Specialization and Growth in the Services Industry

Specialization and Growth in the Services Industry

Since the Industrial Revolution, the American economy has relied upon its manufacturing industry to breathe life into its economy. The early beginnings started with Andrew Carnegie who had a great impact on the manufacturing of steel, providing required materials to satisfy the building of the railroads. John D. Rockefeller had monopolized the oil industry and Henry Ford had perfected the art of mass production consumption by taking advantage of mass consumption. All of these fields are considered manufacturing operations, and through specialization (the method of producing or pursuing a specific final product by mastering the chain of production; or simply having a natural advantage in resources) had been largely successful. These were years before there were other any legislated antitrust laws to prevent these giant manufacturers from colluding and monopolizing the markets through vertical and horizontal integration.
Years and years later, as the country pulled itself out of the financial meltdown of the Great Depression -with the help of the new federal institutions such as the FDIC, and the Works Progress Administration brought about by Franklin Roosevelt-, World War Two had helped pull the United States onto its feet. This war had kicked the economy in the rear and provided such employment as to surpass the full employment level. The unemployment rate dropped from nearly 10% in 1941, to over half at 4.7% in 1942, and down to just 2% the subsequent year (Slavin). The reason for this was the demand for war supplies in Western Europe and the Pacific. Americans went to work all across the country in factories that had been repurposed to provide essential machinery and equipment for not only American soldiers, but for our allies as well. Government defense spending reached an all-time high, and net exports (the balance between imports and exports) sky-rocketed due to the high demand for war supplies in Great Britain, France, Russia and other allied nations. Millions of men, women and ethnic minorities found themselves a part of the workforce. Between 1939 and 1944, national output of goods and services nearly doubled, while defense spending rose by over 400% (Slavin). The government was forced into rationing food and necessities for Americans, and also instituting price and wage controls to fight possible inflation. At this point during the Second World War the country earned the title of the “Arsenal of Democracy”, turning out roughly 300,000 planes, 100,000 tanks, and 88,000 war ships. During this time America greatly benefited from the mass production techniques outlined by Ford and GM. By specializing in specific production, taking advantage of what is called “economies of scale”.
The possibility of mass consumption allows for mass production, adding into the equation a source of efficient capital and resources; which are the underlying factors of economies of scale. America was rich with resources and led the world in capital (plant and equipment, basically factories and required materials). With the gradual occurrence of suburbanization, federally subsidized interstates, local highways and roads, the manufacturing industry was steady and strong. American auto manufacturers returned to producing cars for the growing class of American suburbanites, as well as becoming the world’s leading auto exporter.
When you compare today’s current import/export sector and that of forty years ago, you will find that as a proportion of our entire GDP it has risen dramatically from ten percent to one-quarter (Slavin). Concern about our rising imports stems from our lack of exports, which has been caused by a flood of cheap goods from countries such as China, offshored manufacturing in China which has diminished our output, and demand for necessities such as oil exported by OPEC (Organization of the Petroleum Exporting Countries). Our balance of trade suffers a deficit of nearly $700 Billion each year; it has been steadily rising since it turned negative in the late 1970s. We have become a nation of consumers and this trend has been also growing due to the increasing prevalent service industry. “The big change in our economy since World War II has been in the service sector, which now produces over half of what consumers buy. Medicare, education, legal and financial services, and entertainment are some of the fields that have grown rapidly in the last five decades.” (Slavin).
There are those who say that America is unable to recover, a great example would be in the 2016 elections, as outlined in Hunt’s article “United States Decline is Campaign Hype, Not Reality”. Making America great again has nothing to do with discrimination and deportation of a potentially vital workforce, as Trump advocates, nor does his military defense card that pulls at the heart strings of die-hard Republicans. The services sector is going to play a major role and is going to be what sustains American jobs for the foreseeable future.
America ranks number two worldwide, in terms of exports (World Atlas). Even as our nation pulls away from its manufacturing sector, with a net loss of nearly 5 million manufacturing jobs over a ten year span from 2000 – 2014 (Scott). Studies by the CES (Current Employment Statistics) program of the BLS (Bureau of Labor Statistics) have shown a drastic decline in manufacturing jobs since 2000 (Scott). America isn’t where it wants to be, but sure is better off than much of the rest of the world is. America continues to transition further into a service based economy; nearly 80% of all jobs are in the services sector (Department for Professional Employers). The scare of offshored jobs may prove to be a part of this trend, as the next generations of American youth take advantage of higher skilled jobs through an abundance of education opportunities; now being offered to those in lower income families as well.
As our mobile app market expands so does the need for the devices in which they are used, and vice versa. Ever since the introduction of marketable applications, having been brought to consumers at the touch of a “button” (touch screen), there has been huge growth in software and electronic devices. This proves how the information services sector is actually creating a demand for electronic devices, not to mention the varieties of technological capabilities being integrated all over as businesses push for higher productivity and to keep up with advanced procedures. Tablets are the next best thing and smart phones have replaced cell phones which used to be a luxury item twenty years ago. Although most of these electronic devices have been manufactured offshore, American companies still make huge profits and their investors and stockholders in America do as well.
Even Steve Jobs and President Obama had mentioned that manufacturing jobs wouldn’t be coming back, they are low skilled cheap labor jobs. We all enjoy a high standard of living because businesses find ways to cut and reduce costs. Apple products, for example, are highly sought after and affordable as well because of lowered input costs. Everybody enjoys the convenience of Face timing with somebody or using Google Maps for directions.
The top five growing industries of 2008-2018 have been in the management, scientific, and technical consulting services; computer systems designs and related services; general local government educational services; nursing and residential care facilities; and finally, in employment services (Department for Professional Employers). According to the DPE, “The 10 occupations with the largest projected growth between 2008 and 2018 are in the service sector. In fact, twenty-nine of the top 30 occupations with the largest growth are in the service sector. The top 30 occupations with the fastest projected growth are in the service sector”.
Some may argue that it is too hard for our country to compete against other countries of which minimum wage requirements are much lower than ours. This is true when it comes to cheap goods, however, our country may specialize in what it excels in, which has been moving towards specialized services. The most competitive industries are in the services sector. America is currently the number one exporter of services, doubling that of the United Kingdom which comes in second.
Information technologies will be integrated further into nearly every possible facet. Examples include the medical field, in which new technologies are being applied to change the landscape of life saving methods used in nearly every medical facility; media and software is constantly evolving thanks to our ever growing computer engineering sector; even the automotive industry. Tesla and Google cars are pushing the boundaries through innovation thanks to American ingenuity. All of these fields require maintenance and future progression through the growing of new skilled jobs, which in effect is helping push American occupations away from the manufacturing sector.
The business cycle, which is made up of recessions, recovery, and expansions has a much greater impact on manufacturing; on the other hand, services are much less sensitive. The Bureau of Labor Statistics has provided very insightful information regarding the manufacturing losses during the first decade of the 21st century. There had been a steady manufacturing workforce of around 16-18 million from 1970 until 2000. From 2000 – 2010 there was a major downturn as China became the world’s largest exporter, gas prices were on the rise, and the Great Recession in which the housing market collapsed causing a huge loss in demand for construction based supplies. By 2014, the manufacturing workforce was at a despicable 12.3 million (Scott).
America needs to find a different angle to spur economic stability, and is doing so. We are on the transition to a generation of specialized jobs as demands increase in the fields mentioned above. The health information technology field is going to be in huge demand for workers because of the aging baby boomer generation and is directly related to the healthcare industry which is among the largest expected for growth. An approximate 78 million elders in need of healthcare in terms of nursing, as well as the technical jobs that will be in demand to maintain evolving medical equipment. According the the BSA (also known as the Software Alliance), during 2007, the software and related services had an annual growth of around 14%, compared to the average 2% in all other U.S. industries.
America will only rise back to its potential through the further growth of skilled services, low skilled manufacturing has found its place overseas. Instead of politicizing what America is lacking, those who care to take pose a stance regarding its economic place in the world need to see the golden opportunities that are taking place and how we can manipulate as well as direct our focus towards growth in the fields we are obviously specializing in. Since few countries will ever be self-sufficient, there needs to be further realization that foreign trade is vital for our economy and that we have our own high paying, and high skilled fields to specialize.

Works Cited

Bank of Dallas, Federal Reserve. “Opportunity Knocks: Selling Our Services to the World”. 2007 Annual Report.
"Software Industry Facts and Figures." BSA.org. The Software Alliance, n.d. Web.

Duhigg, Charles, and Keith Bradsher. "How the U.S. Lost Out on IPhone Work." The New York Times. The New York Times, 21 Jan. 2012. Web. 02 May 2016.

"Exports By Country - 20 Largest Exporting Countries." WorldAtlas. N.p., 27 Oct. 2015. Web. 01 May 2016.

Hunt, Albert R. "U.S. Decline Is Campaign Hype, Not Reality." Bloomberg View. BloombergView, 1 May 2016. Web. 01 May 2016.

Scott, Robert E. "Manufacturing Job Loss: Trade, Not Productivity, Is the Culprit." Economic Policy Institute. Economic Policy Institute, 11 Aug. 2015. Web. 27 Apr. 2016.

"The Service Sector: Projections and Current Stats." Http://dpeaflcio.org/. Department for Professional Employers, 2011. Web.

SHALE GAS AND AMERICAN MANUFACTURING: JOBS, GROWTH AND ECONOMIC DEVELOPMENT. Vital Speeches Of The Day [serial online]. June 2013;79(6):187-190. Available from: Academic Search Premier, Ipswich, MA. Accessed April 27, 2016.

Wadhwa, Vivek. "The Future of America's Manufacturing Sector."Washington Post. The Washington Post, 6 Mar. 2012. Web. 28 Apr. 2016.