July 6, 2022

How the US Economy Lost Its Independence

In 1984, John Naisbitt, in his best-selling book Megatrends, said that Third World countries would take over manufacturing, and the U.S. would happily transition to a service economy where most people would work in service jobs rather than work with their hands. His prediction was prophetic. Today there are 135 million service workers versus 13 million manufacturing workers.

Many economists and academics jumped on the “post-industrial service” bandwagon and convinced themselves and most citizens that the transition was a good and inevitable thing. In 2005, The Economist published an article that summarizes the prevailing belief about manufacturing employment. The article, titled “Industrial Metamorphosis,” described the following briefly: “Factory jobs are becoming scarce. It’s nothing to worry about.”

So, when The Economist says there is nothing to worry about, it depends on whether you have a college degree and an excellent chance to claw your way into the credentialed elite. But if you are among the 56% of all workers who have a high-school diploma or less, you may be struggling to make ends meet. Millions of workers in this category feel something is wrong in the post-industrial economy and are gloomy about their future.

Opposite view of many economists, the smooth transition to the service economy has become a very rough road and has created many losers. Unlike in Europe, in America, the government does little to take care of the losers.

A 40-Year Decline

Over the last four decades, multinational corporations decided that it was in the best interest of their shareholders to move jobs and production to low-cost foreign countries. Under the flag of the free market, the public found out that there was no loyalty to the United States. Instead of trying to protect American industries and slow down the rush to low-cost countries, the only absolute commitment was to the short-term interests of their shareholders.

Shortages

With the COVID-19 pandemic, America woke up to the fact that we had outsourced our PPE and critical medicines. Most citizens didn’t know that we now totally depend on countries like China and India to supply most of our drugs and pharmaceuticals. We are dependent on China for 90% of our antibiotics and half of our generic medicines. Shortages include drugs such as morphine, dopamine, lidocaine and even the contrast dye used to install stents in blocked arteries.

Innovation

Everyone agrees that America can only compete globally with a strategy of innovation. But with a shrinking manufacturing sector, it begs the obvious question, “How can we do this if we continue to lose the industrial commons?” More importantly, research and development are crucial to innovation and new technology, and 70% of all R&D comes from manufacturing, not service.

Will the Service Economy Create Enough Good Jobs?

The real issue that the economists never seem to address is this: What kind of jobs will be created in a post-industrial economy? Will there be enough family-wage jobs to allow all middle-class members to raise families? Will the new jobs pay enough to maintain middle-class living standards?

The Job Quality Index

A new economic indicator called the U.S. Private Sector Job Quality Index (JQI) shows that the economy has produced a lot of jobs. Still, they are increasing “low-quality” service jobs. 

The Weakening Trend

The fact that the U.S. economy has shifted, creating more bad jobs than good jobs does not bode well for those workers in the middle class with a high-school diploma or less. Someone with a high-school diploma who loses a manufacturing job will likely find a job in one of the following industries, according to the Bureau of Labor Statistics

• Leisure and hospitality 
• Administration and support
• Retail
• Warehousing and transportation
  
  Twenty dollars per hour is only $38,400 per year, so if you are one of the 41 million people who must work in these service industries, attaining the American Dream may be problematic