Week 12, Part One-transcript Management 1035

SPEAKER 0 Hi everyone and welcome to the final two lectures of Management. 1035. This week, we will fill the last remaining gaps in our content bridging many of our themes together and also bringing some of this history up to the present. So what is deindustrialization and what is the service econo...

SPEAKER 0 Hi everyone and welcome to the final two lectures of Management. 1035. This week, we will fill the last remaining gaps in our content bridging many of our themes together and also bringing some of this history up to the present. So what is deindustrialization and what is the service economy? But the service economy is many things ranging from fast food to heart surgery to consulting. There are different definitions out there, but they'll usually include things like education, health care, tourism and finance. It can be helpful to think about what the service economy isn't. We got a cat joining us, it's not end products and it's not the raw materials used to make those products, they're intangible things and they can range from advice to experience to attention. One way this is often thought about in economic terms is by considering something called GDP composition by sector. That is what proportion of the gross domestic product or the economy is made up of different parts and their size in relation to each other. And that will usually include things like you see on this graph here which shows the last 30 years of the world looking at things like agriculture, industry and services and you can see here too, just how much services that bottom blue category has grown over the last 30 years. Well, agriculture especially has shrunk to be around 70 years ago. In the 19 fifties, service has increasingly come to make up an enormous part of the economy first in the developed world and increasingly in the global south as well. We're now at the point where the World Trade Organization estimates that today the service sector accounts for half of all employment worldwide and just over two thirds of global GDP. Let's consider some Canadian figures in 1867 the year of confederation, half of the Canadian workforce was employed in agriculture. But by 1987 this was less than 4%. In 1911, about 66% of the working population were employed directly in the goods producing sector and 33% in the service sector. But by 1987 these ratios had been reversed. And it's a very similar story in many of Canada's peer countries. For a long time, many people believed that raw materials and industries, making things like cars or computers or other tangible goods that could easily be traded were the most important thing for an economy. It is after all, what the developed world did on their way to becoming developed, they industrialized and the thinking makes some sense on its face. You can imagine that it's easier to boost productivity by making things more efficiently than it is to make services more productive. It's hard to be more productive, cutting hair. For example, it might also be easier to trade those goods and products. Following from that many believed that services were not as important for developing countries to focus on. But that's a view that's no longer widely held. And a big reason is a theme we've seen over and over in this course, the way new technology changes things you hopefully remember the example of the 19th century economist David Ricardo and talking about two countries, trading wine and cloth at the time, he was writing in the early 19th century, you could trade things about as fast as you could communicate. A ship, didn't carry cloth or wine any faster than it carried a letter. Of course, since the telegraph, the telephone and the internet were developed, we're not living in a world that looks very much like that anymore. It's easier every year to trade services and they're only likely to become more important with time, not less so now that we've defined it. And you understand what the service sector is. I'll give you an overview of how we got here and look at a few examples starting with the decline of auto manufacturing in Detroit, moving on to the shift from steel to health care in Pittsburgh. And finally, by considering the rise of New York, London and Tokyo as global cities in the 19 eighties. So to start at the beginning, even in pre industrial economies where artisans, for example, would make shoes from start to finish. We've always had services like education, health care or trade. And even then services were often concentrated in cities, but it tended to be a small part of an economy devoted to agriculture and raw materials. For the most part beginning in places like Great Britain and the US as we've seen in this course, there was a shift from farming to industrialization. With the industrial revolution. We looked at this in regard to textile production, for example and his manufacturing brew, it required more and more new services to support it. Things like banking insurance, legal counsel. At the same time as more people lived in cities, demand for all kinds of services grew things like education or entertainment beginning in the 19 fifties, as I've said and especially taking off the 19 seventies, there was a process of deindustrialization where industry makes up a much smaller portion of the economy. Deindustrialization is in many ways, the flip side of the rise of the service sector. A big reason for this was that new technology like mechanization and mass production, made farming and manufacturing much more productive and freed up labor to work elsewhere, especially as demand for those outpaced supply. So let's move on to our first example, Detroit, Detroit is of course famous as the birthplace of the automobile industry and the big three automakers Ford Chrysler and General Motors. But perhaps it's equally as famous as the poster child for deindustrialization. And the story here, the big, the big theme is really about depopulation as a result. And these numbers give you a sense of its rise and fall as a city that was heavily dependent on a single manufacturing industry. So in 1908 years before the model T was introduced, Detroit had a population of 285,000 people. By 1950 just 50 years later, the heyday of auto manufacturing, it had grown to 1.8 million making it big enough for fourth largest in the US. By 2010, it had declined to about 700,000. The common story that's often told here is that in the seventies and eighties, us automakers didn't pay attention to competition from Japan like Toyota Honda and that's true. But really already in the 19 forties and fifties, the auto industry was already seeing job losses in line when manufacturing more generally began to slow down. Detroit is also a clear if painful example of costs associated with the industrialization with widespread poverty, inequality and other social issues that culminated with the city itself going bankrupt in 2013. As Detroit was the cars, Pittsburgh was to steal the story here takes off in 1875 when Andrew Carnegie opened, Edgar Thompson works pictured here which later joined the US Steel Corporation. A lot like Detroit. Between 1870 1910, the city's population jumped from 80,000 to 530,000. That same year 1910, Pittsburgh was manufacturing 60% of America's steel and the US steel corporation which Carnegie owned, uh, was once the largest private company on the entire planet for reasons that we've already discussed in this course. Like the 19 seventies recession, the oil crisis right around then, Pittsburgh began to rapidly lose steel jobs. A process that accelerated in the 19 eighties. By the end of that decade, 75% of Pittsburgh's steel making capacity was closed very, very rapid deindustrialization. Between 1980 1983 approximately 95,000 manufacturing jobs were cut from a labor force of 1 million unemployment spiked to 27% in some places. And by 1990 half of the population of the Pittsburgh region disappeared. So what took the place of steel? Well, many of the people who left the region for places like Alabama to work in steel mills, there were younger, tending to leave an older population in place who were often themselves former industrial workers and as a whole, they were much sicker and much more in need of care. What resulted was the rapid growth of the health care system over the course of the 19 eighties and 19 nineties. Even as the region's economy declined steadily as hospitals and nursing homes extended. They usually hired women who were seeking to make up for the lost wages of their husbands. In 1980 already, health care surpassed steel as the largest employer in the area. And in 2010 health care grew as large as steel had been in 1950 at its peak, perhaps the biggest difference between the steel and health care jobs is that where much of the steel industry was unionized, stable and fairly well paid full time jobs, health care jobs tended to be much more precarious. Often part time generally were nonunion and typically not paid much above the minimum wage. This reflects part of the rise of the surplus economy, which is a large trend of the care economy which is often poorly paid work performed by women. The example of Pittsburgh is noteworthy in that it shows the link between the industrialization and the service sector, but also what is often lost and the social effects that can come with that transition. Interestingly, Pittsburgh in recent decades has once again grown. Its population in large part by being a hub for service sector industries like health care, but also education and finance. So one common feature of service dominated economies is that the returns are often u shaped rather than bell curved. So instead of a large middle section of the bell curve, service work tends to be either very well paid or not well paid at all. So it looks more like this. So in Pittsburgh, as we saw while many care workers didn't make much. There were some doctors and some hospital administrators who were very high earners and the high earning side of that curve is the focus of our last example. The rise of New York, London and Tokyo as what came to be known as global cities in the 19 eighties, they weren't the only three, but they were the big three at the time in each of these countries, the fastest growing sectors in the economies in the 19 eighties were advanced services like law, accounting and finance. What's remarkable about this story of these cities is that as phones, faxes, the early internet made communication easier. In the 19 eighties, the world economy became significantly more complex. At the same time, you might think this would lead to decentralized markets, cities becoming irrelevant. But instead most of the decisions about investment production and trade came to be made in global cities where face to face interactions among executives, lawyers, accountants, consultants and so on are made possible as multinational corporations grew and expanded over multiple different countries. A group of centralized and specialized workers servicing those firms became necessary. Much like in Pittsburgh, there was not much in the middle besides expert knowledge, workers, global cities needed low wage workers to clean cook, provide child care and so on. Another big change that came about with this is that where New York might have once looked to the rest of the United States or London to the rest of the United Kingdom. Globalization by this point had taken effect with such force that these global cities tended to look towards one another in many ways, culturally, but also in economic terms, where they tended to be more affected by the global economy and each other than by the national economy of the country they were in. These are just some examples, but I hope that you've noticed some important themes running through them as well as seeing how varied these developments have been so far. I've mostly focused on the developed world, but we turn to the important relationship of the developed to developing world in this period. In our second lecture on offshoring.