We’ve spoken about how important education is to you and your career and even how important it is to our national economy. Let’s discuss a few concepts about the economy.Economy is a system of producing and distributing goods and services and can be local, state, national, international, and global. There are various types of economic systems in today’s global marketplace. Capitalism is an economy based on the amount of goods and services produced in a free trade setting. Socialism is an economy based on governmental management and control of goods and services.
Communism is an extreme socialistic economy with extreme governmental management of goods and services along with management of public and private ideologies. Cuba, Venezuela, North Korea and China are a few remaining national-level communistic economies. However, China has become the most open capitalistic economic systems among the remaining communistic countries. There are communist parties in many countries today, but few have national control as do the four above or the many that existed during the Cold War.
Recently many have criticized the US as having forfeited its capitalistic ideals in favor of a form of Democratic Socialism, or an economic system based on the merger of capitalism and socialism that often is accompanied by vague boundaries between governmental management of goods and services and diminished “hands-off” governmental involvement in the individual pursuit of economic stability.
Adam Smith (1723-1790) was an eccentric professor who wrote in The Wealth of Nationsthat an “invisible hand” emerged when people pursued their own business interest and collectively benefitted society at large. The full impact of Adam Smith’s work is hard to estimate. He is considered to be one of the most intellectually potent thinkers of the last four centuries. His ideas have been taught and have guided national economic policy for decades.
Today’s economy is far different from that of Adam Smith’s. In Adam Smith’s day, much work was located in the Primary sector of the economy. The Primary Sector is the part of economic production involving agriculture, mining, fishing, and materials acquisition. Smith’s day also was laden with work in the Secondary Sector, or the part of the economic production involving manufacturing (factories and home-based). Today, the majority of our work involves the Tertiary Sector, or work which involves providing a service to others such as food, retail, computer processing, or information management. The tertiary sector emerged along with telecommunications and the computer chip technologies (the Three–Sector Theory originated with research by Colin Clark and Jean Fourastié).
In Adam Smith’s day, I’d estimate 2 percent of all work was in the tertiary sector with the rest being in primary and secondary sectors. See Table 7 below to see US percentages of jobs in each of the three sectors for 2007. Note that 8 out of 10 jobs are in the service sector. Where exactly is all the primary and secondary work taking place for us in the US if not here? Look at the label on your shoes, clothes, computers, cell phones, cars, TV’s and even groceries. The US is a nation populated widely by consumers with most of its production being service-related.
Table 7. 2007 Service Sector Employment Percentages*
Percent employed in Sector
Taken from Bureau of Labor Statistics 24 March 2009 fromhttp://www.bls.gov/news.release/ocwage.t02.htm Table 2. Employment by Industry and Occupational Group, 2007.
Part of the explanation of why jobs shifted to service-related classifications has to do with supply and demand. Supply is the availability of goods and services in the market place.Demand is the desire in the marketplace for goods and services. Typically with higher supply and lower demand you’d see lower prices. With higher demand and lower supply you’d see higher prices. This is true in many markets, but does not appear to apply to the very unstable US cost of gasoline per gallon which changes without traditional regard to supply and demand.
As the supply of labor-ready employees increased in the US factories and other labor-based industries the demand for these employees appeared to never end. But, as the computer chip transformed technology to the point that less demand for labor became the norm and then workers from all over the world were willing to do the US’s primary and secondary labor for a fraction of the cost, the US literally became an import nation for its primary and secondary goods. Much of the current job market pays and rewards education because education is still in high demand in a service economy. Without it a worker has to compete with cheaper foreign labor or get lucky with the very few labor-related jobs that are in the US economy today.