An optimistic view of the 21st-century economy

Walter Russell Mead has been writing a lot about the decline of the New Deal model of governance in the US, and I’ve been linking to some of those posts. In his latest series, “Beyond Blue,” he’s been looking at what could succeed the mid-20th-century cooperation of big government,  big business, and big labor. The latest post looks how the service economy might develop in a post-industrial economy. Mead may be too optimistic about it, but it’s an interesting contrast to the usual pessimism on this subject:

Many of the dystopian fears about the future that lead people to cling to blue model ideas — and the belief that mass manufacturing employment is the only conceivable model that can provide good living standards — are rooted in this concern that the economy is all about the hard stuff. There are fears that we will transition from a world of well paid steelworkers in secure lifetime jobs to a world of baristas and waiters without money, without respect, and without any kind of security or dignity.

Again, this is pretty much what people thought when the family farm was on the ropes.  Without agriculture as the mainstay, America would become a nation of paupers. The dignity and self-reliance of the farmer would be replaced by the dependent, pauperized masses toiling anonymously on the assembly lines. Wages and living standards would precipitously fall; American democracy was at risk, a choir of worried voices proclaimed, as the country split into a small group of capitalist haves and a large group of wage-slave have-nots.

The factory jobs that are now hailed by the nostalgists as bulwarks of working class independence and self respect were once denounced by the farm nostalgists (and the utopian Marxists) as anonymous, soul killing jobs. Outdoor farm work was healthy and life affirming. Factory work was the opposite. Americans wouldn’t just lose their affluence as the farms failed and they moved to the cities, they would lose their dignity and their humanity in the brutal, depersonalized factory environment.

But Americans found pride and dignity in factory work; the blue collar working class found its self confidence, built institutions, organized political movements and effectively defined and fought for its interests.

Much of the work of the 21st century will be in the field of personal service rather than factory work. And at the moment wages for this kind of work are relatively low, as wages in factories were once relatively low. With the old sectors of the economy shedding jobs, there are lots of people chasing all the jobs that open up.

This will change as the new economy grows, as entrepreneurs build new businesses and industries. Indeed the relative cheapness of labor is one of the factors that will help the new sectors grow – just as the cheapness of labor helped manufacturing grow in the past. But market forces will ultimately drive wages up and they are likely to stay that way despite the competition from overseas. Many personal services cannot easily be performed at a distance: your morning frappuccino can’t be made in Guatemala, at least until teleportation technology is ready for prime time.

Some nostalgists talk about the dignity of factory work versus the world of personal service. But is there anything inherently less human or dignified in making and serving coffee than in performing a repetitive movement on a mass production line? Overall, an economy that is based more heavily on people-to-people services will offer more people more fulfilling and fully rounded roles than the old factory system did.

In any case, the new service economy is not just going to be a world of pool boys and pedicurists. It will be a world in which more students get individualized educational counseling from a growing group of education coaches and guides. There will be people who help us manage our technical and information systems: you may have a neighborhood Geek Squad type outfit that not only fixes computers when they go wrong but helps you manage and run all the information-dependent appliances and operations that make your home and life work. More people will work with fitness, nutrition and whole-person health professionals. Many of the services that the very rich enjoy today will be adapted to the needs and the pocketbooks of the middle and lower middle class tomorrow. You may have a life and work coach or agent who helps you manage your ongoing lifetime of learning and recertification as you learn new skills and move into new kinds of work. Many of the consulting services that large companies now have will be available to much smaller enterprises. Busy married couples with two good incomes already live in a cloud of people who help with everything from child care to lawn care; there will be more and more services targeted at this market, and more and more people will earn good livings working with upper income clients who have plenty of money but little time.

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9 thoughts on “An optimistic view of the 21st-century economy

  1. I really like Mead’s optimism and I think he is broadly correct. The overall effect of eliminating jobs because of greater efficiencies raises the standard of living for everyone. It can be very difficult and painful to shift and grow in a new direction, but people will adapt to create value for each other in those new ways, as Mead describes.

    The problem occurs when people attack these harsh realities, not by changing themselves in the way they create value but instead by government fiats which props up inefficiencies and distorts value.

    Of course, greater efficiency is not the only reason why people lose jobs or businesses fail. e.g. manufacturing has migrated away from the US not only because people in other countries are willing to work for less, but because it is unlawful for people in the US to work for less. The government rules and regulations that must be factored into the cost of production in the US seem innumerable and free trade puts the US in competition with other countries.

    The main wrench I see in Mead’s vision is restricting our freedoms beyond practical security. It is no coincidence how prosperity tends to follow such liberty.

    So, we come up against Mead’s premise: how and to what extent will we get beyond the cooperation of big government, big business, and big labor? And what does “big” mean?

  2. I’m glad that you guys liked it. When I said that he was too optimistic, I meant that he was not considering what could go wrong: the kind of restrictions that you talked about, Kevin, or the turning of our current fiscal troubles into a huge crisis.

    But I think that he’s charting the right course. We, and I include myself, have gotten to used to thinking about the “job” as something that has to be waiting for us to get, rather than thinking about what value we can provide through our work. I liked what Doug Wilson says that when the settlers got to Idaho, there weren’t any jobs but there was a lot of work.

  3. Whether one is a farm worker or a manufacturer, one is still taking raw materials and adding value to them. I don’t see a service economy adding nearly as much value. Even if it were theoretically possible, given the other issues this culture has, I I think people who say that a service economy will succeed are fooling themselves. No economy based on the labor of uneducated, unskilled people working 8 hour days can succeed. Given our 30% dropout rate and our 50% under 30 illegitimacy rate, we can’t expect our future “middle class” to be nearly as wealthy as our current one. It has neither the educational system nor the family environment to turn the raw human potential into productive energy and lift those service jobs into the well-paid category in numbers anywhere near what would be required to maintain our accustomed standard of living. Even *if* theoretically possible, service jobs will remain in the menial jobs category because people possess neither the work habits nor the education to make the jobs more than that.

  4. I agree with you, Doug, and your first sentence describes the essentials beautifully.

    I think the subdivision of adding or creating value into sectors can harm communication and understanding, but that terminology is at issue here, so I’ll define the basic sectors roughly as: (1) raw material acquisition, (2) manufacturing more complex products from those raw materials, and (3) services, including customization of those products.

    I think Mead is basically saying that fewer people are needed at the lower sectors because automation and other efficiencies make them unnecessary, and that this is a good thing and should not be opposed, because it reduces costs and lifts everyone’s wealth as a result. I don’t think Mead is specifically focused on the US but rather on this general economic trend.

    So, Mead is not saying that countries should move to a service economy, rather he’s saying that it is happening naturally and that it is a good thing.

    However, you are focused on the US in particular and its _relative_ wealth and status, and I share your concerns. As I mentioned in my comment above, new efficiencies are not the only reason for a reduction of manufacturing jobs in the US. Moreover, governments distort the value of their currencies (e.g. the US and China) for various reasons, which complicates matters.

  5. Doug and Kevin, I think that those are valid concerns as well. I also wonder if we have the adaptability to switch to that model. It will be demanding to ask more people to become entrepreneurial in a more complex way than ever by finding market niches that they can fill. As you noted, Doug, the institutions of family and education are struggling, and these would be two important ingredients in getting people ready for this new environment.

    Here’s Mead’s next installment, where he talks more about jobs in this new model:
    http://blogs.the-american-interest.com/wrm/2012/02/20/beyond-blue-5-jobs-jobs-jobs/

  6. Kevin, I think you and I have a very different definition of a service economy, and probably mine needs to be more expansive. I’ve always viewed typical service jobs as jobs like retail, barbers, etc. which are low paying with low training requirements and which people are forced into when higher paying jobs that require higher skill levels (e.g., manufacuturing) get eliminated.

    I can see how manufacturing employment would decline with increasing productivity and automation. Is that a primary driver of the recent decline? I’m skeptical still.

    When I read Mead’s description of where the job market is headed, I see some of that now in information sectors. However, I think the vast majority of people are entirely incapable of navigating a system in which they contract their services out to multiple companies at the same time. The overhead and management skills necessary for such a setup are inefficient relative to working full time for one company. Also, I think his description of the uphill battles the self-employed face are somewhat exaggerated. For instance, sure, the self-employed have to pay both employee and employer portions of their taxes, but so do corporations ultimately. It is the same tax system for payroll taxes no matter the company size. I see no competitive advantage for a large corporation in that area whatsoever.

    1. I actually had to look up Service Economy and Tertiary sector to define them. 🙂 It just struck me that you and Mead were talking about somewhat different things. If someone said to me that they work in the “service industry”, I’d interpret it the same way you define it. I’ve even read articles that similarly confuse these definitions as they compare statistics.

      Doug wrote: “I can see how manufacturing employment would decline with increasing productivity and automation. Is that a primary driver of the recent decline? I’m skeptical still.

      Yeah, it is hard to measure. I think the vast improvement of technology has made the effects of terrible policies bearable and less visible (such as inflation).

      Doug wrote: “It is the same tax system for payroll taxes no matter the company size. I see no competitive advantage for a large corporation in that area whatsoever.

      Yeah, it seems that Meade was misusing the payroll tax as an example, but I agree with his point that large corporations not only have a big advantage in tackling more complex laws and regulations due to the economies of scale, they also have an advantage in influencing laws and policy that specifically benefits them. e.g. cities that attract large corporations by promising lower taxes not only increase their tax base, they also give the corp an unfair competitive advantage, stifling competition and making the city more dependent upon large corporations.

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