Today the challenge is to shift workers out of manufacturing into services ?

[chene]

Sectoral Imbalances and Long Run Crises - Joseph E. Stiglitz

Today the challenge is to shift workers out of manufacturing into services. This will have to be done globally. But globalization has made the global economy especially sensitive to shifting comparative advantages. In the shift from agriculture to manufacturing, the US continued to be a strong producer of agricultural goods, even as employment diminished, simply because there was an abundance of one of the critical factors, productive land. That may happen in some manufacturing sectors, where US production continues apace, but with a fraction of the employment. But the dislocations may be larger, since in some sectors, there may be little reason that production should continue at all inside the US. Employment will then decrease both because of the increase in productivity and because of the loss of comparative advantage. Some countries may attempt to invest, to restore their dynamic comparative advantage; but from a global perspective, this cannot be a “solution” to the problem of declining global manufacturing employment. Indeed, to some extent, it will exacerbate the problems, because the struggle to achieve dynamic comparative advantage will normally be through further increases in productivity—meaning even less manufacturing employment.

Basically, according to Stiglitz the productivity in manufacturing turns out to be a curse that killed the manufacturing employment and as a consequence the global demand.

I'd like to have your insight about this. Does this makes any sense for you ?

The problem is that numeric/software is killing everything. Services as well ...
For instance, I rather have a good online video course from the best teacher on the subject than a bad presentation from an average local teacher...

If global growth continues to remain as robust as it has been at its peak, at some 4% , global growth in the demand for manufactured goods may fall only slightly short of the amazing growth in manufacturing productivity (or may even slightly exceed it). In that case, the fight will be over where the relatively fixed set of manufacturing jobs are located. For the world as a whole, the share of employment in manufacturing will almost surely decline significantly, and in the longer run, almost surely, productivity growth will outpace demand growth. Thus, in the long run, the countries that will face the most serious adjustment problems are those that, in the short run, remain committed to strong manufacturing sectors supported by exports and ultimately low exchange rates. For most countries, continuing commitments to jobs in manufacturing (just as many countries remained committed to agricultural employment throughout the 1930s) in the face of adverse productivity and demand conditions is a recipe for problems, if not now, later .

[GRG55]

Re: Today the challenge is to shift workers out of manufacturing into services ?

Sectoral Imbalances and Long Run Crises - Joseph E. Stiglitz



Basically, according to Stiglitz the productivity in manufacturing turns out to be a curse that killed the manufacturing employment and as a consequence the global demand.

I'd like to have your insight about this. Does this makes any sense for you ?

The problem is that numeric/software is killing everything. Services as well ...
For instance, I rather have a good online video course from the best teacher on the subject than a bad presentation from an average local teacher...

"...In the shift from agriculture to manufacturing, the US continued to be a strong producer of agricultural goods, even as employment diminished, simply because there was an abundance of one of the critical factors, productive land..."

Really? Africa has lots of productive agricultural land too. So why is it not competing with the USA as a food production powerhouse.

I think he conveniently ignored the fact agricultural productivity increased dramatically and employment in the sector absolutely plummeted (not just "diminshed") in that economic transition. Why do we think the outcome from the economic shift from manufacturing to services should be any less beneficial over time?

[chene]

Re: Today the challenge is to shift workers out of manufacturing into services ?

"...In the shift from agriculture to manufacturing, the US continued to be a strong producer of agricultural goods, even as employment diminished, simply because there was an abundance of one of the critical factors, productive land..."

Really? Africa has lots of productive agricultural land too. So why is it not competing with the USA as a food production powerhouse.

I think he conveniently ignored the fact agricultural productivity increased dramatically and employment in the sector absolutely plummeted (not just "diminshed") in that economic transition.

I think he acknowledged this point in the article. The partial quotation is a bit misleading.

In the case of the Great Depression, it is clear what the underlying real problem was: declining prices and incomes in the agricultural sector. In the United States agricultural prices began to decline precipitously in August 1929, well before the stock market crash in October of that year, and continued to fall for years. It was to be another four years before banking failures reached their zenith, with the enforced “bank holiday” in 1933. It is easy to infer both the causes and consequences of the decline in agricultural prices and incomes. Long-term increases in global farm productivity coupled with increases in land under cultivation had, since the second-half of the 19th century, led to long-term increases in farm output above the rate of increase of farm demand and, thus, secularly declining farm prices.

This loss of income to farmers itself led to weakening demand for urban goods, leading to lower incomes and employment there, and this in turn led to declining demands for agricultural goods, in a downward vicious circle. In short, we argue that the "shock" to the economy which led to the low level equilibrium was a positive productivity shock in agricultural—combined with frictions that trapped workers in the rural sector.

Why do we think the outcome from the economic shift from manufacturing to services should be any less beneficial over time?

Good question.

1) I am not sure that the transition had been very smooth or beneficial for the farmers of 1920
2) "over time" can take a generation or more... ("in the long run" we'll all be dead ...)
3) the service sector seems impacted as well by numeric/software induced productivity.

[GRG55]

Re: Today the challenge is to shift workers out of manufacturing into services ?

Good question.

1) I am not sure that the transition had been very smooth or beneficial for the farmers of 1920
2) "over time" can take a generation or more... ("in the long run" we'll all be dead ...)
3) the service sector seems impacted as well by numeric/software induced productivity.

1) An argument can be made that what really drove agricultural productivity improvements hard was WWII. And once that war was over there was a domestic workforce with manufacturing and other forms of training and skills far beyond what was needed for agriculture, and far more valuable, as well as the GI Bill to retrain returning soldiers. How many of that entire cohort, including women, ever went back to the farm to stay?

2) No doubt, but I have no confidence in public sector efforts to either thwart these macro changes or hurry them up along the continuum.

3) But we keep inventing new forms of services and service provision as old ones go the way of the dinosaurs. When I was growing up I don't recall knowing anyone with a parent who was some form of "consultant". Now I am surrounded by them in my peer group. Somebody must think at least some of them provide something valuable.

While pundits are screaming about the next 2008 style crash, I wonder if we are actually in a global situation analogous to North America immediate post-WWII:

• highly indebted governments; then due to borrowing for war funding, today for reasons we all know;
• a large overcapacity to manufacture the "wrong stuff"; then USA and Canadian war materiel production that needed to be re-tooled or replaced, today Chinese cement, steel, and other production capacity well beyond global demand requirements, that needs to be re-tooled or replaced;
• extraordinarily low interest rates; back then it lasted for two decades as the war debt was worked off, today it may well extend similarly;
• increasing EM nation urbanization with commensurate skill and income changes; in the 1940s per item 1 above, today a repeat of that pattern in many EM nations all over the world.

Could we actually be on the cusp of a period of significant global growth given low energy prices, low raw material input costs, low cost of capital to fund industry/businesses/homes, a gradual loss of confidence in over-indebted governments to "fix" everything, the unlocking of human capital and ultimately ingenuity in at least some developing nations?

Just a thought.

[touchring]

Re: Today the challenge is to shift workers out of manufacturing into services ?

1) An argument can be made that what really drove agricultural productivity improvements hard was WWII. And once that war was over there was a domestic workforce with manufacturing and other forms of training and skills far beyond what was needed for agriculture, and far more valuable, as well as the GI Bill to retrain returning soldiers. How many of that entire cohort, including women, ever went back to the farm to stay?

2) No doubt, but I have no confidence in public sector efforts to either thwart these macro changes or hurry them up along the continuum.

3) But we keep inventing new forms of services and service provision as old ones go the way of the dinosaurs. When I was growing up I don't recall knowing anyone with a parent who was some form of "consultant". Now I am surrounded by them in my peer group. Somebody must think at least some of them provide something valuable.

While pundits are screaming about the next 2008 style crash, I wonder if we are actually in a global situation analogous to North America immediate post-WWII:

• highly indebted governments; then due to borrowing for war funding, today for reasons we all know;
• a large overcapacity to manufacture the "wrong stuff"; then USA and Canadian war materiel production that needed to be re-tooled or replaced, today Chinese cement, steel, and other production capacity well beyond global demand requirements, that needs to be re-tooled or replaced;
• extraordinarily low interest rates; back then it lasted for two decades as the war debt was worked off, today it may well extend similarly;
• increasing EM nation urbanization with commensurate skill and income changes; in the 1940s per item 1 above, today a repeat of that pattern in many EM nations all over the world.

Could we actually be on the cusp of a period of significant global growth given low energy prices, low raw material input costs, low cost of capital to fund industry/businesses/homes, a gradual loss of confidence in over-indebted governments to "fix" everything, the unlocking of human capital and ultimately ingenuity in at least some developing nations?

Just a thought.

Actually, I think along the same lines as you do. But there will be winners and losers, cheap raw material and low energy prices will propel growth in many emerging markets such as Africa and South Asia.

China will face economic headwinds as the economy restructures, many money losing firms making commoditized products will go bankrupt, while service companies, especially Internet companies such as Tencent and Alibaba will do well.

Many people also forgot that China is also an emerging market and the China outside of major cities and the East Coast is "third world" country, so rural China will also benefit from cheaper raw materials.

The Middle East is a clear loser overall, the Saudis the biggest loser of all. Canada and Australia will survive as their economies are more diversified. Vancouver will do well. Russia will diversify into tech, space tech, military tech. Syria is a showcase of Russian hardware.

My 2 cents.

[santafe2]

Re: Today the challenge is to shift workers out of manufacturing into services ?

Actually, I think along the same lines as you do. But there will be winners and losers, cheap raw material and low energy prices will propel growth in many emerging markets such as Africa and South Asia.

China will face economic headwinds as the economy restructures, many money losing firms making commoditized products will go bankrupt, while service companies, especially Internet companies such as Tencent and Alibaba will do well.

Many people also forgot that China is also an emerging market and the China outside of major cities and the East Coast is "third world" country, so rural China will also benefit from cheaper raw materials.

The Middle East is a clear loser overall, the Saudis the biggest loser of all. Canada and Australia will survive as their economies are more diversified. Vancouver will do well. Russia will diversify into tech, space tech, military tech. Syria is a showcase of Russian hardware.

If productivity increases outstrip increased demand, continued economic growth will be problematic. We know that when the poor and the middle class have reasonable, proportional access to economic growth, demand increases more than it will if they do not. However, if the modern US model of economic growth becomes the standard world wide I suspect economic growth will stall.

This argument, that economic growth must be somewhat proportionally distributed for the best overall economic outcome, should be a non-controversial statement but in the US, this economic argument is subsumed by political arguments and assessment of fault. It's no secret that what we've experienced in the US since the mid 1970s is economic growth without benefit for the majority of participants. As the US economic model proliferates, it will not be surprising if almost all economic growth continues to accrue to top the economic quintile.

I would argue that if we want wage earners gainfully employed and able to increase economic demand with only proportional increases in debt, the current economic system has a structural problem.

[chene]

Re: Today the challenge is to shift workers out of manufacturing into services ?

Just a thought.

Always interesting to have your thought GRG55.

1) An argument can be made that what really drove agricultural productivity improvements hard was WWII. And once that war was over there was a domestic workforce with manufacturing and other forms of training and skills far beyond what was needed for agriculture, and far more valuable, as well as the GI Bill to retrain returning soldiers. How many of that entire cohort, including women, ever went back to the farm to stay?

WWII helped accelerate agricultural productivity. But the case is made here that productivity in agriculture increased before WWII and that it was the initial cause that lead to 1930 crisis.

WWII helped adjusting the economy moving workforce from agriculture to manufacturing and what could have taken many decades have been achieved more quickly (in that respect war is a time accelerator).The bad economic consequences had been removed by a fast economic transition made possible by the war.

2) No doubt, but I have no confidence in public sector efforts to either thwart these macro changes or hurry them up along the continuum.

3) But we keep inventing new forms of services and service provision as old ones go the way of the dinosaurs. When I was growing up I don't recall knowing anyone with a parent who was some form of "consultant". Now I am surrounded by them in my peer group. Somebody must think at least some of them provide something valuable.

You've got a good point here. One should not underestimate the extent of human needs and creativity.

While pundits are screaming about the next 2008 style crash, I wonder if we are actually in a global situation analogous to North America immediate post-WWII:

• highly indebted governments; then due to borrowing for war funding, today for reasons we all know;
• a large overcapacity to manufacture the "wrong stuff"; then USA and Canadian war materiel production that needed to be re-tooled or replaced, today Chinese cement, steel, and other production capacity well beyond global demand requirements, that needs to be re-tooled or replaced;
• extraordinarily low interest rates; back then it lasted for two decades as the war debt was worked off, today it may well extend similarly;
• increasing EM nation urbanization with commensurate skill and income changes; in the 1940s per item 1 above, today a repeat of that pattern in many EM nations all over the world.

Could we actually be on the cusp of a period of significant global growth given low energy prices, low raw material input costs, low cost of capital to fund industry/businesses/homes, a gradual loss of confidence in over-indebted governments to "fix" everything, the unlocking of human capital and ultimately ingenuity in at least some developing nations?

Highly indebted governments but low private debt after the WWII.
That is not the case today.

Low private debt paved the way for a sustainable growth

PrivateDebt.jpg

Low energy price..? Aren't we still in PCO ?
If I believe Berman that's not here to stay ( arthur-berman-why-price-oil-must-rise ).
I thought it was your analysis as well with your interest in SUNCOR ...


At this point every improvement in growth will be halted by the high private debt level and/or a surge in oil price, at least in US and Europe.

I do not see how the current level of private debt could enable a sustainable economic growth.

The world is turning Japonanese until one day it turns Argentina...

I think we are pre-WWII

[Southernguy]

Re: Today the challenge is to shift workers out of manufacturing into services ?

Not so sure. I think there is a global lack of demand for goods and services caused by the growing income gap between capital and labor. That is the ultimate origin of general economic malaise world wide. There is no evidence that such gap is being filled or shall be any time soon.

[santafe2]

Re: Today the challenge is to shift workers out of manufacturing into services ?

Not so sure. I think there is a global lack of demand for goods and services caused by the growing income gap between capital and labor. That is the ultimate origin of general economic malaise world wide. There is no evidence that such gap is being filled or shall be any time soon.

Sounds like we're saying the same thing. What passes for workforce sector imbalances are workforce pay imbalances. I don't see how one convinces stockholders that it's in their best interest to pass on their dividends to workers.

[chene]

Re: Today the challenge is to shift workers out of manufacturing into services ?

I would argue that if we want wage earners gainfully employed and able to increase economic demand with only proportional increases in debt, the current economic system has a structural problem.

Very good point santafe2.

It is a certain type of productivity that is the root cause of economic problem. Everything is fine until the productivity is done at the expense of a large fraction of workers.

Until a new source of productivity that can pay high wages to workers is found the economic growth will not last.