By Noah Smith
President Joe Biden’s economic plans promise to split the U.S. economy between industries that increase productivity and industries that provide mass employment. This is a reasonable response to the pressure the U.S. is facing from changes in technology and the global economy. But it also risks creating social divisions between the people who work in the two types of industries.
In a recent blog post, I tried to lay out a general vision for where Biden’s economic plans are taking us. One concept I kept coming back to was the idea of a “two-track economy.” I got this idea from Japan, where world-class export industries — think of Toyota Motor Corp., Panasonic Corp. and Nintendo Co. — ended up subsidizing other inward-looking industries that were fairly unproductive and hidebound but managed to employ a huge number of people. Japan sort of stumbled into this arrangement, but my idea is that Biden is attempting to create something along these lines — providing research funding and other support for innovative knowledge industries like software, bioscience and advanced manufacturing, but also supporting a domestically focused “care economy.”
That sort of bifurcation makes sense in a world where the industries that raise productivity the most are not the ones that offer the promise of mass employment. During the Industrial Revolution, manufacturing was cutting edge in terms of innovation and productivity growth, but it also absorbed a huge amount of the workforce. It was able to do this because demand for manufactured goods was increasing so fast.
Today, however, the U.S. faces a very different landscape. The most innovative industries — software, biotech, etc. — don’t employ that many people. Instead, an increasing share of the American workforce is occupied doing local services such as health care, education, retail and food service. These sectors were hit especially hard by the pandemic (it’s hard to do in-person service work when you might infect someone), but the overall trend has been toward more of the workforce doing these things.
The reason for this isn’t entirely clear. Some argue that it’s due to automation — new technologies are making it easier to substitute machines for humans instead of just complementing human labor. A more likely culprit is globalization — as Asia has become the global center of labor-intensive manufacturing, the U.S. has been unable to compete on costs in any industry that depends on mass low-paid assembly work. No longer able to be the workshop of the world, the U.S. has been forced to become the world’s research park — competing in high-tech industries that leverage America’s advantages in research and development, and venture-backed entrepreneurship.
