US already has a service economy
A former secretary of state warns that a great nation cannot be one in which the principal economic activity is based on fast-food franchises. The head of one of our largest international banks bemoans a service economy where we live by taking each other's laundry. A front page article in the New York Times last year decried the decline of our industrial heartland, where ''Big Mac supplants Big Steel.''
This kind of thinking, done in the sincere search for a cure to our economic problems, casts the underlying change in our economy from primarily industrial to primarily service-oriented in an alarming light. It suggests we should make a fundamental shift in the very nature of our economy.
Virtually every proposal for economic reform begins with the assumption that we are still an industrial economy or that we should be. Yet we have not been one for four decades and are not likely to become one again.
It was in the 1940s that we crossed the threshold to a service economy, where for the first time more than half our work force labored in the service sector. That trend has continued unabated, so that today 7 out of every 10 working Americans gain their livelihood from services. Service activity dominates not only employment but production and foreign trade as well. In 1982, nearly 67 percent of our gross national product was produced by services. And while our merchandise trade deficit looms larger every year, it has until this year been more than offset by a services surplus that has outpaced our goods deficit. In 1982, although the US merchandise deficit swelled 35 percent, to $36 billion, it was still offset by a services surplus in that amount.
For those few who have recognized this economic fact, it is a cause for alarm - not celebration. While understandable, this kind of thinking misunderstands what the service sector is all about. The shift to a service economy is not aptly illustrated by implying we are becoming a nation of ''short-order cooks.'' This assumes that service-industry growth has been largely in industries and occupations associated with low skills and productivity. It ignores the multitude of service-industry workers such as lawyers, doctors, accountants, insurance brokers, bankers, engineers, who work in a variety of service industries ranging from legal service, medical care, and finance to advertising, telecommunications, and insurance.
These kinds of industries, characteristic of an economy increasingly based on the production and utilizaton of information, make up a significant part of the 36 percent increase in service-industry employment in the last decade.
This suggests that the growth of the service sector is not an ominous development but is a beneficial occurrence affirming that the United States has continued maturing into the world's most sophisticated economy. But rather than debating the merits of a service economy, we should accept an economic fact of life: We are a service economy and our policymaking must be predicated on that actuality.
How does our failure to do so throw our efforts to solve our economic problems off track? First, it distorts our understanding of how our economy is faring. Despite being predominantly a service economy, we use economic indicators that are skewed toward manufacturing - new orders for equipment, inventory levels, commodity prices, the average manufacturing workweek.
Second, it leads us down the path of addressing problems through a manufacturing-only eye. We seek to stimulate investment by offering investment tax credits and other incentives that mean little to most services. We try to improve our declining productivity by focusing almost exclusively on the factory floor - yet the majority of our work force spends its days in offices. We decry the invidious systems of agricultural subsidies our farmers encounter in the European Community, but fail to be equally concerned over the barriers our bankers, insurers, lawyers, engineers, and consultants face overseas.
The time to face up to economic reality is overdue. Until we do, we will not solve our economic problems.