One thing that’s clear from all the back-and-forth on the economy is that lots of people aren’t letting themselves get too worried about the decline of manufacturing industries. A conspicuously large number of economists and thinkers are surprisingly confident about the future, and their confidence reflects faith in what is called the “service sector,” which now accounts for seven out of every ten American jobs. The logic of the optimism suggests that factory closings, while painful, are really just part of an inevitable readjustment to a new, better, more competitive economy based on services and information.
The distinction between goods and services can be blurry, but it’s important to keep the rough outlines in mind. Goods involve the production of things: cars, food, steel, oil, silicon chips. Services can supplement production—the computer mechanic who fixes the assembly unit, the wholesaler who brings food to market—but their aim is generally less to make items than to attend to them.
An even larger part of the service economy is attending to people, from waiting on them in restaurants, hotels, and department stores to caring for them in hospitals and doing their legal and accounting work. Then there is the supplying of information, preferably through the use of computers, which now seems to be the most glamorous part of the service industry.
In the U.S. the trend away from goods and toward the service sector is unquestionable. Between 1970 and 1978, the total American labor force grew only 18 percent, but the number of managers and administrators grew 58 percent; health administrators, 118 percent; public officials, 76 percent; bankers, 83 percent; and systems analysts, 84 percent. In 1980, for the first time, the Japanese, with an economy still half our size, produced more crude steel, more cars and trucks, and spent more on new factories, machines, and tools than we did.
The trend for the 1980s is clear. Projections by the Bureau of Labor Statistics show that the occupation with the largest percentage increase in the next ten years will be “paralegal personnel,” which is expected to grow by a remarkable 108.9 percent. “Data processing machine mechanics” is just behind. Further down the list of top 20 growth jobs are food service workers, tax preparers, corrections officials, travel agents, nurse’s aides, and, still in the top group, economists (a 42 percent increase), who presumably will keep us apprised of how the transformation is coming along. Engineers, by contrast, are not even on the charts. During the 1970s, they increased a paltry three percent.
One statistic from a labor department study illustrates the transformation in a particularly striking way. In an employment category called “eating and drinking places,” the increase in employment since 1973 is greater than the total employment in the automobile and steel industries combined. Conventions have been another great growth area. According to the International Association of Convention and Visitor Bureaus, 43 million Americans—or one out of five—went overnight to a convention in 1981. The total number of conventions grew sixfold between 1970 and 1981, from 5,000 to almost 60,000. One of the most revealing figures is that the average stay for a convention is 3.8 nights, which means that, including travel time, a whole week of work can be consumed in colloquia, golfing, and other pleasures.
Is reliance on all this for the future strength of the U.S. economy sensible? A lot of respectable opinion apparently thinks so. Bill Moyers of CBS recently quoted with approval the words of James Robinson, president of Shearson/ American Express, who gives speeches around the country touting the glorious future of the service and information age. And Sen. Gary Hart seems to agree. “The Information Revolution does not depend on finite resources such as iron, coal, copper, and oil, which powered the Industrial Revolution,” Hart says. “It is driven by the inexhaustible ability to generate knowledge.”
“It is important not to get depressed about the latest gloomy business statistics, which are strictly industrial-based measures of economic wellbeing,” John Naisbitt writes in Megatrends, a new book that neatly summarizes all of the polly-annaish thinking on this subject. Echoing Daniel Bell’s “post-industrial society,” Naisbitt notes that “in an information society—for the first time in civilization—the game is people interacting with other people. This increases personal transactions geometrically; that is, all forms of interactive communication: telephone calls, checks written, memos, messages, letters, and more.” What’s so wonderful about all of this, he concludes, is that it will mean “an economy based on a strategic resource that is not only renewable but self-generating.”
On Her Majesty’s Service
Perhaps Robinson, Hart, and Naisbitt are right. Perhaps unemployed steel workers (or their children) can sit at computer terminals making American Express travel arrangements for a convention of paralegal personnel, systems analysts, and economists with a taste for McDonald’s hamburgers.
Or is there a possibility, even conceding that the steelworker can adapt to the computer, that he will end up sitting at a terminal making reservations for a convention hall that is bankrupt? In other words, if everyone is in the service economy, who is going to be in the producing economy making the money to pay for the services? Must something more concrete, somewhere down the line, stand behind the services, assuring that they are at least vaguely redeemable in the production of a good?
Mark Twain, for one, thought so, observing once that no group of people can prosper “taking in each other’s washing.” And the experience of England is instructive. A hundred years ago, Britain ruled not only the seas but the world’s service sector. Working for the Bank of England, Lloyds of London, and other mercantilist services seemed to the turn-of-the-century Englishman to hold a far more attractive future than managing one of the grimy steel mills of Birmingham. But as Martin Weiner explains in English Culture and the Decline of the Industrial Spirit, 1850- 1980, Britain’s economic woes of recent years can in some ways be attributed to this growing sense that attractive, “clean” careers could somehow be disconnected from industrialization. What he calls the “gentrification of the industrialist” is instructive. Once young Englishmen lost interest in making things, the British lost their industrial base to the United States and Germany. And once that happened, its services also shriveled service sector. Working for the Bank of England, Lloyds of London, and other mercantilist services seemed to the turn-of-the-century Englishman to hold a far more attractive future than managing one of the grimy steel mills of Birmingham.
But as Martin Weiner explains in English Culture and the Decline of the Industrial Spirit, 1850- 1980, Britain’s economic woes of recent years can in some ways be attributed to this growing sense that attractive, “clean” careers could somehow be disconnected from industrialization. What he calls the “gentrification of the industrialist” is instructive. Once young Englishmen lost interest in making things, the British lost their industrial base to the United States and Germany. And once that happened, its services also shriveled.
Mark Twain once observed that no group of people can prosper “taking in each other’s washing.”
In the last two decades, America’s most highly talented college graduates also have tended to pursue careers—in finance, law, accounting, and so forth—where their hands have stayed clean and their lives have stayed unchallenged by entrepreneurial risk. Why have productive companies been so willing to pay for the enormous expansion of these services? In part because most company managers nowadays also prefer to avoid risk. They usually don’t own the businesses they work for, which makes them fearful of making decisions that might upset shareholders or others to whom they are now accountable. The best way for the cautious manager to insulate himself is to contract out for consultants, legal counsel, and other services that can bolster his internal position. “Confronted with the choice between safety and maximum growth, the[y] . . . opted for safety,” Weiner writes of our models in this matter, the British.
If Britain’s service-sector dominance evaporated along with its industrial advantage, will the same thing happen to us? The evidence is not conclusive, but The Wall Street Journal reports a decline in the convention business this year, in some cases by as much as 50 percent. Indeed, The Washington Post says that the new Washington convention center, scheduled to open in early 1983 and originally projected to increase the number of Washington visitors by 325,000, now expects only 110,000 conventioneers next year.
This is completely logical; unemployed autoworkers are going out to dinner less and strapped companies are making do with fewer consulting contracts. Consider the practice of law in Washington, D.C. After years of smugly assuming that the expansion of legal work was immune to anything but an earthquake at the corner of 17th and K Streets, many of the city’s lawyers finally are learning just how dependent they are on their client’s prosperity. If he suffers—at least if he suffers a lot—so do they.
All of this is not meant to suggest that the service sector has a dim future; on the contrary, services, particularly information suppliers, will continue to help employ people and bolster exports. But for the economy as a whole, the issue is the old eggs-in-one-basket problem. Too much reliance on any one asset can be dangerous.
When we became too dependent on OPEC for oil, they blackmailed us. Other, countries or groups of countries we have come to depend on for manufactured goods may follow OPEC’s example. This is a contingency we can ignore only at our peril. Other nations don’t ignore it. Is it possible, for instance, that the Japanese determination to maintain some agricultural production is not simply a cynical sellout to a special interest group but the reflection of something else as well? Perhaps it’s a reasonable desire to preserve some measure of self-sufficiency, to avoid complete dependence on others.
The same point applies to national defense. No basic industry means eventually no capacity to threaten a long, conventional war. In the strange psychology of strategic doctrine, the only alternative might be a short war that does not put a strain on resources. Short wars, where few conventional weapons exist, are more likely to be nuclear. Again, the issue is flexibility.
Transactional Analysis
Perhaps the greatest danger of the service economy is the misleading sense of economic growth it gives. Executives of American Express tell congressional committees or anyone else who will listen that between 1967 and 1979 productivity in services increased twice as much as productivity in goods. But how is productivity in services measured?
Take banking, where productivity was once determined by the total volume of deposits on hand, thus reflecting how much capital the bank was helping form. Now productivity in that industry is being measured (by the Bureau of Labor Statistics) through a formula involving the total number of transactions completed.
The problem with this approach is that a transaction is neutral. A bank transaction, legal brief, clever tax return, or Telex message might aid economic growth; then again, it might not. Transactions do not distinguish between rearranging existing assets—re-slicing the economic pie, as Robert Reich puts it—and expanding the economic activity the country so desperately needs. A lawyer who drafts documents to smooth the way for the construction of a new building is aiding production; a lawyer who gums up the process in court for a client seeking paper profits is not. When a real estate broker makes possible the building of a new house, his service is productive; when he sells an old one, it isn’t. Ditto a stockbroker with a new stock issue and a banker with commercial loans. Do their actions radiate growth out into the economy or just rearrange? The worth of particular services can be determined by the answer to that sometimes difficult question. But their “productivity” is measured without regard to that worth.
This is a disturbing development for American business, because to be socially and economically desirable, services should be a genuine adjunct to productive activity—computer-aided design, for instance, or a strategy that creates new business, or a loan for a new plant. When the goal (conscious or not) is simply to make money off paper transactions that don’t create any new wealth for society, then we should rethink the worth of some of these services.
The point here is that placing too much faith in the potential of services and information might limit our productivity and flexibility in ways that many visionaries of the new age have not considered. Maybe Americans really can maintain their standards of living by writing memos and interfacing all day instead of making things. But the evidence of the last 15 years of economic performance—the same years that saw the rise of the service sector—suggests that it’s too slim a reed on which to depend. The sooner we accept that reality and move to preserve and improve industrial capacity, the healthier our services—and our economy itself—will become.
