- Politics and Social Issues
Service Economy vs Manufacturing Economy
Answer these questions before we continue. . .view quiz statistics
Overlooking Economic Fundamentals: Service vs Manufacturing
If you answered manufacturing, you would have a lot of company, but you would be incorrect. The fact of the matter is service occupations have existed long before manufacturing was ever conceived. You'll have to excuse my lack of political correctness here: Prostitution, one of the world's eldest professions, would be an example of a service. A courier, messenger, or delivery person has existed since the time people needed to communicate vast distances. This too is an example of a service. Taxes have existed long before the production line was ever constructed, your tax man is doing a service.
Most trades that have existed for thousands of years could be classified as services as well. Trades such as bakers, blacksmiths, potters and jewelcrafters. While such trades did have a production component in the individual craftsman that was but a small part of the actual business. They had to take the time to individually sell and market their products. They also had to spend a lot of energy performing customer service. While making the individual product was probably what the artisan enjoyed most, unfortunately the reality of the situation back then was it only made up 25% of the business. 75% of the business that was done by the tradesmen would fall under the service category.
With but the few examples I've given of human industrial history, we're already starting to see the definitions between a service economy and a manufacturing economy are convoluted at best, or pure nonsense at worse. In fact, I would go on to argue that by manufacturing a product your providing a valuable service to the individual who needs that product. In that respect, all probable employment would fall into the category of a service economy.
However, even if we were to take the definition of a manufacturing economy at face value. That the definition being an economy based upon the mass production of products. We must understand that throughout human history our economies have been mostly agrarian/service or manufacturing/service, with service work leading the head count. A majority manufacturing economy was all but a brief moment in human history, mostly represented by just a single nation: America, from the mid 19th century to the mid 20th century. Service industries have predominantly ruled the economy across all lands since humanity came to existence. So the fact that America is by and large moving to a service economy is certainly nothing new, I would argue it's returning to something old. Perhaps that is the fear, many see that as regression, but understand that even in manufacturing power houses such as China, the majority of their employment is still in services.
So Are People Who Whine Over Manufacturing In America Just Making Noise?
Yes and no.
While many who lament over America's manufacturing woes may not understand the implications of what they're discussing. Indeed, one could argue that there is no such concept as a service economy vs a manufacturing economy. They do inadvertently have a point that a strong manufacturing base is necessary to remain competitive in a global economy. It's this point that brings me to the second question that you were posed on the quiz.
Does a global economy lower the demand for manufacturing? If you answered yes, while you may once again be in good company, you would be wrong. A global economy increases demand for manufacturing simply because there are more probable buyers for the products that you choose to manufacture. While the demand for manufacturing in America has gone down, world wide it has gone up. This is an important dynamic in the global economy, because it's ultimately what determines wealth generation of a given nation. Buyers of manufactured products abroad represent money coming into your country that you otherwise couldn't get domestically. There is no way to lose selling stuff abroad. Everything is a surplus.
A strictly services economy has its limits. For starters, you can only serve one person at a given time, meaning you cannot advance production through technological improvements. Technological improvements in manufacturing can vastly increase profit margins that are just not possible in a service industry.
Another limit to service industries is the money being exchanged is for the most part done domestically. Meaning a country with a limited manufacturing base isn't taking any advantage of the global economy. All the trading is being done in house, meaning the amount of wealth being generated is limited to what the country is domestically capable of producing.
The final, and perhaps most gruesome reality, of a strictly services economy is it can only produce as many jobs as people. It's impossible to have more jobs than people with an economy that is 100% services without a manufacturing component. The reason for this is simple, because the economy would be strictly domestic, the economy would naturally only grow to the size to meet the populace.
Now, if we were to add in a manufacturing component that involved several million potential buyers from other nations, then the economy would naturally have to expand to meet the demand of the million additional buyers. In such a situation we would then have more jobs than people. This is an economic boom and a good deal for everyday citizens. Because there are more jobs than people, wages go up. It's good for the government as well due to additional tax revenue. When employers discover they can't possibly fill all the positions with the current labour pool, they then start investing into technology and labour. They invest heavily into a person so they can perform two jobs instead of one, and that person's wages go up even further. That person will become better skilled and productive. Employers will have to innovate better technologies to increase the productivity in workers, and they'll need to hire yet more people to create such technologies. The end result being is wages go up, skills go up, tax revenue goes up, and everyone gets richer. All of this is made possible because we gave room for a manufacturing base that allowed the market to expand beyond the nation's current population. It goes without saying that success begets success. What starts a chain reaction of success in a global economy is in manufacturing and its associated exports. While manufacturing jobs may not come across as the most glamourous or highest paying, they're the seed that makes a booming economy possible.
Without manufacturing, an economy can only hope to stagnant or weaken. There will always be just as many people as jobs or more people than jobs. What neo-Libertarians, such as the likes of John Stossel, fail to realize is that America's trade deficit is a big deal. Indeed, the concept of a trade deficit is vastly misunderstood. America doesn't owe China a pile of money because it bought more from China than China bought from America. A trade deficit is often misinterpreted as debt. In this respect, Stossel is right, a trade deficit isn't debt. However, a trade deficit isn't a stat that should be easily dismissed. What America's vast trade deficit represents are lost opportunity costs. In other words, America's vast trade deficit represents what America could have made had they matched the level of exports from other countries. Americans are essentially pissing away the opportunity to have trillions of dollars in the near future by condescendingly demeaning and devaluing a manufacturing base.
Economic recovery will only become possible in America if they can come up with at least three respectable products to sell to the world that people will want. American politicians, businesses, and ordinary people will need to do some serious thinking as to what exactly these products will be and how they can go about constructing industries around them. Ben Bernanke seems to think printing a pile of money and devaluing the currency will magically sprout manufacturing jobs from the ground. Selling key products that are the envy of the entire world that everyone wants will take hard work and vision. It isn't something that can be loosely financially managed or manipulated.
If Manufacturing Is So Great, Why Not Make The Economy 100% Manufacturing?
This rebuttal of a question explains the difficult tight rope to walk that is balancing manufacturing industries and service industries in a given country. Ideally, you want to have as few manufacturing industries as possible, while still maintaining healthy economic growth.
Manufacturing is what allows economic growth, but manufacturing has huge side effects in environmental degradation and lowering the quality of living in human beings. In laymen’s terms, manufacturing increases the quantity and expansion in your economy, while service increases the quality and human lifestyle in your economy. On the flip side, manufacturing lowers the quality and human lifestyle in your economy, while service contracts growth and expansion in your economy.
If we were to have a 100% manufacturing economy, we would be living in a cesspool and die under the age of thirty, but our GDP would look great on paper. On the other hand, if we have a 100% service economy, it may look pretty at first, but without growth we'll essentially slowly dissolve into an agrarian and de-industrialized society (this is what is currently happening). Manufacturing is necessary for growth. America will have to make some sacrifices. Most likely whatever dwindling real estate land values you're currently experiencing will have to go down even further because some heavy industry will have to move closer to a town near you.
-Donovan D. Westhaver
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