Economy: don't prepare for yesterday's war
From remarks to the National Press Club in Washington by the chairman of the board and chief executive officer of American Express Company.
If we fail to take account of today's realities, we may find ourselves behaving like generals preparing for yesterday's war. We are in danger of addressing -- inadequately -- economic problems of the 1980s with assumptions and perceptions of decades past.
Let me be more specific.
In the last few years, we have seen a new slogan rise to importance: Reindustrializing America. Two presidents as different as Jimmy Carter and Ronald Reagan have embraced the idea -- as a way to provide more jobs, to cure productivity problems, and to make America more competitive in world markets.
Of course they are right. We do need more modern plants, better technology, more productive factories. Reindustrialization is necessary - urgently necessary. But it will not be sufficient alone.
Why? Because in recent years our American economy, for the second time in two centuries, has been transformed.
The 19th century, as you know, brought our first great transformation: from an economy dominated by agriculture to one dominated by industry -- by manufacturing and mining.
Now the mid-20th century has brought another transformation -- from an economy driven by manufacturing, mining, and farming to one in which services are centrally important.
What's included in that catch-all term, ''services''? A great deal:
* Your local bank or thrift institution, your insurance agent, stockbroker, lawyer, and doctor, for example.
* Hotels, restaurants, airlines, and railroads are services.
* The exploding information industry -- data processing, software development , news gathering, publishing, and broadcasting are services.
* Advertising, real estate, engineering, retailing, education -- all these belong to the service sector. So does government.
In 1979 -- the latest year for which we have full information -- manufacturing represented 23 percent of our GNP. The farming slice was 3.2 percent; mining, 2.9 percent.
Services, however, constituted 66 percent -- two thirds -- of our economic pie. More than seven out of every 10 American workers are employed in services.
And services are not just important in our domestic economy. Over the past 10 years, our balance of payments in services has been growing steadily - while the balance for goods has been declining. And our trade in services was responsible for the first overall surplus since 1976.
So services are a growing force in world trade. In fact, they now account for 20 percent of all world trade. And the United States is the world's largest exporter of services; last year, for example, from advertising to insurance to health care, our exports amounted to at least $60 billion.
Are service workers productive? Yes. Between 1967 and 1979, for example, productivity in goods increased by 10 percent. Productivity in services, however , increased by 20 percent. This was especially true in information-related businesses because of the revolution in computers and telecommunications.
In spite of this increase in worker productivity, the service industry has been a strong source of new jobs. Job growth in the service sector, in fact, is growing twice as fast as employment in manufacturing.
When it comes to job creation, by the way, it's interesting to consider facts like these: restaurants and hotels are especially important sources of jobs for minorities and women. For both, employment in tourism is high compared to other industries, particularly in our large cities.
But we are not acting at present as if we fully understand what services can mean to our domestic economy and our international trade.
When you think of unemployment, do you think -- first -- of factory unemployment?
When you think of tax depreciation and other incentives for investment in plant and equipment, do you think -- first -- of industrial plant and equipment?
When job training and vocational education are mentioned, do you think -- first -- of training for assembly-line jobs?
If so, you're not alone. Many of our lawmakers and policymakers have been thinking the same way. And so our tax laws, our employment and training programs , our economic policies, our plans to improve productivity simply don't take adequate account of the service industries, of their importance -- and their rich potential -- and of their unique characteristics, especially as they relate to job creation.
If we persist in viewing our economy through that single industrial eye, we will find ourselves misperceiving economic reality. In many respects, it appears that assumptions about the economy and monetary policy are based on an industrial economy rather than a service-dominated economy.
I advocate a total review not only of money supply measures but of all our economic indicators to reflect the economy as it is, not as it was.