Editors' Summary

The brookings panel on Economic Activity held its seventy-third conference in Washington, D.C., on April 4 and 5, 2002. This issue of Brookings Papers on Economic Activity includes the papers and discussions presented at the conference. The first paper investigates the origins and features of the economic boom in Ireland during the 1990s, including the country's rapid employment growth and apparent productivity miracle. The second paper analyzes changes in male unemployment and labor force participation in the United States over the last four decades, and, focusing on the 1990s, shows that declining participation rates, especially for less-skilled men, clouded their otherwise improving labor market conditions. The third paper studies the interaction of firms' investments in information technology with their investments in intangible assets such as organizational structure, and the effect of these joint investments on firms' market value. A report in this issue assesses the recent U.S. recession and its ongoing recovery, reevaluates the current system for identifying recessions, and considers the outlook for corporate profits and equities markets. The issue concludes with a symposium on new international arrangements for distressed sovereign debtors. The first of the three symposium papers argues that the problem should be addressed by replacing official lending to developing countries with aid, forswearing multilateral bailouts of troubled debtors, and placing jurisdiction over private debt disputes in the national courts of the debtor. The second calls for broad forgiveness of the debts of the poorest and most heavily indebted countries in the context of efforts to achieve recently agreed-upon international development goals. The third symposium paper evaluates ideas for a new sovereign bankruptcy arrangement within the threefold broad objectives of bankruptcy arrangements in general, namely, preventing a destructive race to seize the debtor's assets, forestalling creditors from delaying restructuring, and allowing the debtor to make a fresh start.

Ireland's economic performance in the 1990s has been described as a miracle, and for understandable reasons. Early in the decade Ireland ranked twenty-second among the world's nations in output per capita, but by the end of the decade it had risen to ninth. Between 1993 and 2000, annual GDP growth averaged 9.3 percent and employment growth averaged 4.8 percent. These gains contrasted sharply with the economic problems and lackluster performance of the preceding two decades, during which unemployment rose above 15 percent, the current account deficit grew to unsustainable levels, and government debt was rising so rapidly that many observers feared a fiscal crisis. In the first paper of this issue, Patrick Honohan and Brendan Walsh analyze the Irish experience and identify a number of developments that help in understanding the boom of the 1990s. In doing so they correct the impression that Ireland has achieved far more rapid productivity growth than conventional models would predict. They point out that, although the employment gains of the boom period have been remarkable, the recorded gains in output exaggerate what actually happened. Under their accounting of output, no productivity miracle has accompanied Ireland's employment gains.

Honohan and Walsh divide the recent decades of Irish economic performance into three episodes. The first, which established the initial conditions for the sea change in performance that followed, started in the mid-1970s, when a period of gradual growth was interrupted by the inflation and recessions triggered by the two oil price shocks. Fiscal and monetary policy turned aggressively expansionary in 1977, when a new government came to power in the midst of rising unemployment and growing labor unrest. When the government changed hands again in 1981, after the second oil price shock, annual inflation had reached 21 percent, unemployment had climbed to double digits, and the fiscal path appeared unsustainable, with the deficit at almost 15 percent of GDP. For the next several years, under a series of insecure coalition governments, public services and income support programs were maintained as unemployment continued to rise. Taxes were raised repeatedly, increasing government revenue to almost 40 percent of GDP, up from 28 percent at the start of the 1980s. Nonetheless, government debt continued to grow faster than GDP. The second episode started in 1987, when a new government...