Dr. Mike Walden
We're caught up daily in economic issues: income, jobs, competition, trade, taxes and government spending. Don't misunderstand me; all are vitally important. But sometimes it's helpful to look at the big picture to ascertain what's really driving our economy.
Here's what I mean. At all times, world trends economists call "structural forces" ultimately lie behind the economic changes we see. These structural forces span both good and bad economic times and often are bigger than any community, state or even country. The trends are strong winds sweeping across the economic landscape, winds that will sweep us away if we don't try to harness them.
Here's a summary of four big structural forces affecting today's economy.
Reduced Transportation and Communication Costs: Although it may sound like a cliché, the world really is getting smaller, not physically but in terms of the cost of moving products and information from place to place.
Consider: Air freight rates fell 35 percent and ocean freight rates sank 50 percent in the last decade. And the cost of transmitting information plunged an amazing 10,000 percent in the past 30 years.
Even high energy prices don't affect these trends, because we continue to use energy more efficiently. The amount of energy needed to produce a dollar of income halved since 1970. This increased energy efficiency is countering higher energy prices.
Increased Payoff to Higher Education: Our economy has moved from valuing brawn and strength to emphasizing brains and reasoning. High school graduates earn much more than dropouts, college graduates earn more than high school grads and those with advanced and professional degrees earn the most.
This has been happening over the past 50 years, but there's a new twist to the trend. The upward income bump from a college degree, and especially an advanced college degree, has become even greater in the last 10 years. That is, more education still pays, but higher education pays even more. This is a direct result of our move to a knowledge-based economy. It also means that to be competitive worldwide, future workers must attain even more training and education.
Greater Competition: The world's business environment continues to be more competitive. Domestically, industries were deregulated, and barriers between economic sectors removed. Internationally, tariff rates were cut by 75 percent since 1990, making it easier for businesses to sell in many countries.
This enhanced competition has major impacts on businesses, workers and consumers. Companies must constantly keep their costs low and attract customers. Workers are under pressure to continually prove their worth and be ready to change employers and, perhaps, careers. The big winners are consumers, who reap the benefits of expanded choices and lower prices.
Shift to Services: As our country has become richer, people are buying services at a faster clip than products. As a result, the income percentage spent on services jumped from 60 percent in 1970 to 70 percent today.
At the same time, worker productivity outside of services, especially in manufacturing, is rising. This means not as many workers are needed to produce the same, or even greater, amount of manufactured products.
Both these trends clearly indicate the bottom line: Employment opportunities are increasingly found in the service sector, from professionals, managers, teachers and technicians to personal service and hospitality industry workers.
These are the four big winds of change blowing through our communities. Keep them in mind when deciding where the economy is headed.
Dr. Mike Walden is a William Neal Reynolds Professor and extension