising products connected with the films. Singers and other entertainers from the United States have also been popular overseas, as have recordings of foreign entertainers in the United States.
The success of U.S. sports players has done much to raise the profile of the United States, with sportswear (often designed in the United States, but made overseas) earning large profits for Nike Inc. (founded in 1972) and other sports manufacturers.
Advances In Communications
In the realm of telecommunications, U.S. companies have led the world in innovation and in their networks. The invention of the telegraph system came largely through the Morse code of Samuel Morse, and Western Union expanded the telegraph system around the United States, with news about developments all over the country communicated to other areas during the American Civil War and the American Indian Wars. Expatriate Scotsman Alexander Graham Bell introduced the telephone in 1876, and the instrument was exhibited at the International Centennial Exhibition at Philadelphia in May 1877; George Coy established the first private telephone exchange in 1878. Initially people were concerned that the telephone service was only duplicating the telegraph service, and elsewhere in the world, some countries tried to limit the money invested in the telephone network, having spent so heavily on the telegraph network. Bell Corporation fought with Western Union, and managed to establish the largest telephone service in the world, exporting its technology around the world.
To give some idea of the advances in the telephone service in the United States—in 1910 the 100 largest hotels in New York had 27,000 telephone lines between them, nearly the same number as in the whole of France only a few years earlier. Bell Atlantic Corporation and BellSouth emerged from Bell Corporation in 1983, with other important telecommunications companies, including AT&T (American Telegraph and Telephone Corporation) and Nynex. And as the service expanded, the production of business directories—the “Yellow Pages”—started in Chicago in 1886 with Reuben H. Donnelly featuring companies listed by the services that they provided. Verizon now controls the publication of numerous telephone directories throughout the United States and overseas.
And with telecommunications, from almost the start of the film industry, the name Hollywood has come to represent the industry with countless films devised and filmed in and around Hollywood, California, where many of the most famous actors and actresses in the world live. Some large film companies have remained independent, but many are now owned by other organizations or have merged. Rupert Murdoch’s takeover of Twentieth-Century Fox saw the incorporation of it into News Corporation as a part of that firm’s desire to have access to Twentieth-Century Fox’s film archives and resources.
The Growth Of U.S. Industry
From World War I, U.S. financial sectors had started to overshadow their counterparts in Britain, and during the economic boom of the 1920s, U.S. banks grew considerably in terms of deposits and capitalization. Bankers’ Trust, Citibank, JPMorgan Chase (from a merger of J. P. Morgan and Chase Manhattan), and Wells Fargo are some of the more well-known names in the banking sector. Many of these operate throughout the United States, although New York remains very much the commercial center of the country. Most major U.S. banks also have operations overseas.
One of the reasons for the predominance of New York is the New York Stock Exchange on Wall Street, the largest stock market in the world in terms of the dollar value of its listed companies. The Chicago Stock Exchange also remains important, as does the Chicago Board Options Exchange, and NASDAQ, which have also proven important for raising capital and investing and speculating in stocks and commodities. And the U.S. financial sector is certainly not limited to banks and exchanges. American Express remains one of the most famous symbols of U.S. capitalism around the world; and VISA (founded in Fresno, California, in 1958) and Mastercard (founded in 1966 by the United California Bank) both have their head offices in the United States.
The food and beverage sectors of the U.S. economy are heavily diversified, and, at one end, rely heavily on agricultural produce. Wheat from the Midwest and rice grown in California are sold around the world. Fruit from the United States is available in Latin America and the Pacific, and U.S. meat products are both consumed locally and exported. However, the most potent symbols of U.S. capitalism in the food and beverage sectors are undoubtedly the soft drinks and fast food outlets. Coca-Cola and its related drinks and Pepsi-Cola and its other beverages can be found all over the world, with the head offices of both— located in Atlanta, Georgia, and Purchase, New York, respectively—jealously guarding the secret formulas used to make the drinks.
Recipes are similarly guarded by McDonalds and KFC (formerly Kentucky Fried Chicken), with Ronald McDonald and Colonel Sanders both becoming well-known icons in their own right. McDonalds and KFC are perhaps the best known of the worldwide franchises, and there are many others, including retail shops and hotels. The purchase of these franchises has been a great source of revenue for the parent company, as is a regular share in their profits. The debate over genetically manipulated (GM) products, many designed by Monsanto, also had its origins in the United States, where many GM products were designed, with many offered for sale overseas.
Manufacturing And Raw Materials
With its wealth of raw materials, the United States is also a major player both in the raw materials themselves and in the value-added produce and the final manufactured products. Coal is still mined in the Appalachian Mountains, and Pittsburgh, Pennsylvania, is still one of the centers of the regional steel industry. Iron and steel were used to help build the railroad system throughout the United States, and also for shipbuilding. The biggest boom was, however, the establishment of the automobile industry with Ford, General Motors, and a number of other automakers and related industries operating from Detroit, Michigan. Gradually, however, with the cost of labor in the United States rising and greater competition from overseas, the U.S. steel industry, its automakers, and its shipbuilding have had to be dramatically curtailed, something exacerbated in 2007 with a considerable decrease in demand. The retail sector, through companies like Wal-Mart, has been relatively strong, although facing problems since 2007.
Tobacco was one of the first exports to Europe from North America, and through the Altria Group (formerly Philip Morris) and British-American Tobacco, the manufacture and sale of cigarettes, cigars, and other tobacco products is still important. But so too is the healthcare sector, with the many of the new “high-tech” medical machines, ranging from modern x-ray machines and scanners to fiber-optic cables and remotely-operated capsules designed in U.S. medical research centers. U.S. doctors are at the forefront of research into treatments for cancer and other diseases and medical conditions, and major U.S. pharmaceutical companies are involved in researching and developing new treatments and drugs.
The focus of much of the U.S. manufacturing industry moved to the more technologically oriented construction of airplanes and defense-related items. Indeed, with the U.S. defense expenditure nearly equaling that of the rest of the world combined, and with much of U.S. weaponry made at home or under license overseas, the military-industrial complex (referred to in his final speech as president by Dwight D. Eisenhower) remains a major element in the U.S. economy. While Boeing makes civilian planes, it has an extensive range of military materiel. Companies like Raytheon have developed some of the most technologically advanced weaponry in the world. Others, like Halliburton—originally an oilfield company established in Texas in 1919—became heavily involved in defense contracts.
New technology has seen the United States at the forefront of the “computer revolution.” With high levels of education, and a very large and affluent middle class to use computers—although they are now used throughout U.S. society—the United States was the center of “high-tech” development initially aimed at the business market and then at private owners. Companies such as Texas Instruments, 3M, and NCR (National Cash Register) started the move, which later saw companies such as IBM (International Business Machines Corporation, founded in 1889) and Apple, Inc. develop personal computers and networks for both large corporations and small businesses. Bill Gates and Microsoft furthered the development of software for everyday use, and helped spur interest in the internet. This, in turn, led to companies such as AltaVista and Yahoo establishing search engines, a market now dominated by Google.
The dominance of this new technology can be seen by the merger of AOL (America Online) with Time Warner (itself a merger of the Time-Life Corporation of Henry Luce with Warner Brothers), to form AOL Time Warner. And it was not long before many companies came to take advantage of the opportunities of the internet, with eBay coming to be the dominant online auction site, and Amazon dominating the sale of books and other items.
Although much of the research into business in the United States is devoted to firms, the movement of labor is also very important. This involves U.S. executives moving to other countries to take positions in U.S. subsidiaries or in non-U.S. companies, and foreign executives moving to the United States. It also relates to the large numbers of migrants who move to the United States each year, an example being the increasing migration from south Asia, with Indian migrants being some of the best-educated communities within the United States—some 64 percent have completed at least one university degree. There are also migrants from lower socioeconomic groups working in low-paid jobs, especially in California and in the Southwest. Many of these migrants (some of whom are also well qualified) arrive from Mexico and Central America.
Trade And The United States
One of the main problems that was faced by U.S. industry was the formation of trading blocs around the world, in particular the European Economic Community, which was renamed the European Union (EU) in 1992. Now consisting of 27 countries from a wide range of climatic and geographical conditions, and with major restrictions on trade with nonmember countries, the United States suddenly found that some of its industry, particularly its agricultural goods, were excluded from one of the largest single markets in the world. This was partly alleviated by the opening up of the economy of China, and also the countries of the former Soviet Union. U.S. predominance was under challenge from the EU, especially with the introduction of the euro in 1999/2002.
To counteract the enlarging EU through the 1990s, in December 1993, the United States helped launch the North American Free Trade Agreement (NAFTA), a move initially unpopular, as parts of the country feared a flood of goods made in Mexico, where manufacturing costs were much lower. In 1989, Asia Pacific Economic Cooperation (APEC) was established to promote trade and investment in the Pacific Basin. This allowed U.S. companies to continue to export to many of the countries in the Pacific, as they had done for a long time, especially to Australia and the more powerful economies of southeast Asia, the countries also being members of the regional grouping the Association of Southeast Asian Nations (ASEAN), which had been established in 1967.
In recent years, the United States has decided to embark on a series of free trade agreements with friendly countries working in a bilateral manner. These include the U.S.-Israel Free Trade Agreement (1985), followed by more bilateral free trade agreements with Jordan in 2001, with Australia, Chile, and Singapore in 2004, with Bahrain, Morocco, and Oman in 2006, and with Peru in 2007. These agreements have allowed the United States to continue to have access to these markets so crucial to developing and expanding its trade around the world.
- Robert G. Albion et al., eds., The Growth of the American Economy: An Introduction to the Economic History of the United States (Prentice Hall, 1944);
- Diana Furchtgott-Roth, Overcoming Barriers to Entrepreneurship in the United States (Lexington Books, 2008);
- Stephan F. Gohmann et al., “Economic Freedom and Service Industry Growth in the United States,” Entrepreneurship Theory and Practice (v.32/5, 2008);
- George Kozmetsky and Piyu Yue, The Economic Transformation of the United States, 1950– 2000: Focusing on the Technological Revolution, the Service Sector Expansion, and the Cultural, Ideological, and Demographic Changes (Purdue University Press, 2005);
- Chad Montrie, Making a Living: Work and Environment in the United States (University of North Carolina Press, 2008);
- Jessica Gordon Nembhard and Ngina Chiteji, Wealth Accumulation & Communities of Color in the United States: Current Issues (University of Michigan Press, 2006);
- David Sandalow, Freedom From Oil: How the Next President Can End the United States’ Oil Addiction (McGraw-Hill, 2008);
- Cornelia J. Strawser et al., Business Statistics of the United States: Patterns of Economic Change (Bernan Press, 2008);
- John H. Wood, A History of Macroeconomic Policy in the United States (Routledge, 2009).
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