Freeman

ARTICLE

The Senseless Slander of Services

JULY 01, 1988 by RUSSELL SHANNON

Professor Shannon teaches in the Economics Department, Clemson University.

People who urge an expanded role for government in our economy certainly deserve an award for persistence! When one of their arguments collapses, they relentlessly erect another.

Over the past few years, for example, there has been much ado about our emerging “rust belt.” Often due to the pressures of foreign competition, many manufacturing facilities have closed. Widespread calls have rung out for government intervention in the form of “industrial policies” and trade barriers against imported goods.

By and large, however, we seem to have suffered only a temporary setback. As measured by the Federal Reserve Board’s index of industrial production, manufacturing output is now well above the peak achieved in 1979 just prior to the recession of the early 1980s. Of particular importance is the fact that, over the past two years, the falling exchange value of the U.S. dollar has spurred our export industries.

However, alarmists still complain that employment in manufacturing remains well below the 21 million workers who had jobs in that sector in 1979. But they ignore the fact that the unemployment rate for the economy as a whole is falling, and the overall employment rate has reached unprecedented levels. Apparently, these displaced workers are finding jobs, many of them in the service industries. We thus are continuing a trend which originally shifted workers from farms to factories: output in both agriculture and manufacturing continues to rise while employment falls, due to impressive gains in productivity.

Yet critics of laissez faire still are not content. Now they scoff that soon we may all be flipping hamburgers or pumping gas. But the service sector does not deserve such derision. It encompasses far more than fast-food restaurants and service stations. After all, this category includes medical personnel, teachers, journalists, lawyers, and entertainers, among many others. And not only are many of these service jobs crucial to our welfare and culture; they also quite likely provide far more satisfaction and fulfillment than one can find in the drudgery of hanging left front doors on an endless assembly line of automobiles, or in filling empty boxes with shoes.

Even the derision often directed at jobs in fast-food businesses is misguided. Writing in the August 3!, 1987, issue of Fortune magazine, Jeffrey Campbell, an executive vice president at Pillsbury, pointed out that such jobs can be “a very large port of entry for disadvantaged young people into the mainstream of the American economy.” And he can back up his statement with facts: “A lot of our managers started in hourly paid jobs. Two regional vice presidents in our Burger King division rose from jobs behind the broiler without college degrees.”

What’s more, William Johnston of the Hudson Institute has discovered, as a result of a careful statistical analysis, that the shift to services can be a boon to economic stability. Because “employment and production in service industries are more stable than in the goods economy,” he writes in the December 10, 1987, Wall Street Journal, we are less likely to suffer the pains of economic recession. People may be able to postpone buying a new car or refrigerator if times get bad, but they are not so apt to cut back on services. Thus, they are more likely to maintain demand and, as a result, employment.

There has been great interest of late about perestroika (restructuring) in the Soviet Union. Quite obviously, our economy is experiencing its own restructuring. Would it not be ironic—even tragic—if, at the same time, the government of the Soviet Union restructures its economy by attempting to reduce centralized control, we foolishly were to go in the opposite direction?

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July 1988

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Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
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