Last year, getting started on my book I posted some facts and claims about the 21st economy. The key points (slightly elaborated)
(1) Most economic activity in the 20th century, including ‘primary’ industries like agriculture and mining and services such as wholesale and retail trade, was fairly directly related to the production and distribution of manufactured goods
(2) This is no longer true: around half of all employment is now related to human services, information services and finance, and these are at most indirectly related to goods production.
On the basis of (1), the 20th century economy could properly be described as ‘industrial’. The economy of the early 21st century is harder to classify. Information technology and communications play a central role in the economy and society, and are the main focus of technological progress, but don’t employ all that many people. Service industries employ most people, but it’s critical to distinguish between services that are part of the industrial goods economy and human services like health and education. So, neither ‘service economy’ nor ‘information economy’ captures the whole picture. ‘Post-industrial’ carries too many implicit assumptions, as does the use of the ‘post’ prefix in general.
But that’s just semantics. The key point for the book is how the pandemic changed the different parts of the economy, and to what extent those changes will be sustained. A general observation is that the changes most likely to be permanent are those that reinforce processes that were already underway. So, some thoughts
The goods economy
The pandemic exposed the vulnerability of the global (goods) trading system, a point emphasized by the fact that China was (and remains) the world’s largest producer of surgical masks. In the early days of the pandemic, supply chains for goods of all kinds were disrupted, leading to calls for a greater degree of self-sufficiency. The supply problems are less severe now, but it seems unlikely that we will return fully to the complex global supply chains, characterized by “just in time” delivery that were the most distinctive feature of late C20 globalization. As I argued last year, these complex chains were already under threat as the neoliberal consensus broke down, reflected in Trump’s trade wars, Brexit and more recently China’s largely undeclared trade war with Australia.
The human services economy
The human services sector has been hardest hit by the pandemic, in multiple ways. The burden of dealing with the pandemic has fallen hardest on workers in health, aged care and education. Non-essential services involving human contact, like restaurants, have borne the economic brunt of lockdowns. The process has exposed the disastrous effects of decades of wage stagnation and labor market reform. People holding multiple insecure jobs, without sick leave, have been forced to work even when they are ill, ensuring the spread of the disease. The patchwork nature of much modern employment has created significant difficulties in providing assistance to workers displaced by the pandemic.
The information economy
- The information economy has been the big gainer from the pandemic. Reliance on information technology the expense of both the physical goods economy and service activities centred around human contact.
Again, this is an acceleration of pre-existing trends, but in many instances we’ve seen a qualitative rather than a merely quantitative change. Most strikingly, at the beginning of a year holding a meeting virtually using Zoom or one of its rivals required a fair bit of organization (often, more than flying all the participants to a single location), it’s now become the default*. That’s unlikely to change, and it implies a permanent reduction in demand for business travel and accommodation (at least relative to the pre-existing trend). By necessity, the regulatory obstacles to things like telemedicine have been removed, and are unlikely to be restored.
The information economy is different in crucial respects, which will be spelt out in more detail below. First, information is inherently a public good: it can be shared without being diminished [econ jargon- nonrival], and it is hard, though not impossible to lock up [econ jargon- nonexcludable]. That makes any kind of pricing problematic. Second, information technology is characterized by rapid capital-saving innovation. A modern smartphone has more computing power than a 1990s supercomputer and (thanks to the information encoded in software) does a vast range of things that a supercomputer could not. Even allowing for the R&D embodied in the smartphone, the capital requirements of the information economy are much smaller than those of the physical goods economy. That means much reduced investment demand, which in turn pushes interest rates down.
More to come on all this, but for now I’d very much appreciate comments and criticism
- Just as the Internet went from being a tool for nerds in the 1990s to a (near) universal communications platform in the 2000s]