Slandering the Service Sector

March 4, 2010

The Great Recession has provided a new opportunity for manufacturing’s partisans to bash America’s service-dominant economy.

Lee A. Warncke, writing in the Connecticut Post, asserts that it’s “time for us, our elected officials and selected economic advisers to wake up to the fact that our mere existence and prosperous survival depends solely on a manufacturing-based economy by which all other economies can survive.”

Warncke’s view is echoed across the ideological spectrum. Liberal pols (U.S. Sen. Byron Dorgan comes to mind) concur. In a December 2008 Playboy piece, Goshen resident Kevin Phillips pined for the 1970s, when “we were still a smokestack and production-line nation.” Plenty of non-NPR-approved voices (e.g., paleocon Patrick J. Buchanan, neocon Michael Savage) agree with the “deindustrialization of America” meme.

They’re all wrong. Spectacularly wrong. The Cato Institute’s Daniel J. Ikenson observes that “the market value of manufactured goods … reached a record-high level in 2007 (the last year for which final data are available), breaking the record set in 2006, which broke the record set in 2005, which broke the record set in 2004.”

“Workers today produce twice as much manufacturing output as their counterparts did in the early 1990s,” notes University of Michigan economist Mark J. Perry, “and three times as much as in the early 1980s, thanks to innovation and advances in technology that have made today’s workers the most productive in history.”

Booming output and soaring productivity are usually considered good things. But not in the Bizarro World created by the “manufacturing is king” lobby. Commensurate with hosannas to a utopian industrial past is a disdain for positions it doesn’t consider “real” work. (“[W]e cannot survive by doing each other’s laundry,” harrumphs Warncke.) In an analysis for the Federal Reserve Bank of Dallas, W. Michael Cox and Richard Alm skewed such blinkered thinking: “If someone manufactures a truck, it’s celebrated, yet if someone hangs on the back of one collecting trash, it’s often denigrated, even though the only real value in a garbage truck is its use in the removal of waste.”

Another specious critique is that service jobs don’t pay well. Again, the facts indicate otherwise. As George Mason University’s Donald J. Boudreaux documented, “In most service sectors, wages exceed those of the manufacturing sector.” Better-paying industries include information, education, finance, transportation/warehousing, construction, and wholesale trade. (Services’ ability to compete on compensation is remarkable, since American manufacturing has migrated toward the top end of the value chain. Shoes, apparel, and toys have indeed gone abroad, but satellites, lasers, and medical devices remain.)

Consider median household income (MHI). With half of U.S. households earning more and half earning less, the metric is a good representation of the typical family’s economic standing.

If the shift toward services -- they now account for nearly 80 percent of the economy -- is pushing America toward “Third World” status, then MHI should be dropping. It isn’t. Between 1988 and 2008, inflation-adjusted MHI grew by 3.5 percent.

That’s not the story in Connecticut, where the same two-decade period saw real MHI fall by 1.8 percent. But don’t pin the Nutmeg State’s sagging prospects on the “loss” of manufacturing. In 1950, the industry accounted for half of all Connecticut employment. (Today it’s 10.5 percent.) The number of manufacturing jobs here peaked in 1967. Even with our present problems, only a fool would claim that Nutmeggers are poorer in 2010 than they were in 1967 or 1950. A more recent combination of higher taxes, unchecked welfarism, public-employee unionism, environmental madness, and NIMBYism run amok are the villains behind Connecticut’s declining standard of living.

Manufacturing isn’t crumbling. It’s transforming into an industry with a shrinking share of workers, but still-impressive output. (One guess as to which country is the world’s largest manufacturer.) The same process occurred in agriculture. It accounts for a barely registerable portion of employment, yet somehow American farms feed much of the nation and the world.

Services continue to generate jobs that are less monotonous, safer, and frequently more lucrative than positions in manufacturing. (Worried about the trade deficit? The U.S. enjoys a surplus in services.)

The service sector didn’t make Washington adopt insane monetary and fiscal policies. It didn’t make people buy houses they couldn’t afford. It’s not to blame for the Great Recession.

A myth-based, government-engineered promotion of the “right” industries offers no route out of our economic quagmire. Manufacturing and services need the same things: sound money, lower taxes, healthcare reform, cheaper energy, regulatory relief, and skilled workers.

Whether your collar is blue or white, we’re all in this together.

D. Dowd Muska is a writer, commentator and lecturer. His website is www.dowdmuska.com.

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