Actually, manufacturing, as a percentage
of U.S. GDP, has been pretty flat since 1947. The difference is that it
takes many fewer people to do it. Just like agriculture.
You can only eat so much food. So, as agricultural productivity
increased, it took fewer and fewer people to make plenty of food. All
those former agriculturalists needed a new profession. They became
factory workers. This was a good thing, because now we had not only
food, we had food plus the output of the factory workers. We became
Maybe you can only consume so many goods. We've certainly done our
best. As manufacturing productivity increases, it takes fewer and fewer
people to make goods. All those former factory workers now need new
jobs. An economy is "goods and services." So, if you aren't going to
make goods, you can make ("perform") services.
Many "goods producing" industries are not even categorized as
"manufacturing." The main "goods" being produced are buildings and
urban infrastructure (roadways, parking lots etc.).
Let's try to imagine an economy -- a lifestyle -- that is much less
goods-intensive than Suburban Hell, and much more service-intensive.
I think it helps to imagine economies in the form of "lifestyles."
That's what an economy is -- the means of producing the "lifestyle."
Let's imagine a sort of idealized Traditional City urban lifestyle. You
live in an apartment which is modest by Suburban Hell standards --
let's say 600-1200 square feet. You don't own a car, but use the ample
and wonderfully efficient train system. (Occasionally, you might rent a
car for a weekend.) You don't have a yard, or a media room, or a guest
bedroom, or a breakfast nook, or an exercise room, or an attic,
basement, garage and so forth, so your needs for home furnishings are
much less. Since you have only one modest living room to decorate, you
have high quality artworks and artisan-quality home furnishings.
Your utility consumption is much less, because you only need to heat a
modest, well insulated space, not a huge McMansion. Your closet
has a modestly-sized collection of artisan-quality clothing, rather
than three hundred t-shirts from HMV.
There are a couple things going on here. First, your consumption of
material things is obviously much, much less than the typical resident
of Suburban Hell. However, each thing is rather nicer, what I call
"artisan-quality." In turn, this means that we can have an economy of
artisans, of small-scale craft, rather than huge sweatshops churning
out bottom-quality junk.
If you aren't spending your money on stuff, what are you spending your
money on? Services! Vacation and travel, restaurants, clubs, music and
theater, cafes, day spas, personal trainers, therapists, education and
training, and so forth.
These are typical services. We can note a few things. First, they are
almost completely non-material. The primary "resource consumption" for
these services is mostly commercial real estate -- a place for the
service to happen. Second, they can expand to almost infinite degree in money terms
. For example, the
services rendered to Eliot Spitzer just before he became the former
governor of New York were apparently billed at around $5,000 an hour.
Spitzer apparently preferred to spend his money in this fashion rather
than buying 2,000 t-shirts from Old Navy on sale, or burning up 2,000
gallons of gasoline cruising across the landscape with a Corvette.
However, we see that these services had almost no resource component.
We can also see that the scope of expansion of these (and many other)
serivces is practically unlimited. There are no resource constraints
when you don't use any resources.
We have another emerging theme here: that of quality
instead of quantitiy
. One of the themes of the
age of Heroic Materialism has been quantity over quality. There was no
lack of quality during the preceding 18th century period. Their
craftsmanship was outstanding. Their architecture was sublime. There
just wasn't very much of it. Only aristocrats could enjoy these things.
A great many people had almost nothing at all. An idea from the Heroic
Materialist age was that of the "standard of living." The "standard of
living" consisted almost entirely of quantity
-- things like washing machines per capita, that sort of thing. Now
even very poor people have washing machines. We have so many washing
machines, that people throw out perfectly functional ones just so they
can buy one that looks a little better. You can get washing machines
for free, or nearly so.
However, the service economy is more about quality
. For example, a person
working all day can make hamburgers at McDonalds, or they can make
wonderful food at a nice restaurant. The wonderful food costs a lot
more. It has higher value
However, there is about the same amount of it, or perhaps less. The
path of "growth" in the service economy is less quantity
and more quality
. This is the opposite
of the typical manufacturing pattern, which is less quality (or at
least a lower price for the same quality) and more quantity. The
typical path of "growth" in manufacturing has been more stuff
at a cheaper price
, which not only has
natural resource issues, but exacerbates them.
You can think of an economy as a big pile of goods and services. The
bigger you make your pile, the wealthier the economy. Even bonehead
academic economists agree that economic development and wealth is
related to productivity.
can't consume goods and services unless you have the ability to make
Let's take an economy of ten farmers. Farming productivity is low, so
it takes lots of farmers to make enough food to feed everyone. They
don't have a lot of material goods, because there's nobody to make
them. Presumably they hack together some rudimentary shelter in their
free time left over from farming. Their pile is very small. (However,
they may have abundance
because their perceived needs are very small too.)
Then, farming productivity increases. Now there are three farmers and
seven manufacturers. The pile is bigger now, because it has the
products of farmers and manufacturers.
Then, manufacturing productivity increases. Now there are two farmers,
three manufacturers, and five service providers. The pile is bigger
yet, because it has the products of farmers and manufacturers and
The "size of the pile" is GDP. It is not the physical size of the pile,
but the money size. The money size is roughly goods/services (quantity)
X price per goods/service (quality).
Thus we can see that if we make things of higher quality, the pile
"gets bigger." In money-market-economy terms, "quality" is generally
indicated by "price." A Hyundai Elantra and a Mercedes SL500 are
virtually identical in physical/resource terms. The difference is
Let's go back to our farmers. As the Industrial Revolution progressed,
and agricultural productivity increased, fewer and fewer farmers were
needed (at least as a percentage of population) to make food. This is
"unemployment," more or less. The farmers ended up in factories or
other urban pursuits, and the cities grew.
We consider this something of a success, particularly during the
1950-1960 period, because there were "good, high-paying factory jobs."
Where did the factories come from? They came from capital investment.
The difference between a "high-paying factory job" for a former farmer,
and a job pushing a broom, is capital investment. During the Industrial
Age, this capital was invested in factories. The increasing
productivity of manufacturing was achieved by mechanization
. This is where the
high wage came from. A single workman could make a whole lot of stuff
because of high productivity. The revenue-per-employee was high. This
is different from low-paid sweatshop labor, where there is low capital
investment, and the revenue-per-worker is low.
It doesn't take a genius to figure out that jobs which are exposed to
low-wage foreign competition are at risk. Most better-paid jobs in the
U.S. are the ones that are non-exportable, either because of
geographical issues or because of technology/skillset issues.
Manufacturing employment is struggling in the U.S. because of the
cheap foreign imports -- first -- and second because those industries
where the U.S. has a competitive advantage (mostly complex capital
goods) are also experiencing productivity increases, so it takes fewer
people to create the same output.
The path toward high-paying service jobs is also capital investment.
When the revenue-per-employee is high, then employee wages are also
Doctors get paid more than home nursing helpers. This is because
doctors have more capital investment (medical school), and are thus
able to produce services of higher value. Capital investment in the
service economy often takes the form of education and training, not the
creation of some giant machine to make manufactured products. Lots of
service economy occupations are in things like hotels, restaurants,
cafes, bars, clubs etc. Just think of how much money the typical urban
dweller can spend in these places. (I think many urban dwellers can
spend half their income in this way.) It doesn't have to be technical
training like a doctor. We all know the difference between a good
restaurant and a bad one, or a good bar and a bad one, or a good hotel
and a bad one. The best are much more expensive than the worst. What is
the difference between them? The physical building itself is a biggie.
A fine hotel is defined not so much by the skills of the staff, but
rather the building. Also, a nice restaurant usually has excellent
decor. Thus, one way toward "greater productivity" in services is not
"investing in a big machine," but rather "investing in really great
architecture/decor." The result of investing in architecture/decor is
the same in the service economy as investing in a big machine is for
the manufacturing economy. You end up with higher revenue-per-worker,
or higher productivity. The end result (the hotel service) is better,
and thus more valuable.
There are many other services where education and training are the
primary "capital investment." Marriage counselors, divorce lawyers,
accountants, interior decorators, yoga instructors, musicians and other
and educators of various sorts. Just think of what services you spend
In all economies, "growth" tends to be related to capital investment.
You invest capital to become more productive. This is often a
hit-or-miss affair, but on balance the result is increasing
productivitiy. Without this capital -- in a capital-starved economy --
you tend to have lots of low productivity, low-wage jobs. In
manufacturing, this is the "sweatshop." In the service economy, it is
low-wage broom-pusher/landscaping/big box retail/burgerflipper type
jobs. With this capital, you have high productivity, high wage jobs.
The Capital/Labor Ratio
As more and more of the labor pool is absorbed by these
high-productivity, high-wage jobs, wages for low productivity jobs can
also increase to the extent that the
available labor is constrained
. Somebody has to clean the
toilets. If there's nobody who wants to do it -- because they have lots
of education and training, and thus other options -- then wages have to
rise until someone
eventually volunteers to clean the toilet. You can't export
toilet-cleaning to India. However, if immigration policies etc. result
in an abundance of available labor for these low-productivity unskilled
jobs, then wages will remain low.
Sometimes, purveyors of low-wage labor say that they need immigrants
because "Americans won't do these jobs." Americans would be happy to do
those jobs, at the right price. I guarantee there would be plenty of
Americans happy to pick oranges at $35/hour.
Thus, the path toward a successful service economy is much the same as
the path towards a successful manufacturing economy -- lots of capital
investment. Instead of factories, machines and automation, the service
economy tends toward architecture and decor, and education and training.
Many "sustainability" types casually equate the "economy" with resource
use, in a sort of 1:1 ratio. A growing economy must consume more
resources, and less resources means a shrinking economy. Actually, a
growing economy means that the goods and services being produced have a
has nothing to do with resources. That's why I say that we could have
an economy based on performing arts, if that's what we spent our money
on. We would have a "performing arts lifestyle," and an economy to
produce this lifestyle. Instead of building and maintaining Suburban
Hell, we would be directing our productive capabilities toward
performing arts. Maybe it would be like the Romans and their baths. We
would take every
afternoon off, and go listen to live music. Instead of spending our
income on houses and cars, we would spend it on performances. If our
"productivity" increased -- if we had better
performances per performer -- then we would have "economic growth,"
with no resource use. How would we arrive at this "better performance"?
Perhaps through education and traininig -- in other words, capital
We have one farmer, two "manufacturers," one construction person, two
service people, and four performers.
Our "pile" of goods and services would be 40% performing arts. This is
rather fanciful, but it helps to get people out of the "resource
dependency" mindset. Think of it like a lifestyle. If you have an
eco-friendly lifestyle, then you would have an eco-friendly economy. If
you managed to improve your lifestyle -- whatever that means to you
you would have "economic improvement," or "economic growth."