In 1973, Daniel Bell wrote a book, “The Coming of Post-Industrial Society,” in which he described how the U.S. economy was transitioning from being manufacturing-based to becoming service-based. He correctly predicted the global diffusion of capital, trade deficits and the relative decline of the manufacturing sector.
Bell also predicted that the importance of blue collar (manual) work would decline, and that technical and professional work, like lawyers and computer programmers, would come to predominate. As well, he asserted that theoretical knowledge would become more important than practical know-how and that health, education and government services would be the most important sectors of the new economy.
Many economists and academics jumped on the “post-industrial” bandwagon and have convinced themselves and most citizens that the transition is a good and inevitable thing. In 2005, The Economist published an article that summarizes the prevailing belief about manufacturing employment. The article, titled Industrial Metamorphosis, carried the following brief description: “Factory jobs are becoming scarce. It’s nothing to worry about.”
In conclusion, the article contends that we can transition to a “post-Industrial” service economy and enjoy continued economic growth:
“Neither manufacturing nor services is inherently better than the other; they are interdependent. Computers are worthless without software writers; a television has no value without programs. The issue is not whether people work in factories or not, but whether they are creating wealth. In developed economies today, telecomm, software, banking and so on can create more wealth than making jeans or trainers. Before long no one will much care whether firms are classified under manufacturing or services. Future prosperity will depend not on how economic activity is labeled, but on economies' ability to innovate and their capacity to adjust.”
Well, we are now in the "post-industrial" economy, and I totally disagree with the view that the loss of manufacturing is nothing to worry about, or that the service economy will continue to create prosperity in America.
The Post-Industrial Myth
It is my contention the “post-industrial” service economy -- especially one that that will provide continued economic growth and enough family wage jobs to sustain current living standards -- is a myth.
In my book, Saving American Manufacturing, I make the case that America must halt the decline of manufacturing, because it will lead to higher unemployment, fewer family-wage jobs and the decline of living standards for most workers. Wages and household income peaked in 1972 when manufacturing was 23% of U.S. GDP. The decline of manufacturing to 12% of GDP has coincided with a steady decline in wage and income levels for most of the middle class.
...there is a lot of evidence to support the notion that middle-class living standards could worsen with the continued decline of manufacturing.
There is no economic evidence to prove that this downward trend will be reversed. However, there is a lot of evidence to support the notion that middle-class living standards could worsen with the continued decline of manufacturing. So when The Economist says there is nothing to worry about, it depends on whether you are in the middle class or part of the credentialed elite.
The real issues that the economists never seem to address is this: What kind of jobs will be created in a "post-industrial" economy? Will there be enough family wage jobs to allow all members of the middle class to raise families? Will the new jobs pay enough to maintain middle-class living standards or to keep the gap between the "haves" and "have-nots" from increasing?
The Data Reveals the Downside of a Post-Industrial Economy
You can find out for yourself by studying the data on the Bureau of Labor Statistics website. Click on the link to "Occupations with the most job growth." Then add all of the jobs with a median annual wage below $40,000; you will find that the BLS projects there will be a total 41,123,000 jobs by 2022, with an average wage of $26,470 per year. Add up the nine fast growing occupations, with wages above $40,000, and you'll get a total of 14,155,000 jobs, with an average wage of $65,735. The problem? The low paying jobs make up 74% of fastest growing occupations.
Further review of this chart shows that Bell was right when he predicted that “technical and professional" occupations, like lawyers and computer programmers, will come to predominate.” The tables show that the wages of software developers, general managers and management analysts are above $80,000 per year -- but these jobs require professional degrees or advanced skill sets.
The creation of enough family-wage jobs is a big issue in our postindustrial society, but it is not the only issue associated with the decline of manufacturing.
7 More Reasons the "Post-Industrial" Economy is a Myth
- Manufacturing Supports Secondary Jobs
Manufacturing stimulates employment in other sectors of the economy at a greater pace than other industries. On average, manufacturing supports 1 in 6 service jobs or 17.4 million other jobs. For each $1.00 spent in manufacturing another $1.32 is added to the economy -- the highest multiplier effect of any economic sector. Obviously, the creation of secondary service jobs will decline with manufacturing.
- Manufacturing Leads Innovation and Technological Development
Manufacturers in the U.S. perform more than 75% of all private-sector research and development. Every politician, including President Obama, says that the key to America’s future growth is to continue to be the leader in innovation. America has led the world with inventions from the atomic bomb and microprocessors to I-phones and the internet. Manufacturing drives more innovation than any other sector of the economy, but our innovation leadership is in danger because multi-national corporations have been sending their R&D overseas. But the point is innovation and technology development comes from manufacturing not the service industries.
- Manufactured Goods -- Not Services -- Drive Global Trade
According to the World Trade Organization, 80% of world trade involves manufactured goods -- only 20% is services. But, with the continued decline of manufacturing and the the unfair use of currency manipulation by many of our trading partners, the U.S. is beginning to lose its place as exporter to the world. U.S. exports have fallen from 13.5% of world exports in 2001 to 10% percent in 2010. There is no chance of increasing our exports or reducing our trade deficit without the growth of manufacturing.
- Manufacturing is Critical to the Nation’s Defense
An article on American defense outsourcing says “the Pentagon has increasingly turned to cheaper and often unreliable foreign parts and weapons technology." The consequence, of course, impacts high-end prime U.S. contracting companies that are forced to seek foreign markets to maintain revenue even if some of their oversea clients and partners are considered war adversaries.
The trend toward foreign suppliers has only increased in recent years. The Defense Department recently revealed that an estimated 80% of all defense components are bought from foreign countries. This pursuit of the cheapest parts for our military systems not only accelerates the manufacturing decline, it puts national security at risk.
- Manufacturing Spurs Strong Infrastructure Development
The 2007 Economic Census on Transportation shows that 80% of all non-agricultural goods hauled by trucks and 80% of all goods hauled by railroads are from mining, processing or manufacturing. The decline of manufacturing will automatically force a reduction in the railroads, trucking, utility and communications industries, as well as a decline of all of the OEMs that supply their equipment. All of these interconnected industries also have good paying jobs with benefits -- and they, too, will decline with manufacturing.
- Manufacturing Leads Capital Investment and Innovation
Manufacturing output has continued to lag that of earlier economic recoveries; and manufacturing capacity remains underutilized. So investment in new plant and equipment, particularly greenfield plants, has declined, which means innovation has also declined.
- Manufacturing is the Foundation of Global Power
After World War II , the U.S. controlled 50% of the world’s manufactured goods. With the rebuilding of Germany, Japan, The Soviet Union and other countries, the U.S. share of global goods has dropped to 10%. We cannot remain a global power as a service economy.
It's Time for Government to Recognize the Truth: Manufacturing is Critical to Sustaining a Strong Economy
Senator Dick Durbin, a Democrat from Illinois, said, "Most Americans have resigned themselves to the loss of the U.S. manufacturing and believe the country can survive on its service jobs. But, China, India and Russia are training large groups of students for the information technology, engineering and other highly trained service jobs.” He adds: "Manufacturing jobs are the best paying jobs in Illinois and once they’re gone there not likely to come back.”
...Real growth in the economy will be driven by making things and investing in continued innovation, not in generating paper or making money from money.
I think that real wealth is created in three ways -- manufacturing, mining and agriculture. After a product has been created, all other transactions seem to be about wealth transfer and interest. Real growth in the economy will be driven by making things and investing in continued innovation, not in generating paper or making money from money.
A recent article in IndustryWeek confirmed that reports from the Congressional Research Service continue to tell legislators that all is well in manufacturing. Perhaps this is the government’s effort to put a positive spin on negative findings, but it is shameful. There is little chance we can come up with a plan to reverse the decline unless we are willing to face the truth and use it as a benchmark.
For the U.S. to retain its position as the No. 1 economy in the world will require discovering new technologies and developing a productive manufacturing base.
Since the year 2000, our average GDP growth has been an anemic 1.8%. We cannot transition to a manufacturing-free, “post–industrial” service economy without enormous problems. We are already faced with declining living standards –- and it could get worse. If we turn our backs now and depend on just the service economy for the future, we will end up a nation of lawyers, baristas, temporary workers and tattoo artists looking for someone to invoice.