Trends in American Business

Productivity Gains in Agriculture

During the second agricultural revolution, U.S. agricultural productivity rose fast, especially due to the development of new technologies.

Learning Objectives

Outline agricultural advances that have resulted in productivity gains

Key Takeaways

Key Points

  • Between 1950 and 2000, during the so called “second agricultural revolution of modern times,” U.S. agricultural productivity rose fast, especially due to the development of new technologies.
  • Avoiding losses of agricultural products to spoilage, insects, and rats contribute greatly to productivity.
  • Additional innovations include the pasteurization of milk, which allow it to be shipped long distances without spoiling.

Key Terms

  • agriculture: The art or science of cultivating the ground, including the harvesting of crops, and the rearing and management of livestock; tillage; husbandry; farming.
  • pasteurize: To heat food for the purpose of killing harmful organisms, such as bacteria, viruses, protozoa, molds, and yeasts.
  • revolution: A sudden, vast change in a situation, a discipline, or the way of thinking and behaving.

Huge productivity gains in agriculture were recorded in the twentieth century. Avoiding losses of agricultural products to spoilage, insects, and rats contributes significantly to productivity. Large amounts of hay stored outdoors were traditionally lost to spoilage before indoor storage or other means of coverage became more common. Pasteurization of milk allowed it to be shipped by railroad. (It was noted that calves fed pasteurized milk were less likely to develop tuberculosis, and soon it was found that pasteurization reduced the incidences of several other diseases in humans. ) Keeping livestock indoors in winter reduces the amount of feed needed. Also, feeding chopped hay and ground grains, particularly corn (maize), was found to improve digestibility. The amount of feed required to produce a kilogram of live weight chicken fell from 5 in 1930 to 2 by the late 1990s and the time required fell from 3 months to 6 weeks.

Between 1950 and 2000, during the so called “second agricultural revolution of modern times,” U.S. agricultural productivity rose fast, especially due to the development of new technologies (the greatest period of agricultural productivity growth in the U.S. occurred from World War 2 until the 1970s). For example, the average amount of milk produced per cow increased from 5,314 pounds to 18,201 pounds per year (+242%), the average yield of corn rose from 39 bushels to 153 bushels per acre (+292%), and each farmer in 2000 produced on average of 12 times as much farm output per hour worked as a farmer did in 1950.

Productivity Gains in Manufacturing

Manufacturing is a critical sector in the U.S. economy, creating millions of jobs and contributing substantially to overall GDP.

Learning Objectives

Discuss the various factors that impact productivity in manufacturing, alongside trends in jobs and production

Key Takeaways

Key Points

  • Manufacturing plays a vital role in the overall health of the U.S. economy.
  • As of 2016, manufacturing accounts for over 12 million US jobs. This number is down from the 1980’s, but is still a significant aspect of the workforce.
  • Globalization has a somewhat mixed impact on manufacturing, as it offers access to more markets (growth) while also offering access to cheaper production elsewhere ( outsourcing ).
  • Technology has a great impact on manufacturing as well, with machines drastically lowering costs and increasing efficiency. However, this too may ultimately cost jobs while increasing production.

Key Terms

  • GDP: Or gross domestic product, this economic indicator measures the total amount of products and services produced over a specific time frame.

Manufacturing in the United States is important both economically and politically. As a potential source of gross domestic product ( GDP ) and jobs across various skill levels, manufacturing plays a vital role in the overall health of the U.S. economy.

Trends in Manufacturing

Jobs and overall contributions to GDP from manufacturing are impacted by a number of factors, most importantly trends in outsourcing, changes in skilled labor (domestically), and advances in technology.

Over the past few decades, there have been drastic changes in the overall number of manufacturing jobs in the United States. As of October 2016, the United States employed over 12 million people in the manufacturing industries. At its highest in the 1980s, the United States had nearly 20 million manufacturing employees in the country.

Population is shown on the y-axis and years are shown on the x-axis. A blue line moves up and down, showing the changes in employment over the years.

Total US Manufacturing Employment: This chart illustrates the changes in overall manufacturing employment from the 1940s onward. The peak of manufacturing employment was in the 1980s, though it’s worth noting that this is not normalized as a percentage of population (i.e., population growth would impact this assessment).

Globalization

With globalization and the availability of affordable labor and real estate overseas, there has been a trend towards outsourcing manufacturing over the past few decades. This trend has had some clear effects on the overall number of manufacturing jobs domestically and the GDP.

This diagram is split into differently colored and shaped boxes, each showing a different export and percentage per export.

2014 U.S. Exports: This is a graphic diagram depicting the most common U.S. exports, including a number of manufactured goods.

On the other side of things, globalization has opened more markets than ever before. U.S. manufactured goods are sold across the world, which offers great potential for expanding upon production levels of manufacturing. The United States manufacturers more goods than any other country excepting China and the EU as of 2014, indicating that trends in decreasing manufacturing employment may be a result of complex factors such as technological evolution.

Technology Advances

Similarly, technology has increased the efficiency of manufacturing significantly over time. This increase in efficiency often results in less labor required for a higher volume of output. As this trend continues, and robotics (and even AI) continues to evolve, some jobs may be lost to technology while gross output should increase (or, at least maintain).

Conclusion

Manufacturing is a significant aspect of the U.S. economy, and will maintain its importance in the near future. Outsourcing of jobs and technological advances are a threat to the availability of jobs in this sector, while access to global markets and a political focus on creating jobs offers growth opportunities.

Productivity Gains from Technology

Productivity improving technologies date back to antiquity, and have accelerated greatly of late.

Learning Objectives

Identify the fundamental factors that have led to technological evolution over the centuries

Key Takeaways

Key Points

  • Technologies that improve productivity date back to antiquity, with rather slow progress until the late Middle Ages.
  • Technological progress was aided by literacy and the diffusion of knowledge that accelerated after the spinning wheel spread to Western Europe in the 13th century.
  • However, technological and economic progress did not proceed at a significant rate until the English Industrial Revolution in the late 18th century.
  • Even then productivity only grew about 0.5% annually, with high productivity growth only beginning during the late 19th century in the Second Industrial Revolution.
  • Productivity gains were not just the result of inventions, but also of continuous improvements to those inventions which greatly increased output in relation both capital and labor compared to the original inventions.

Key Terms

  • automation: The act or process of converting the controlling of a machine or device to a more automatic system, such as computer or electronic controls.
  • electromagnetism: A unified fundamental force that combines the aspects of electricity and magnetism and is one of the four fundamental forces. (technically it can be unified with weak nuclear to form electroweak) Its gauge boson is the photon.
  • internal combustion: The process where fuel is burned within an engine such as a diesel engine, producing power directly as opposed to externally such as in a steam engine.

Productivity Gains from Technology

In 1889, David Ames Wells described the economic events and technologies that created the great productivity growth during 1870-1890:

“The economic changes that have occurred during the last quarter of a century -or during the present generation of living men- have unquestionably been more important and more varied than during any period of the world’s history.”

Technologies that improve productivity date back to antiquity, with rather slow progress until the late Middle Ages. Technological progress was aided by literacy and the diffusion of knowledge that accelerated after the spinning wheel spread to Western Europe in the 13th century. The spinning wheel increased the supply of rags used for pulp in manufacturing paper, and the technology reached Sicily sometime in the 12th century. Cheap paper was a factor in the development of the moveable type printing press, ca. 1440, which lead to a large increase in the number of books and titles published.

Books on science and technology eventually began to appear, such as the mining technical manual, De Re Metallica. Mining and metal refining technologies played a key role in technological progress. Much of our understanding of fundamental chemistry evolved from ore smelting and refining, with De Re Metallica being the leading chemistry text for 180 years. Railroads evolved from mine carts and the first steam engines were designed specifically for pumping water from mines.

Later, near the beginning of the Industrial Revolution, came publication of the Encyclopédie, written by numerous contributors and edited by Denis Diderot and Jean le Rond d’Alembert (1751–72). It contained many articles on science and was the first general encyclopedia to provide in depth coverage on the mechanical arts, but far more celebrated for its presentation of thoughts of the Enlightenment.

Important mechanisms for the transfer of technical knowledge were scientific societies. The Royal Society of London for Improving Natural Knowledge is one example, though they were better known as the Royal Society and technical colleges. The École Polytechnique is one example. Probably the first period in history in which an economic progress was observable during one generation was the British Agricultural Revolution in the 18th century.

However, technological and economic progress did not proceed at a significant rate until the English Industrial Revolution in the late 18th century, and even then productivity grew about 0.5% annually. High productivity growth began during the late 19th century in what is sometimes called the Second Industrial Revolution. Most major innovations of the Second Industrial Revolution were based on the modern scientific understanding of chemistry, electromagnetism theory, and thermodynamics.

Productivity gains were not just the result of inventions, but also of continuous improvements to those inventions which greatly increased output in relation to both capital and labor compared to the original inventions.

A picture of a cable engine.

Technology and productivity: Technology has had a profound effect on productivity.

Since the beginning of the Industrial Revolution, some of the major contributors to productivity have been as follows:

  • Replacing human and animal power with water and wind power, steam, electricity and internal combustion, and greatly increasing the use of energy;
  • Energy efficiency in the conversion of energy to process heat or chemical energy in the manufacture of materials;
  • Infrastructures: canals, railroads, highways, and pipelines;
  • Mechanization, both production machinery and agricultural machines;
  • Work practices and processes: the American system of manufacturing, Taylorism (scientific management), mass production, assembly line, and modern business enterprise;
  • Materials handling of bulk materials, palletization, and containerization;
  • Scientific agriculture: fertilizers and the green revolution, and livestock and poultry management;
  • New materials for new processes of production and dematerialization;
  • Communications: telegraph, telephone, radio, satellites, fiber optic networks, and the Internet;
  • Home economics: public water supply, household gas, and appliances;
  • Automation and process control;
  • Computers and software for data processing.

Example: The Spinning Jenny and Spinning Mule greatly increased the productivity of thread manufacturing compared to the spinning wheel

Service Economy Growth

Most of the U.S. economy is classified as services as of 2011 (agriculture 1.2%, industry 22.1%, services 76.7%).

Learning Objectives

Identify the characteristics of the service sector that have led to its growing prevalence

Key Takeaways

Key Points

  • The growth of the service sector is a response to the change of traditional manufacturing industries into services.
  • Many modern services combine both products and services, and the distinction between the two has blurred.
  • Service producing sectors include a clear focus on knowledge and ICT, ever-changing business processes, and unique financial, regulatory, and investment structures.
  • Service industries also cover a large variety of business types.

Key Terms

  • services: That which is produced, then traded, bought or sold, then finally consumed and consists of an action or work.
  • manufacture: The action or process of making goods systematically or on a large scale.
  • productivity: Productivity is a measure of the efficiency of production and is defined as total output per one unit of a total input.

As shown below, most of the U.S. economy is classified as services. Agriculture accounts for 1.2%, industry makes up 22.1%, and services contribute 76.7% (2011 est.).

image

Hospital equipment: Health care is part of the service economy

In fact, the current list of Fortune 500 companies contains more service companies and fewer manufacturers than in previous decades.

A “service” can be described as all intangible effects that result from a client interaction that creates and captures value. Services are everywhere in today’s world. The sector ranges from common “intangible” goods, such as health and education, to newer goods, such as modern communications and IT. Services are said to be essential to increase productivity and growth and are considered salient to the development of knowledge-based economies.

Many products are being transformed into services. For example, IBM treats its business as a service business. Although it still manufactures computers, it sees the physical goods as a small part of the “business solutions” industry.

The growth of the service sector is, in part, a response to the change of traditional manufacturing industries into services. Many modern services combine both products and services, and the distinction between the two has blurred. However, still a number of typically shared characteristics distinguish services from goods-producing sectors. These include a clear focus on knowledge and ICT, ever-changing business processes, and unique financial, regulatory, and investment structures. Service industries also cover a large variety of business types, from travel to highly knowledge-intensive services, such as global communication networks and specialized financial services. In general, knowledge-intensive services encompass both professional services (e.g., financial, legal), and science and technology-linked services (e.g., environmental, mining, health).