The majority of western economies, for the past 20 years, have been converted over to a service based economy. While economists and think-tanks were hired to push this agenda, businessmen and politicians were busy forging international agreements like the WTO to send our goods producing industries oversees, and leaving these western countries like the US with huge gaping holes of trade deficits. Indeed, the assertion that the transition to a service economy is economic progress is very questionable.
Japan’s economy is one that has been steaming ahead since World War 2 yet still keeps a good chunk of its manufacturing industries alongside with “knowledge work.” This is not to say that manufacturing industries do not have thinking people employed within it, it just means that more people in this field are in the business of doing manual labor (engineers, general laborers, etc) compared to the information fields. This brings to light the question of if service jobs could replace manufacturing. Any economist would tell you it is an impossibility because for nations to be wealth producing, they need to produce real things because products like these are harder to displace to another area at moment’s notice like knowledge workers’ job roles can. Without going too far into it, the idea that each country has a comparative advantage is largely a myth, so the idea of a country only specializing in one area is both foolhardy and unworkable due to instability.
According to the WTO’s “World trade in review, 2005″ (p.21), 81 percent of trade among regions of the world is trade in goods, while only 19 percent is trade in services. So if you don’t have any goods to trade, well, what are you going to exchange for other peoples’ goods? In other words, you can’t trade services for all of your goods, at a national level. Basically manufacturing is the life-blood of an economy.
Indeed, what growth there is in the high value-added “knowledge” sectors, such as biotechnology, software development, and information and communications technology goods, simply can not replace the large number of manufacturing jobs have been lost to outsourcing. Also, as mentioned above, these industries are even more susceptible to off shoring due to their nebulous, intangible nature. This brings us to a very good article:
High tech won’t save the economy this time
By Mark Everett Hall of TG Daily
Opinion: In 1982-1983 the economy in the West was battered. Unemployment in the U.S. reached 9.7 percent. The United Nations pegged growth for developed nations around one percent. Stagnation and recession were global conditions.
But in Silicon Valley unemployment was only 7.5 percent. At the time mid-size companies there like Intel, AMD, Apple, and countless others who have since vanished were growing.
In fact, while the rest of the economy slowly crawled out of its hole in the 1980s, tech companies raced ahead.
The first sputtering in the fast-paced high-tech economy appeared with the dot-com bust at the dawn of this century.
After a brief uptick from 2003-2007, the tech sector is again languishing. Unemployment in Silicon Valley topped an unprecedented 12 percent in August and is likely to get worse. IPOs are at dismal levels. Venture capitalists I talk to are in despair.
Yes, yes, there are a few big bright spots – Apple, Cisco, and Google come to mind. But these few giants can’t spur the overall economy. There is no longer a core of mid-size tech companies that drive growth.
Original full article written at TG Daily
What this article doesn’t really mention is that these high tech jobs are increasingly being sent to other countries as we previously stated at the top and that these jobs are easy to relocate at a whim, largely, compared to manufacturing operations.
Also, High tech didn’t save the economy, Reagan did. And now we’ve got the Anti-Reagan in office, literally undoing the good that was done in the Reagan years. One of the important differences today is the lack of proper growth. We do not have an abundance of medium sized companies that grew out of the successes of those early companies and startups. What we have is a couple of giants, and a bunch of floundering smaller companies.