Posts Tagged ‘economy’

A surfeit of services.

datePosted on 09:23, September 17th, 2012 by Pablo

My yearly sojourns to the US provide a regular opportunity to garner a snapshot of the state of the union, at least from my limited perspective. This year I returned to my old stomping grounds in the desert southwest and to the home away from home in South Florida. After a wet monsoon season the desert was lush and the 360 degree skies saturated with cumulus, cirrus and stratus cloud. It was great to hear Norteno music and Spanglish spoken in the street.

My son joined my partner and I for a trip to the old mining town of Bisbee, where we stayed at the haunted Copper Queen (est. circa 1880) and had a long night on the town that ended up in some biker/metalhead dive bar. It was great. I highly recommend the Arizona desert to New Zealanders interested in a dramatic contrast in landscapes and Western cultures.

South Florida has been less pleasant. There is a palpable tension in the air marked by hostile attitudes and unbelievably aggressive, to the point of criminally reckless, driving. The region is known for its fast pace and shallow materialism, but in this trip there is something darker about it. Some of this can be attributed to the election campaign, in which some of the local attack ads are truly astounding in their ferocity and disregard for decency (the issue is large: one-third of the US Senate, the entire US House of Representatives, and most local offices are in play). There is a buffoon Republican named Alan West running for the US Senate, and his ads make the Swiftboat and Willie Horton attack ads look tame. He says nothing about what he proposes and spends most of his time defaming his Democrat opponent. Seeing that Romney is set to lose the presidential race, the right wing talkback and television outlets have ratcheted up the hysteria and vitriol to the point that even John Stewart or Stephen Colbert cannot parody them adequately. In a word, the place is nuts.

This condition of political anomie may be compounding the sense of frustration and anger felt by an increasingly divided–the word “polarized” does not do justice to the chasm between the US right and left–polity that more than anything else is diffident in its regard for politics. Both the Republican and Democratic conventions were not as well attended and not as widely viewed by TV audiences as in previous years, and it appears that the election abstention rate is going to be very high this year. People appear to be cynical, bitter and lacking in hope for the future regardless of who wins in November. All in all, this is the sorriest state of mind I have found the US to be in since my move to NZ fifteen years ago.

That is the backdrop to the subject of this post. As readers will know, the focus of the 2012 US election begins and ends with the economy. Platitudes are proffered and panaceas are prescribed. Words like “competitiveness” and “innovation” are bandied about like lollies. But there seems to be a fundamental misunderstanding of a root cause of the American economic malaise: its reliance on services.

The US is a country dominated by the service sector rather than true productive enterprise. Think of the variety of services now on offer: wealth and asset managers; financial advisors; PR and other “communications strategists;” personal trainers; life coaches (of which there are half a million in the US); pain management specialists (aka pill doctors); landscapers; floral designers; escorts; private alarm and security companies; fishing, hunting and tour guides; real estate agents; internet and in-store movie suppliers; credit card purveyors; nail and hair “artists;” wedding planners; a zillion types of mental health counselors and ambulance chasing lawyers; insurers; car, cat and dog groomers; dog walkers; bird, cat, dog and horse whisperers; DJs; car valets; (for-profit) drug and alcohol rehabbers; tennis instructors; beauty consultants; fashion stylists; liposuction specialists; motivational speakers; management and risk consultants; self-help gurus; personal assistants and agents, accountants; home delivery services; website designers–the list is as varied as it is endless. While one might argue that all retail sales are a service, my point is that in the US the extent of service provision is on its way to infinite, and this infinite progression dominates its economy.

The basic problem of reliance on services as the core of economic activity is that making money through facilitation is not equivalent to being productive. Nor is working hard synonymous with productivity. Americans work the longest hours and take the shortest vacations of all OECD countries. By that standard they should be light-years ahead of the democratic capitalist world in terms of real productivity. But they are not. That is because hard work and income earned in services does not, in the larger scheme of things, add real value to productivity. It may make the national quality of life better, but it does not advance the overall condition of the productive apparatus. It is the economic equivalent of silver–it is nice and attractive, very malleable, easy to buy, wear and replace, but is no substitute for the economic iron required to build and progress a nation.

What is noteworthy about the US service sector is that, at over 75 percent and growing, it is steadily occupying a bigger and bigger percentage of the national GDP (agriculture is less than 2 percent and manufacturing is at 20 percent). The creative genius involved in the proliferation of services is matched by its relentless rent-seeking: in South Florida television ads are dominated by ambulance chasers (who prefer the term “personal injury lawyers”), pill-pushers and geriatric care providers who offer relief and compensation for a myriad of ills previously unheard of or for which personal responsibility used to suffice.

The majority of US college graduates, be they from two or four year colleges, receive degrees in areas other than science or engineering (business, education and liberal arts degrees are the majority of those granted in the US). Since the bulk of undergraduates do not go on to graduate school, this leaves a labor pool full of people who cannot actually produce or add value to anything other than by virtue of their slick talk and quick uptake on the job. Since most people coming out of US universities and colleges are neither particularly articulate or quick on the uptake, their default option is to join the legion of personal service providers.

No that all services are of the silver variety. Some of these are important, such as electricians, plumbers, carpenters, doctors, firefighters, police and lifeguards (I shall defer from elaborating on the public versus private aspects of the service sector, but note that what are considered public services are basically considered to be core functions of government, many of which are being privatized and downsized in the current fiscal environment). Many services are linked via supply chains to the manufacturing and research sectors. Others, such as the information technology services that spawned Google, Facebook and Twitter, create wealth but do not always really produce anything tangible or contributory to the value-added project (which in part explains the lukewarm stock market reaction to the Facebook public stock float). The vast majority of US services are, needless to say, even less contributory to the national productive apparatus.

The critical and deleterious aspect of the services domination of the US economy is that it is moving the country away from the production of real value added assets, much of which is increasingly monopolized in terms of ownership anyway. Add to that the overwhelming influence of the financial service sector, and what is left is a country that buys more than it makes (and what it makes are increasingly capital goods as much as consumer durables and non-durables), and in which people increasingly use services rather than do things or rely on themselves.

The social division of labor created by service sector dominance in the US appears to produce two distinct cultural characteristics. First–and this is very evident in South Florida and a subject that I have addressed in previous posts–is a culture of blame-assignment and responsibility-shifting where nobody is personally accountable for the consequences of their actions. Even hardened criminals commonly use the excuse that their teachers, counselors and psychiatrists failed them in the lead-up to their crimes, and in many instances this suffices to mitigate their culpability and reduce their sentences. They are not alone in this. In fact, there is an entire service industry comprised of counselors, insurers and lawyers that profits from shifting blame and responsibility, criminal or not.

The second aspect is the increasing compartmentalization and personalization of service work, which in turn produces an erosion of horizontal solidarities brought about by common insertion in the productive process. Much of the service sector is characterized by individual entrepreneurial or material pursuits. The individualization of service work, often aided by stay-at-home technologies that facilitate the rendering of such services, removes the associational and emotive ties that are part of the working experience in mass productive enterprise. This atomizes and alienates individuals as social subjects, as their material fortunes no longer depend on common identifications and sense of purpose (which occurs whether the workforce is organized or not precisely because it is a collective enterprise).

Social group associations, service group size and individual immersion in non-work related collective undertakings such as sports and churches mitigate against a complete return to survivalist alienation, but they do not fully overcome the dissociative effects of the nature of service provision. The effect of this is to reduce the ties that bind people together, which helps explain the turn to shifting blame and responsibility onto others.

Needless to say, I am only extrapolating from what I am seeing in the US during my limited time here. I recognize that generalizations are fraught and speculation based on fraught and fragmentary generalizations are to be suspected. So take this appraisal as an opinion, nothing more. Moreover, the US remains the largest national economy in the world, the largest trading nation, and the largest manufacturing economy. Its information technology, robotics, telecommunications and aerospace industries are world leaders. Its automobile and construction sectors are on the rebound. It is by no means weak in spite of what I have outlined above.

Even so, the trend is disturbing (at least for those with an interest in the US). For small countries not intent on projecting power or devoid of natural and human resources, reliance on services as the mainstay of the economy is acceptable if not advisable. Competitive advantage in services may counterweight a lack of comparative advantage in productive resources.

However, it seems to me that if a large, militarily aggressive country with a global reach relies on services as its engine of economic growth rather than on value-added production, than it will find it increasingly difficult to hold the its position over time. I might be wrong and, like (but better than) the USSR, the US can continue to ride on the production associated with an immense military-industrial corporate complex that spins off technological innovation and civilian applications as a matter of course even as the overall presence of value-added manufacturing as a component of GDP decreases. But if that is the case, it seems a risky proposition for sustained growth and global prominence given that an increasing percentage of the inputs to that type of production are derived from external rather than internal sources.

Meanwhile the life coaches continue to facilitate personal self-realization, realtors hustle properties, lawyers litigate and asset managers channel money made from services into other services. Wall Street and Washington both believe that ongoing reliance on services for economic growth is sustainable and desirable. In broad economic terms, that is like equating a merry-go-round with a wheel. It is that merry-go-round that Obama, Romney and other US politicians are trying to fix.

Cthulhu economics

datePosted on 15:42, August 9th, 2010 by Lew

From the star-touched genius of Lyndon Hood, with reference to the government position on the trans-Tasman wage gap: The Calculator of Cthulhu.

L