It’s Services, Not Manufacturing, That Drive US Innovation and Economic Growth
Yesterday, Fareed Zakaria, on his Global Public Square show, called on America to ‘forget the misty-eyed nostalgia about manufacturing,’ pointing out that Services is the fastest-growing sector in the world economy, generating higher profits and creating good jobs. (https://youtu.be/DDtZLShib2E). Zakaria’s comments come at a time when the global economic landscape is rapidly evolving, with services now contributing significantly more to GDP than traditional manufacturing in many advanced economies.
According to a 2020 report by the Reshoring Initiative, over 1,100 companies in the US reshored manufacturing jobs in just that year alone, with sectors like electronics, machinery, and automotive leading the way. At Carrollco, we’ve worked with clients who recognize the importance of US onshoring and reshoring after the surge of outsourcing manufacturing to China, and more recently, Southeast Asia. This trend has been encouraged by advocates like Rosemary Coates, Executive Director of the Reshoring Institute, which guides firms to optimize manufacturing site selection and ‘reshore’ when it makes business sense.
Additionally, during the Obama administration, initiatives like the Doing What Matters initiative worked with state schools to make logistics and supply chain management a more attractive career path. By focusing on community colleges and trade schools, this program aimed to rebuild the workforce necessary to support a more resilient US manufacturing base. These efforts illustrated a focus on root-cause corrections to the outsourcing dilemma and braindrain from US manufacturing. The lack of much-needed talent became particularly apparent during the pandemic when supply chains became a glaring vulnerability in national security. In fact, the pandemic underscored the importance of certain manufacturing sectors, such as steel, which have national security implications. The US government’s recent focus on ‘critical minerals’ and other strategic resources further highlights the growing recognition of supply chain management for US independence and security.
However, Fareed Zakaria is right about the relative importance of the Services sector in today’s economy and its potential to shape the future world economy. As Zakaria explained, services not only represent the largest sector in the global economy but also offer higher returns and more sustainable jobs. According to a 2023 World Bank report, services accounted for approximately 60% of global GDP, compared to just 20% for manufacturing, a trend that’s expected to continue.
The current administration has championed the idea of reviving manufacturing, yet it must also acknowledge the reality of today’s globalized world. Yes, developing and investing in the capabilities and skillsets needed for manufacturing is important. But even in the manufacturing sector, the real innovation and growth often lie in the service aspects of production. Take, for example, the role of design, research and development (R&D), and marketing services in industries like automotive or aerospace. These sectors rely heavily on a skilled services workforce to innovate and deliver new products. Companies like Tesla and Apple demonstrate how manufacturing, combined with cutting-edge design and technological services, can drive growth.
Rather than yearning for some mythical past and implementing regressive policies that seek to revive a world that never truly existed—such as policies to revive segregation, deport citizens seen as ‘other,’ or push women back to the kitchen and LGBTQ+ people back into the closet—we need leadership that can adapt to change. Today’s world ecosystem is complex, but the basic rules of economics still apply: each country has its comparative advantages. The United States has largely developed into a service-driven economy, and its global strength lies in its ability to create innovative services, including those connected to manufacturing.
Let’s keep manufacturing in context as we continue to invest, develop talent, and shape trade policies. As McKinsey & Company noted in a 2022 report, the future of manufacturing isn’t just about factories—it’s about integrating advanced services like digital supply chain management, artificial intelligence, and cybersecurity into traditional manufacturing processes. This blend of manufacturing and services is where future innovation lies.
The US must embrace the reality of a service-based economy while continuing to evolve its manufacturing sector through innovation, education, and strategic investment. The intersection of services and manufacturing will shape the future of global economies, and America’s leadership in both sectors will define its role in the future world economy.
