(This passage is excerpted from material published in a1997.)

    Whereas United States economic productivity grew at an annual rate of 3 percent from 1945 to 1965,it has grown at an annual rate of only about 1 percent since the early 1970's. What might be preventing higher productivity growth? Clearly, the manufacturing sector of the economy cannot be blamed. Since1980, productivity improvements in manufacturing have moved the United States from a position of acute decline in manufacturing to one of world prominence. Manufacturing, however, constitutes a relatively small proportion of the economy. In 1992, goods-producing businesses employed only 19.1 percent of American workers, whereas service-producing businesses employed 70 percent. Although the service sector has grown since the late 1970's, its productivity growth has declined.

    Several explanations have been offered for this decline and for the discrepancy in productivity growth between the manufacturing and service sectors. One is that traditional measures fail to reflect service-sector productivity growth because it has been concentrated in improved quality of services. Yet traditional measures of manufacturing productivity have shown significant increases despite the under measurement of quality, where as service productivity has continued to stagnate. Others argue that since the 1970's, manufacturing workers, faced with strong foreign competition, have learned to work more efficiently in order to keep their jobs in the United States, but service workers, who are typically under less global competitive pressure, have not. However, the pressure on manufacturing workers in the United States to work more efficiently has generally been overstated, often for political reasons. In fact, while some manufacturing jobs have been lost due to foreign competition, many more have been lost simply because of slow growth in demand for manufactured goods.

    Yet another explanation blames the federal budget deficit: if it were lower, interest rates would be lower too, thereby increasing investment in the development of new technologies, which would spur productivity growth in the service sector. There is, however, no dearth of technological resources; rather, managers in the service sector fail to take advantage of widely available skills and machines. High productivity growth levels attained by leading-edge service companies indicate that service-sector managers who wisely implement available technology and choose skillful workers can significantly improve their companies' productivity. The culprits for service-sector productivity stagnation are the forces-such as corporate takeovers and unnecessary governmental regulation-that distract managers from the task of making optimal use of available resources.

    By the sixteenth century, the Incas of South America ruled an empire that extended along the Pacific coast and Andean highlands from what is now Ecuador to central Chile. While most of the Incas were self-sufficient agriculturists, the inhabitants of the highland basins above 9,000 feet were constrained by the kinds of crops they could cultivate. Whereas 95 percent of the principal Andean food crops can be cultivated below 3,000 feet, only 20 percent reproduce readily above 9,000 feet. Given this unequal resource distribution, highland Incas needed access to the products of lower, warmer climatic zones in order to enlarge the variety and quantity of their foodstuffs. In most of the preindustrial world, the problem of different resource distribution was resolved by long-distance trade networks over which the end consumer exercised little control. Although the peoples of the Andean highlands participated in such networks, they relied primarily on the maintenance of autonomous production forces in as many ecological zones as possible. The commodities produced in these zones were extracted, processed, and transported entirely by members of a single group.

    This strategy of direct access to a maximum number of ecological zones by a single group is called vertical economy. Even today, one can see Andean communities maintaining use rights simultaneously to pasturelands above 12,000 feet, to potato fields in basins over 9,000 feet, and to plots of warm-land crops in regions below 6,000 feet. This strategy has two principal variations. The first is "compressed verticality," in which a single village resides in a location that permits easy access to closely located ecological zones. Different crop zones or pasturelands are located within a few days walk of the parent community. Community members may reside temporarily in one of the lower zones to manage the extraction of products unavailable in the homeland. In the second variation, called the "vertical archipelago," the village exploits resources in widely dispersed locations, constituting a series of independent production "islands." In certain pre-Columbian Inca societies, groups were sent from the home territory to establish permanent satellite communities or colonies in distant tropical forests or coastal locations. There the colonists grew crops and extracted products for their wn use and for transshipment back to their high-altitude compatriots. In contrast to the compressed verticality system, in this system, ommodities rather than people circulated through the archipelago.