Case Study 5.3_02 "The New Economy"

Directions: Complete the following case study and record your answers on a separate sheet of paper.

Topic: A discussion of the current state of the U.S. economy, specifically examining the changes caused by technology and globalization.

Objective: To examine how the current strength of the U.S. economy is due to the changes brought about by technology and globalization. The economic relationships between industries, workers and consumers have changed, creating a new economy.

Since the late 1980s, major changes have occurred in both the U.S. and global economies. Globally, nations and regions are developing rapidly. Asia has risen to be a top production region for many of the world's consumer products. Many areas in Asia have also become major consumers of heavy industrial equipment, raw materials and infrastructure. In the United States, there has been a move away from a production and agriculture economy to an economy based upon information technologies, management and services. Many light industrial factories have closed in the United States as production work has moved overseas. Industries like the garment industry depended upon inexpensive labor being available for the labor-intensive job of mass producing garments. Many corporations found that inexpensive labor in developing countries. Yet other U.S. industries grew, in effect absorbing any job loss caused by globalization and overseas production.

CS Question #1: What is the current U.S. economy based upon?

The industries that grew while other industries moved overseas are based upon emerging technologies (like the Internet) and services. In the United States today, many jobs have moved toward information management. Take, for example, a business that has moved its production to Asia but still exists as an American-based business. That business needs to be communicating constantly with its foreign factories, placing orders, checking quality, and managing accounts, labor contracts and labor laws. In many ways technology in the form of computers and the Internet have made this all possible. But now such a business must hire specialists in computers and management in order to properly run its overseas interests. It is possible for a business to exist that produces nothing itself but instead contracts all the production to other businesses overseas. In this way the U.S. economy has moved away from production to information management.

CS Question #2: How has the U.S. economy moved from production to information management?

The service industry is also growing rapidly in the new economy. Services include everything from fast food to health care. In studies estimating future job growth, cashiers and health care workers are both in the top ten fastest growing job fields. Other services that are growing in demand include teachers, clerks, truck drivers, computer support, and systems analysts. The need for general managers and executives is also predicted to grow. These services are increasing in demand for a variety of reasons. The U.S. has a growing elderly population that needs more medical services. The elderly need many other services as well, from home repairs to having groceries delivered. Another reason for the growth in the service industry is the growth of the economy as a whole. American consumers have experienced an increase in their standard of living and can afford more goods and services. Since U.S. businesses are recording record profits, most investments have paid off, and the economic benefit has been reflected in the growth of the service industry.

CS Question #3: Why is the service industry so important to the U.S. economy?

The manufacturing industry in the United States is largely in industrial production like cars, trucks, high technologies and the infrastructure. Overseas competition for heavy industry has long been a problem to the U.S. economy. Asia and Europe have major heavy industry sectors and are trying to sell as much equipment as they can. The overall effect of international competition has been globalization, as nations form trading blocs in order to gain more leverage in the marketplace. The European Union organized itself to run not only as a trading bloc but also as a single economy. The United States became a member of NAFTA and then GATT but retained some sovereignty over its economy. As developing nations become more economically powerful, there will be more competition. Nothing is furthering globalization faster than the development of economic relationships like free-trade agreements.

CS Question #4: What has been the overall effect of international competition?

Further Thought: