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Manufacturing vs Service-Based Economies | Who Wins?
When you see an abandoned, derelict factory, what do you think? For example, drive past the Packard Plant in Detroit, Michigan, and you will find an empty shell of a building. You wouldn’t recognise that this factory was actually one of the most crucial and significant factories in American motor history. Abandoned in 1999, the factory was built in 1911, meaning it survived for a mere 88 years (although, its business peaked decades prior to this). Once upon a time, the city of Detroit was the beating heart of the US economy; now, it is a ghost town. Doesn’t this show you the utter cruelty of American capitalism?
If you live in the developed world, this sort of thing is a common sight. Media stories portray this as the decline domestic industry. You might start to think that manufacturing is dead in the developed world, and that it is saved especially for developing countries. However, you’d be incorrect to a degree. It is quite easy to misread statistics.
The Abandoned Packard Plant - Detroit, Michigan
While fewer people may be employed in these industries in the past, it doesn’t necessarily mean there is less industry. The manufacturing industries have also gained efficiency over the previous few decades.
Our policymakers continually suggest that we should move our economies away from manufacturing and towards service-based and knowledge-based economies (known as the tertiary and quaternary sectors). But would this move be a good idea?
The IT sector has grown over the last few decades, but we should not entirely depend on this sector for a future growth.
Data suggests the service sector’s productivity growth is slow compared with manufacturing. This makes sense because manufacturing is becoming more and more automated, whereas services are generally human-based. For example, going to a pop concert cannot really be done in less time, because its quality would be heavily compromised. However, one could argue that you could get more done in the same time e.g. a better quality show, more theatrics and stage technology.
Truth be told, this sector still has limited potential for productivity growth, unlike manufacturing which is responsible for the creation of more goods for an ever-growing population.
The knowledge economy (quaternary sector) relies on the creation and dispersion of information. It’s suggested that the knowledge economy has huge growth potential. But can this be debated?
It’s true, the internet has led to massive improvements in communication. We can get messages across to each other more quickly, which means we are more likely to communicate using the internet.
However, the telegraph (developed in the 1830s and 1840s by Samuel Morse and other inventors) revolutionised communication more-so than the internet did. The telegraph reduced the speed it took to pass messages from an average of 2 weeks to 7.5 minutes. This is an improvement by factor of 2,500.
The internet, on the other hand, only improved efficiency from 10 seconds (from fax machines) to 2 seconds; this means an improvement by factor 5.
There are some holes in this argument, because not everybody owned a telegraph (nor did they have the skills and training) to communicate with other people. The internet, however, is accessed by computing devices, be it stationed or mobile, and more people are able to use it effectively. But those computers and smartphones still have to be produced somewhere, don’t they?
This is why it is important that a country does not plan to eliminate its manufacturing-based sectors.
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