Exporting jobs: The bright side

In the IMF’s “World Economic Outlook” I spotted one of the most informative charts I’ve seen in a long time.  As I’ve said before, I like it when someone figures out a way to pack a lot of important information into a small package, and that’s why I yanked the chart out of their report to show it here, a few paragraphs below. 

The popular press has a habit of telling us about all the manufacturing jobs we’re “exporting”—but few of those articles explore what I think is the obvious question: If all those jobs are disappearing, why is unemployment so low? 

The answer is: We are morphing into a service economy, and have been for a long time.  The obsolete manufacturing jobs that have either moved offshore (making blue jeans) or vanished altogether (making buggy whips) are being more than replaced by new service sector jobs.  The reason we hear a lot about the jobs that went away, but very little about new jobs, is because it’s very easy for journalists to track down and interview on video tape those people whose jobs were “exported”—but it is very difficult to find the people who are about to fill all the new jobs being created, largely in the service sector.   

Granted, that does not make it any more pleasant for those whose jobs are going away.  Let’s face it, not many of us relish the prospect of losing our jobs.  On the other hand, most of us expect our standard of living to continue increasing.  But we simply can’t have it both ways.  If we want our standard of living to increase, we have to cope with the churn, the process that creates new jobs, products, and services that displace the old jobs, products, and services.  We in the USA have chosen to emphasize (and cope with) the process of creative destruction; the Euro zone in general has instead chosen to emphasize protecting old jobs.  Many think that’s the primary explanation for the higher growth rate in our region (and I'm one of them).   

Below is the chart from page 10 (Chapter 5) of the IMF report, to which I added the thick blue arrows.  Note that the USA is less industrialized than most other countries on the chart, including Thailand, India, Brazil, Mexico, and Russia.  I bet they’re getting a lot of those manufacturing jobs we’re “exporting.”  But also note one other thing: the USA is the wealthiest economy on the chart.  That’s because we have progressed to a service economy.   [I wonder what the "progressives" think about this progress we've made, even though it required exporting a lot of old jobs...]

What’s the big deal about a service economy, if we’re just a bunch of “hamburger-flippers”?  That was one side’s wisecrack about our “service economy” in a long-ago presidential campaign (Reagan vs Mondale in 1984, to be specific; guess who made the wisecrack). 

Well, I bet the current and future employees of Google would take issue with being called “hamburger-flippers.”  Be sure to read the article titled The Information Factories in Wired Magazine, by George Gilder (...and if you don’t know who George Gilder is, you’d better Google him).  Google is a builder, in a big, big way, and what they are doing in The Dalles, on the Columbia River in Oregon, is a microcosm example of our continuing transformation into a service economy.  (Hint: There's a lot of inexpensive electrical power at that site in Oregon.)

I'm thankful that at least one person (George Gilder) is writing about how our economy is creating new jobs—even though it’s difficult to locate any of those future new employees, to get their big smiles on videotape for the six-o’clock news. 

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End note: 

George Gilder, by the way, is the source of one of my favorite quotes.  Here’s what he said in 1993:

[President Clinton will be] the beneficiary of just the most explosive advance in technology in the history of the human race ... it could engulf his Administration with prosperity in a way that would render many of his adverse policies almost irrelevant ... A boom is most likely.

[Comments are open.]

Comments

[Bret]

I thought the latest luddite like complaints were that we were starting to export service jobs (call centers and software development in India, etc.), no? Worrying about exporting manufacturing jobs is just so last century. :-)

But the chart surprised me a little. That's because I was recently reading an article by Alan Reynolds at Cato (http://www.cato.org/research/articles/reynolds-030831.html) where he quoted various economists saying the US manufacturing had actually been pretty stable as a fraction of GDP for a long time. For example, "manufacturing's share of the U.S. economy, as measured by real GDP, has been stable since the late 1940s..."

I'll have to admit that the IMF's chart makes more intuitive sense though. It doesn't seem like the growth in the service sector could have come completely from agriculture.

[spencer]

Manufactures share of gdp has been constant but because productivity in manufacturing is so strong manufacturing employment has fallen.

Output and employment are two different things.

[Bob]

Until Google starts generating revenue from something other than advertisements, I will hold out any judgement as to whether or not they are actually adding value overall. Granted, the good people in the part of Oregon are seeing a benefit...and that's wondderful for them. But right now Google is nothing more than an online billboard in terms of their business model.

We've been down this road before with the promise of valhalla and information technology. BTW, Steve
I'm surprised that you haven't looked at M2M, something I am very familar with that has all the trappings of another dotcom bust.

I can't argue that we've moved away from infastructure as a driver of the economy. Nevertheless, I will continue to empahsize that unless and until this country develops a framebreaking innnovation that contributes to both our national wealth AND replaces dependence on natural resources vital to our well being, I will remain a pessimist.

I don't like being beholden to anyone for survival. Especially a cartel of tribal barbarians.

Nice note in Gilder's article about building the next server farm in China. Good for China's GDP - not so good for ours.

[Bret]

In my business, the free, instantaneous searches of huge amounts of information performed by Google adds tremendous value. Whether or not Google makes a profit, they create value and wealth for others.

[Richard Edward Noble]

1)From what I have read unemployment statistics are notoriously understated and mis- represented.
2)"Can a great nation provide for its needs by shining each others shoes," asked Geroge Meany. That is a good question and like it or not it looks like we are going to find out.
3)Manufacturing was once 80% of our economy - it is now 20%
4)Service jobs on the whole pay traditionally less with fewer or no benefits than manufacturing.
4) no manufacturing makes providing for the national defence eventually impossible.
5)I last read that even the fast food businesses are now off-shoring to-go duties.
5) Wake up a smell the roses - you people are kidding yourselves.

[Syphax]

"1)From what I have read unemployment statistics are notoriously understated and mis- represented."

This is true... but this doesn't mean much. Unemployment statistics were always overstated, so even if it is "understated" 4.4 is still historically strong and shows that the labor market is strong, not weak.

You talk about the service sector as if all it includes is the people who flip burgers... The service sector includes teachers, lawyers, doctors, pilots, computer programmers, engineers, musicians, writers, reporters etc. etc. Not that manufacturing jobs are lousy or anything... but personally when you want your kid to grow up would you rather he be one of those... or would you rather he work in a factory? Nothing against blue collar workers, but honestly white collar jobs are generally easier, higher paying(I don't know where you got the idea manufacturing jobs pay better than service sector but thats NOT true) and overall better than blue collar ones.

"5)I last read that even the fast food businesses are now off-shoring to-go duties."

The US is expected to lose 10 million jobs to China from 2000 to 2010. Sounds scary... but only if you don't know the facts. 10 million jobs over a decade is a drop in the ocean as far as the US job market goes. We may lose 200 million jobs in a decade but if we gain 230 million we are still creating jobs overall. And finally, companies that outsource actually create more jobs than companies that don't. Think about it, they save so much money overseas, they can afford to expand their business and hire more people here. And lets not forget about all the poor countries we are helping by outsourcing.

[Jon Thompson]

It is not that we are moving to a day when we manufacture nothing, but, just as with agriculture, a day when one percent of the population is all that is required in the manufacturing field to create the material goods of our society. Also, remember that all services help manufacturing in some way, and many in very direct ways. It is not a one or the other situation.

[Bob]

And finally, companies that outsource actually create more jobs than companies that don't. Think about it, they save so much money overseas, they can afford to expand their business and hire more people here.

------------------------------------
That's a hypothesis though I don't see any empirical data backing up the statement. It would be true if the unit costs savings resulted in higher margins that were reinvested in the firm. However, if the savings are used for stock buybacks and no increased R&D then
the firms competitive position could be at risk. My "at a glance"
view is that this stock buyback mania, if you will, may temporarily increase share prices but only at the expense of future innovation.

Micheal Porter, the Harvard competitive strategy guru has recently "come out of the closest" cautioning firms to stop managing the stock price and focus on their competitive differentiation/value proposition.

My take is that his caution is, in a way, similar to what Steve is attempting to convey here. Our government needs to fret less about the debt and concentrate more on how we can leverage our extraordinary borrowing power to improve both our national security
and develop a competitve advantage
to increase our wealth (as measured in GDP for now) as a nation.

Alternative transportation fuel can do both.

[Syphax]

"That's a hypothesis though I don't see any empirical data backing up the statement."

A study by the Tuck School of Business at Dartmouth concluded that companies that outsource generally hire twice as many workers at home as they do overseas.

http://mba.tuck.dartmouth.edu/pages/faculty/matthew
.slaughter/MNE%20Outsourcing%200304.pdf

[Aaron]

I live in Taiwan and work in China a lot.

Industrial jobs do have a few social benefits like keeping large numbers of people with low education levels busy. They also tend over time to suck their supporting service sector jobs over to this side of the Pacific. Now I am seeing large US retailers that have very few Americans actually doing the purchasing, QC, design, etc. They instead have offices in China to do that. It's a bit worrying, but probably natural. The internet is speeding this process up.

That said, factory jobs that we in the USA are losing usually mind numbingly boring and low paying (especially if they have to compete with China.) Operating a press is boring, dirty, and dangerous.

Not only that, industry really is polluting. Visit Shenzhen and then visit the USA or even Taiwan now that we are also losing factory jobs. Quality of life is much better in the non-industrial areas.

Also, for all those critics who think that factory jobs are so great...the kids in Taiwan would rather work at McDonalds or a coffee shop than in a factory...hmmmmmmm.

[R]

nice chart, although I think their use of the term industry is misleading

the most ridiculous recent episode in the "they took r jobs!!" saga was Ford and GM complaining to Bush that currency manipulation was the reason their businesses have failed. expect a bail-out, which is a huge waste for USA and the world, early next year. tax hikes are coming too. Bush isn't satisfied with being hated by the left, apparently. now he wants the right to hate him too!

one other comment in reply to the above post:
"Until Google starts generating revenue from something other than advertisements, I will hold out any judgement as to whether or not they are actually adding value overall. Granted, the good people in the part of Oregon are seeing a benefit...and that's wondderful for them. But right now Google is nothing more than an online billboard in terms of their business model."

you must be joking. i'm no fan of Google, but their search engine does happen to be the most effective way yet devised to sort through the enormous volume of information on the internet. not only do they provide massive value to customers who use their search engine, they also provide cost-effective, easily-quantified, and highly-targetted advertising to every company on Earth. if you want to criticize their horrible business decisions or their Big-Brother-like stranglehold on information go for it, but don't pretend that they don't add value.