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A while ago, I
introduced the idea of the "service economy."
May 16, 2010: The Service Economy
Economics is the study of how people make a living. How they produce
food, shelter, clothing, and so forth. In a modern industrial economy, we do
so with a system of specialization and trade. In other words, people
are producing goods and services for each other. They are making things for
others (goods) or doing things for others (services).
Our national GDP statistics make no distinction between goods and services.
Ten gallons of gasoline, at roughly $30, counts just the same as an hour of
surfing lessons. A week at Club Med, for $1200 let's say, counts just the
same as a hundred sheets of plywood. Nevertheless, we imagine, for some
reason, that producing goods is the only "real" economic activity,
and that services don't count. I said this was a little like when industry
first began to appear. People thought that agriculture was the only
"real" economic activity, and that manufacturing didn't count. All
the wealthy people were agriculturalists -- the landowning aristocracy. They
probably imagined the "economy" as being like a giant farm. After a
few industrialists became more wealthy than the landowners, people's views
changed such that factories making widgets were the focus of attention. I
would even say that this is a major component of the Heroic Materialist style
in all things -- that more is better, and more means more stuff.
Today, most people see an "economy" as a sort of giant factory.
They assume that "growth" means the same thing as today, just more
of it. So, if the "economy" is generating 370,000 tons of steel and
burning 4 million barrels a day of oil, they assume that, after a period of
"economc growth," it will generate 450,000 tons of steel and burn 5
million barrels of oil. The "Peak Oil" types also assume that, if only
3 million barrels of oil per day were available, then the "economy"
would also contract in perfect proportion. It's like there's a slider with
More of the Same on the right and Less of the Same on the left.
In fact, just the terminology "gross national product" implies this
sort of factory-centrism. The GDP statistics date from the late 1940s and
early 1950s, after development in the 1920s and 1930s. This was an era of
factory-centrism. We "produce" goods but we generally
"perform" services. Maybe we should call it "gross national
performance"?
This notion is also distressing to the environmentalist types. On the one
hand, it seems like if there isn't "growth," then there's horrible
unemployment and everyone suffers. However, if there is "growth,"
then we end up burning more oil, cutting down more trees, mining more coal,
etc. etc. once again in proportion as we push the slider towards More of the
Same.
Both of these groups also imagine that their slider, from Less of the Same to
More of the Same, corresponds to historical circumstance. So, if they decide
that they would prefer Less of the Same instead of More of the Same, they
push the slider to the left, which, in their minds means getting in the Way
Back Machine and going to some 1880s or 1830s lifestyle.
One reason I bring this up is because I think that the unintended
consequences of More of the Same, having built up over decades, have finally
reached a point where many people can no longer call "growth" a
good thing. Do we need more McMansions and big box stores, with more SUVs to
drive around in and parking lots to park in while we burn more oil and kill
off more of the natural world, not to mention our own cultural heritage as we
gradually decay into a nation of "consumers"? This is why I go on
and on about the end of the era of Heroic Materialism. We are so done with
that Heroic Materialist crap.
November 22, 2009: What Comes After Heroic
Materialism?
I think this has a lot to do with the general unpopularity of
"pro-growth" economic approaches (low taxes, stable money)
throughout the developed world. It's popular in the emerging world, in places
like China or Eastern Europe. They want what we have. But we've gotten a bit
tired of this treadmill. However, the alternative, which is economic
stagnation -- The Same Old Same Old, with more unemployment -- doesn't work
so well either. So, we need "growth" that actually represents an
improvement in the overall quality of our civilization -- our
"lifestyle" -- which includes things like the natural world.
Earlier, I brought up the idea of an economy that is centered on performing
arts. Performing arts count as "economic activity" just the same as
paving parking lots. This was an intentionally whimsical idea to get people
to think about what a "service economy" is. A "service
economy" is about people doing things for other people, instead of
making things for other people. You could imagine an economy which had an
enormous output of performing arts. We would spend a lot of our income on
watching live performances, several times a week. Consequently, we would have
lots of people employed as performers. We can see that this has practically
no resource component. An economy whose output is performing arts doesn't
require natural resources, doesn't consume much energy, and doesn't pollute.
You could have "growth" in the form of -- not more -- but better
performing arts. (Most manufacturing is about more but most services
are about better. You can't eat two dinners at once, but you can go to
a better restaurant.) In that case, growth would be Better of the Same, which
would of course be more highly valued (think of an expensive restaurant
compared to a cheap one), and which would then turn up in the standard
economic statistics as "GDP growth." And if you decided that maybe
you had maxed out on performing arts, you could enjoy some other sort of
service -- let's say massage therapy -- or maybe just take the time off.
Then, you would have Better and Different. Even taking time off -- enjoying
more leisure instead of more services -- counts as increasing productivity,
if not necessarily "growth." If we spent 50% of our income on
performing arts, or massage therapy, then 50% of the economy would consist of
performing arts and massage therapy. To finance our love of performing arts,
we would naturally have less of everything else, or in other words, all the
people employed in performing arts wouldn't be producing some other sort of
good or service, like building McMansions in the suburbs. Imagine, if you
like, a society where people lived in modest little apartments, and didn't
own cars, and didn't own many other material items either, and didn't do
things that required a lot of resources (like flying to Jamaica for four days
in February), but instead walked to the theater several times a week to catch
the latest show.
Even in goods production, you can have much the same result. For example, a
$10,000 painting counts just the same in GDP as forty $250 air conditioners,
which may contain a total of 400 lbs of copper scraped out of a mountainside
in Zambia. However, the painting has almost no material component at all. The
value comes from the human component. If our values, regarding goods, went
from "more and cheaper" to "less and better," then the
material aspect of even manufactured goods could decline rapidly even as
their value went up. This "more and cheaper" idea is so ingrained
as a part of the Heroic Materialist factory mass-production aesthetic that
people often don't notice that "less and better" is actually quite
common. Go ask your wealthy friend: would they rather have a $1500 handbag
from Louis Vuitton or a hundred $15 handbags from Target? If you go to Europe
or the wealthier parts of Asia (Japan, Hong Kong, Singapore, etc.), you find
that people generally have a lot less stuff than Americans, including their
much smaller apartment, but it is of much higher quality. Over time, as we
have Better of the Same -- in other words, economic growth -- we might have a
$3000 custom-made handbag, which is better than that crappy old Louis
Vuitton, and a $20,000 painting, which is much preferable to the $10,000 one.
The economists would duly agree that per-capita GDP had doubled.
The point is, an "economy" is a pretty flexible idea. It could
literally be anything. And, if it is improving -- whatever that means to you
-- then that counts as "growth," or at least, progress.
May 5, 2008: What Is the U.S. Economy?
The funny thing is, the U.S. economy is already well along this path. Most of
the U.S. economy consists of services. Health care. Education. Legal
services. Hotels, hospitality, travel and vacation-related. Golf courses.
Movie theaters. Restaurants. A lot of this, actually, is somewhat parasitic
in nature. A lot of health care, education and legal activity is actually
more like bloodsucking the productive aspects of the economy. The fact is,
even we -- the insanely consumptive goods-obsessed Americans -- reach our
limits. We'd rather blow $100 at a restaurant than go to the mall and buy more
stuff we don't need.
 
See what I mean? Of a $14.5 trillion economy in 2Q10, $9.5 trillion of that
(65.5%) was services. We already have a service economy. We just haven't
adjusted our mental image of the economy yet, to fit the reality which has
been with us for some time now.
Remember, an economy is basically "what you spend your money on."
This includes government services (and goods), for which you spend tax
dollars. It also includes capital investment, which is the flip side of your
"spending" on savings. The rest is "personal consumption
expenditures." Here's what they look like:
We see here that 67% of personal consumption expenditures are on services.
So, you see my "service economy" fantasia is not really that weird.
It would just be different services. Not so much housing, education, health
care, legal and financial services, which often become parasitical burdens of
contemporary life, but rather fun and enjoyable services. We could also
replace some of the remaining goods with services. Trains instead of
automobiles. Less spending on housing and home furnishing.
September 20, 2009: The Problem of Scarcity
2: It's All In Your Head
September 13, 2009: The Problem of Scarcity
When I outlined alternatives to Heroic Materialism, I mentioned a "focus
on lifestyle." I like that term: "lifestyle." It is
open-ended. It could be anything. The only important thing is that you like
it. You could be a ski instructor, or an artist, or an entrepreneur, or a
schoolteacher. These are all different kinds of lifestyles, all with their
own attractions. This is very different than the idea of a "standard of
living," which is a very Heroic Materialist concept. When we talk about
"standard of living," we start to talk about things like
automobiles and televisions per capita, square feet per household member, and
so forth. All these simple quantitative measures, all with the underlying
assumption that More of the Same is Better. But if we don't like what we
have, then what's the point of having more of it? Wouldn't that be worse? I
might not like that kind of lifestyle.
So, when we think of "economic growth," we can think of an
"improving lifestyle." Sometimes, people then assume what I mean
here is that "Less is Better." Not at all. For example, if I liked
performing arts, then I might think my lifestyle improved if I could afford
two shows a week instead of just one. Or, if I liked skiing, I might want to
ski a hundred days a year instead of just fifty. Or, if I liked handbags, I
might think that a $3000 handbag was better than a $1000 one. Or, I might
want to go to a $80-per-person restaurant rather than a $30-per-person one.
The point is, we can think of things to do in our "lifestyle" which
don't have unpleasant consequences. I am assuming, for example, that an $80
restaurant dinner has no unpleasant consequences (such as resource use or
environmental degradation) compared to a $30 one. If our entire economy
consisted of things that contributed to our fabulous lifestyle, and did not
have unpleasant consequences such as excessive resource use or environmental
degradation, or Suburban Hell sprawlification, then we wouldn't be conflicted
about "growth." We would be happily making our lifestyles better --
or not even "better" per se, but continuing our own personal
evolution towards greater sophistication, wisdom and satisfaction.
When you think about things in terms of "lifestyle," rather than a
linear measure of "standard of living" which stretches from Less of
the Same to More of the Same, then a lot of possibilities open up. We could
have a "lifestyle," for example, that did not use fossil fuels at
all.
May 3, 2009: A Bazillion Windmills
In that case, the electric lights in our service economy -- our restaurants,
schools, theaters and so forth -- would be powered by solar, or hydro, or
windmills or perhaps nuclear, or what have you. What's so difficult about
that? We could have as much "output" as we like -- more or better
restaurants, schools, theaters and so forth -- with electric lights powered
by windmills etc.
The process of creating this new, better service economy involves investment.
We typically think of investment as building factories, buying machinery, and
pouring concrete. Once again stuck in these 1950s sorts of images. We're so
beyond that now. We have more than enough machinery and concrete for every
human in the United States. Actually, "investment" is just spending
money, with the aim of being able to produce some useful service (or good) in
the future. Thus, our "capital investment" in the future could be
the process of creating more of what we want, enjoyable services, and the
more investment we have, the closer we get to our goal. This capital
investment is actually what creates jobs, and in fact higher paying jobs. The
great growth economies, such as China today, are typified by enormous amounts
of investment. In China's case, this is "modernization" including lots
of concrete-pouring and machinery-installing. However, a future "growth
economy" focused on mostly nonphysical services could feature lots of
investment in other sorts of things. Today, this is typified on the personal
level by law or medical school, an investment in education which allows a
person to provide high-value services, and thus enjoy a high income.
Unfortunately, like our image of concrete-pouring and machinery-installing,
this image of law-and-medical school has also been done to death. We have
waaaaay too many doctors and lawyers. Instead, we need to imagine a similar
process, but with other kinds of services. Try to imagine, if you can, a sort
of service economy in which we have lots of investment in services, but not
really this sort of doctor/lawyer/financial advisor stuff.
In practice, the "service economy" of the sort I envision tends to
focus on urban entertainments. Imagine you lived in a no-car Traditional
City, in a small and relatively cheap apartment. You aren't being sucked dry by
the parasitical doctor/lawyer/financial advisor/professor class. In other
words, you have lots of disposable income. What do you spend it on?
Typically, you spend it on "going out." Restaurants, clubs, cafes,
bars, theaters, gyms, travel, and so forth. With a sprinkling of goods
purchases, but since you don't have a car and live in a small urban
apartment, you really don't have that much space for stuff. No boats, no
motorcycles, no "media rooms," guest bedrooms, and all that other
shopping stuff. You spend some money on fancy clothes, and household
furnishings -- typically Less and Better rather than More and Cheaper. Just
ask a French woman. And stuff like that. But, a lot of your expenditure goes
to this urban entertainment-type stuff.
I'm not necessarily saying this is the best thing. It is, however, the most
common thing, in history. We can see that this "urban
entertainment" stuff is not really resource or energy dependent at all.
You don't need factories clanking out widgets. Paris of 1740 had wonderful
urban entertainments (if you could afford them). So did Beijing of 1265. Just
ask Marco Polo. So, the service economy of the future would probably be
oriented more towards providing these sorts of urban entertainments, and
people would be employed in providing them.
Imagine, if you can, the most wonderful sort of urban environment in history.
Sort of like the London of the Harry Potter movies.
January 10, 2010: We Could All Be Wizards
Then, add the best parts of our Heroic Materialist advances. Things like
electric lights and good plumbing, and refrigerators. You could invent a more
fanciful sort of thing -- like my original example of a
performing-arts-centric economy -- but this "urban entertainments"
model is actually the typical human model throughout history, including up to
the present day. This is pretty much the way forward, so that we can have
"growth" without killing the planet, and in fact enjoying a much
healthier environment, while also having ample employment and higher incomes.
We don't have to go with the More of the Same model, which basically amounts
to More Suburban Hell, nor do we need to get in the Wayback Machine to some
19th century/18th century/12th century/Native American/Caveman model.
Nathan
Lewis
Nathan
Lewis was formerly the chief international economist of a leading economic
forecasting firm. He now works in asset management. Lewis has written for the
Financial Times, the Wall Street Journal Asia, the Japan Times, Pravda, and
other publications. He has appeared on financial television in the United
States, Japan, and the Middle East. About the Book: Gold: The Once and Future
Money (Wiley, 2007, ISBN: 978-0-470-04766-8, $27.95) is available at
bookstores nationwide, from all major online booksellers, and direct from the
publisher at www.wileyfinance.com or 800-225-5945. In Canada, call
800-567-4797.
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