Services Can Be a Source of Growth Too

A month ago, I started reading Ha-Joon Chang's latest book that took to exploding some urban legends about capitalism. Many of the arguments that he stated therein were very sensible and largely accurate because they involve careful and non-ideological survey of how markets function and how they fail to work well enough because of political or other reasons. In a  couple of the 23 chapters, I  was not only unconvinced but also found myself taking the opposite view from this accomplished professor.  The first of those was on industrial policy and the other was the claims made that manufacturing industry is essential even for high income countries.

While he may not necessarily be one, I have earlier alluded to the manufacturing fetish that many people have and the unduly high regard that they hold for manufacturing in comparison to services. John Kay's article here provides an argument showing why the assumed superiority of manufacturing is mistaken. The argument is so cogently stated that I will not attempt a summary of it. Instead, I will say that the increasing specialization by society provides opportunity for tasks to be assigned to those most capable of doing them at the lowest cost. He also explains using simple economics language why the belief that real work must issue sweat is a relic of agricultural society.