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Intangible Sector Job Growth

Posted by: Michael Mandel on December 10

I just did a piece on job growth in the intangible sector. You can find it here.

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Reader Comments

Justin Coffey

December 10, 2008 01:31 PM

Mr. Mandel,
While this is a fascinating piece that highlights a big change in the current direction of our economy, you do make one statement that is worth pointing out:

"But it's not clear yet whether a country such as the U.S. can afford to let all its tangible industries shift abroad."

I'm not so sure I buy into the idea that in order to progress socio-economically we need to shift entirely away from production of tangible goods. Amongst all this talk of a permanent shift in our economy, I keep thinking two things.

First, the last round of intangible growth was supposed to have been finance. We know where that led. Just as I was ill at ease with the finance-led economy, I'm not all that comfortable with another new economy built on a booming health care industry. We already spend more on keeping ourselves (moderately) healthy as a percentage of GDP than any other western country--by far. What good will come of a health care bubble fueled by overpaid health care workers? Is this just another of our economic paradoxes (ie what's good for my health care premiums is bad for America)?

Second, the economic anchor of the EU, Germany, certainly has no problem being a producer of tangible goods. They are a modern economy built on a strong manufacturing sector with a large account surplus. Why is it then impossible for the US to replicate Germany's success? Are we simply not as skilled at building things, or is it rather bad (or overly greedy in the short-term) management?

It seems to me that we (via industrial policy) are still in control of our own economic destiny.

Justin Coffey


December 10, 2008 02:50 PM

Mr. Mandel,
I agree with Dominic's comments on the article: the characterization of sectors open to global competition and those that are not seem to fit your examples better than "intangible vs. tangible".
That said, I think you have a point that America is still more competitive in R&D than production. There really are a number of "knowledge" jobs in the US that generate value that is tradeable even if it is intangible (Apple and Google are great examples). I think this has mostly to do with the fact that the U.S. got there first and set up a supporting legal, financial, and educational infrastructure. The monopoly effect is also still on our side, since the US-based MNCs are still hesitant to place their crown jewels in countries where IP is more vulnerable. However, there are counterexamples: Businessweek just recently did an article on the offshoring of thousands of pharmaceutical R&D jobs. My perspective is that that lead is eroding quickly, and "intangible" jobs cannot be counted upon to carry the entire economy.

Indeed, we are discovering what happens when assets and the service industry are left as the economy's support buttresses: they buckle.


December 11, 2008 06:38 AM


Answering to your comment in the article I can tell you that as much as I didn't like an economy with too many mortgage brokers, real estate agents and bankers, I don't think an economy with too many teachers and nurses would be healthy either.
Your are right, like it or not these are the jobs that are growing, but let's not forget that one of the reason is because labor and cost arbitrage opportunities are harder to obtain in these fields....and health care, as I said in my comment is somehow immune, for the most part, from the economic cycle.
These jobs are growing not because of specific policy choices so far (outsourcing of some functions in healthcare is a reality..whenever you do not need interaction with patients).
I think that what we need is balance....yes we need plenty good teachers, great nurses and doctors and to boost innovation and R&D.
However not everybody can be a doctor, teacher or a researcher.
We need "tangible" things too in our economy.
I do not want to open a can of worms...but what we really need is to decide the rule of the game with our trading partners in the world...we cannot be open to trade on this side and accept mercantilistic practices on the other side..we need to stop currency manipulation which alter the real cost of doing business...for example if China did not artificially peg its currency to the dollar and letting it naturally rise with its increasing trade surplus, many jobs probably would have not even left the country in the first place.
But maybe this is a discussion for another day...
Someone already commented in your article that the European economy is still doing OK (or at least no worse than us) making tangible things.


December 12, 2008 11:55 PM

I'm not sure the job classifications used to produce the numbers in the article are that great as I would put auto dealer car salesmen in the intangible category also, just like all salesman. I think all the commenters are agreed that the prospect of education and health-care driving the economy with their horrific inefficiency is a dreadful prospect but what's funny is that the reason those sectors are so bloated and inefficient is precisely because of the industrial policy that the three of you support. Medical payments is a half-government system and education is even more so. I'll give you guys credit for seeing the reality of such bad public policy choices, though it'd be even better if you acknowledged that the industrial policy that you push for creates such problems. I'm not too worried about education or health care though as they will both be destroyed by the PC/internet revolution. They are both fundamentally information industries and will be destroyed just like the newspaper industry. We are about to make a giant lurch forward into information work, where a vast group of people jump into telecommuting information work and that will take up whatever job slack there is. The only reason it hasn't happened already is because the techies have been too dumb to deploy a working micropayments system. Once that happens, information work will explode and another tech boom begins. CompEng, some overheated prose there, the financial blowup is hardly a buckling of the US economy. You're right that the rest of the world is catching up in every sector but unfortunately they won't get anywhere close, as long as they maintain their socialist systems. Dom, the mercantilist policies of China or other countries only hurt their own economies, the last thing we should be doing is mimicking them. You saw what happened as a result of Japan's industrial policy for the last couple decades, such zombie companies/economy is a direct result of your favored industrial policy, with the perfect case in point being the Big 3 automakers in this country. As for Europe doing better than us, what a joke, they're doing even worse as their banks were even more leveraged than ours and the first thing that drops in a recession is BMW and Porsche sales.


December 13, 2008 06:02 PM


You use the socialist label a bit too you really know the meaning of it??
I did not advocate that we match Asia neo mercantilist and currency manipulation practices, quite the contrary actually (by the way for some sectors in the US the free market never existed.....just ask the farmers).
I want a level playing field for everyone where the value offered and productivity are de-linked by the government dictated exchange rate of the currency...we all should be either mercantilists or free marketers.
You continue to ignore the areas where the foreign competition is quite ahead of the US, I mentioned them several times...the world doesn't revolve only around software and weapons...
Japan is doing better than the numbers suggest.
The auto industry is still a very important component of the world economy...and basically everyone, maybe with exception of Tata or Zastava is leaving our car makers in the dust, for quality and technology.
Your beloved high tech industry is not exactly a true free market paladin either, given the fact that they lobby very hard for more and more indentured servants (aka H1B visa holders).
As for Europe doing worse than us...we will see in the future.
If you think the US is a more "free market" society than Asia or Europe, the recent facts speak for themselves.
You should read a bit of Gore Vidal.
We are still waiting for the second internet revolution Ajay....when do you think is going to be with us???


December 13, 2008 10:22 PM

A note on mercantilism. Milton Friedman said that a protectionist nation hurts themselves and others. He said the proper response is to answer protectionism with openness. To an extent, that's probably true. Applying that philosophy has allowed us to buy almost anything at below what we would otherwise be able to buy it. Unfortunately, future competitiveness is based on current competitiveness. If we're getting way overpaid for a few things that we won't be able to sell forever, we could easily find the economic correction more painful than the inefficiency of buying some capability for production. That's why I like what Warren Buffet proposed with Import Certificates: it doesn't support a trade surplus, but helps to correct market-distorting effects.
There are many examples of mercantilism buying effective companies: I think Sony is a darn good company. Protectionism often has its intended effect, and destroys other entrants into the market. It just doesn't have a net positive effect on standard of living in the short term (generally just the opposite). It's only better than having an economy with a large component of smoke and mirrors because so many big and successful companies are convincing someone else to pay for crowd control.

As far as the healthcare industry goes, it's an evil hybrid of government and the free market that gets little of the benefits of either. I think either a single-payer system or a true free-market system would be better than what we have now. The whole thing is an effort not to look at the hard but real tradeoffs involved in life and death. If anybody had to admit to being responsible for anything, you'd get a better outcome.

Actually Dominic, I think I'm in favor of H1Bs. I'd rather have the job in the US and pay a little less, but have the opportunity to compete for it, than just have the job overseas and not have the opportunity at all.
The high-tech industry, like most successful industries, does have its subsidies, but I'm not going to include H1Bs in the list since it's actually an openness, not a demonstration of favoritism.

Ajay, yes I am prone to hyperbole, but it makes a nice turn of phrase, don't you think? :)


December 19, 2008 10:32 PM

Dom, perhaps you'd care to point out why my usage of the word socialist is incorrect? Oh I see, you have no reason. I'm glad to hear you don't think we should fight mercantilist fire with fire, but your statement that there should only be ideological extremes of mercantilism or free markets is ridiculous. Every country is some blend of these two extremes, I'm just glad that the US is much more of a free market than practically every other country and I'm sad about the sectors, like medical payments or education, where it isn't. I have not ignored any of your points about foreign competition: I have debunked all of them where you made them, perhaps you didn't notice? The global auto industry may be somewhat important but clearly the US auto industry isn't, with the "Big 3" having a combined market cap of $10-15 billion, 10-15% of Toyota's market cap and a similarly small fraction of tech companies like Microsoft, Intel, Cisco, or Google. Perhaps high-tech companies would lobby for an even freer market in employment if they were given a way to do it other than through H1-Bs, which are more free than no immigrants at all? This is somewhat irrelevant today as you can just open up an office in India or Brazil and video-conference when necessary. I agree that the US government has made some troubling interventions recently but if you think Europe or Japan aren't far more interventionist and that that doesn't hurt them more, you're seriously deluded. As for the next tech boom, I've suggested a sufficient and perhaps necessary condition for it to happen: micropayments. Do you want me to give you the date too? ;)

It's funny you should mention Gore Vidal as I suspect I've read far more of his writing than you have. His collected essays, United States, was my bible for a couple years and I have read many of his books: Creation, Burr, and Julian are some of the finest novels ever written in my opinion. What's interesting about Vidal is that there is almost no mention of economics in almost all of his writing, presumably he stuck to subjects he knew better. Only in public interviews does he talk about his socialist leanings and particularly recently, when he went off the deep end about civil rights and other violations by Clinton and Bush, has he been making strident political statements. Nevertheless, I claim him as more of a free marketer in philosophy as he could be very darwinian about his chosen field, writing, referencing the highly competitive profession with analogies to the fangs or capacious belly of literature. Like many people, he can have a darwinian perspective when it comes to his own field but a more socialist perspective when it comes to the rest of the world: I suspect this is because most people don't have the energy or inclination to apply the same critical eye they have for their own field of expertise to the world around them. What's interesting is that in one of his early essays, the younger Vidal talks about how the old often turn bitter and start prophesizing looming catastrophe everywhere: today he has turned into that cliche himself.

CompEng, buying capability for production is based on your irrelevant dependency model that I've already debunked. Buffett is a great investor but he consciously stays away from sectors he doesn't understand. However, the whole economy is made up of many of those sectors, so I don't think his analysis is necessarily that worthwhile. His import certificates merely implement tariffs with a market gloss, no reason to take them seriously. Sony is a joke that Stringer has not been able to turn around. The direct effect of protectionism is giant bureaucracies like Sony or GM, that feast on the economy that supports them like giant parasites. "Smoke and mirrors," "crowd control"? These vague assertions cannot be answered. I largely agree with what you say about medical payments, with the exception that a free market would be markedly better than government control: it just hasn't been tried. Glad you understand that H1Bs are more free than the alternative. As for your previous phrase, it was well-turned, :) only it was sickening to me because it was in service of a perspective I think is patently false.

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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