The U.S. has suffered a sharp decline in manufacturing jobs but not manufacturing output. Between 1989 and 2019, U.S. manufacturing output increased 54%, but manufacturing employment fell 30%, mainly since 2000. This phenomenon is due primarily to productivity enhancing technological change but also competition from China and globalization of production.
Services account for 70% of world GDP, and have become the world’s largest employer (3.2 billion jobs). As the source of most new jobs, the services sector has created an impact on our work and daily lives as dramatic as the industrial revolution 150 years ago.
The numbers are impressive, but the revolution is more than just numbers of workers or share of GDP. More significant is that all businesses — small and large — and all segments of the economy, including agriculture, manufacturing and energy, depend on services to succeed, especially if they are to plug into supply chains that predominate in international trade.
Manufacturing jobs depend on services in accounting, finance, product design, distribution and logistics,advertising, computer-related services and telecommunications to get the manufacturing done.
At the center of the Services Revolution is the Digital Revolution, of which the internet is emblematic. The internet is the Great Silk Road of the 21st century. Just as the Great Silk Road provided the transmission for trade between Asia, Europe and North Africa during the 6th thru 14th centuries, the internet today enables services to be delivered digitally across borders globally to a degree unimaginable even 20 years ago.
The ability of companies to move data digitally across the globe for their internal operations and to serve their customers is crucial. Think of insurance firms processing claims, express delivery companies tracking packages across the globe or an airline company remotely monitoring its engines in flight. The services and digital revolutions allow retailers to manage worldwide procurement and inventory, and health professionals to seek second opinions from specialists across the globe.
The digital economy demands fewer “muscle jobs” and more “brain jobs.” This is where most job growth is occurring. These skill requirements across the economy are outpacing supply, and preparing people for these new skills is a challenge, and is especially difficult for displaced manufacturing workers.
If you don’t know where you’re going, you might end up somewhere else.Yogi Berra
The integration of services with manufacturing and agriculture produces global supply chains, in which enterprises and countries specialize in tasks rather than goods. An example from Bloomberg News starts with a capacitator imported from Asia to a circuit board manufacturer in Michigan, which sends both to Mexico for assembly in a bonded facility. It then goes back to Texas and then to Matamoros into a seat actuator, which goes to a seat plant in Ontario. The seat then is shipped to a GM auto assembly plant in Texas.
An estimated 80% of world trade moves through similar global supply chains.
Any successful trade policy must start from a recognition of these four realities. Otherwise we will, as Yogi warned, “make too many wrong mistakes.
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