44 



productive activity changed from agriculture to manufacturing during 

 the first third of the 20th century, and from manufacturing to services 

 in the second third. The products of agriculture and other extractive 

 industries are food, fiber, lumber, and minerals; those of manufacturing 

 are the highly diversified items ranging from clothing to automobile-; 

 those of services industries are information and noncommodity- 

 related activities. This sequence is probably not reversible, and the 

 future health of the U.S. economy depends on the development of the 

 services industries and the enhancement of their productivity. How- 

 ever, much of the services industry is in Government services which 

 consume but do not generate income: Teachers, police, firemen, other 

 State and municipal employees, Federal workers, and those in military 

 service. 



The trend in the United States toward services industries is the 

 central feature in a complex of developments that include increased 

 emphasis on the quality and quantity of security services that are 

 provided by governments, such as protections against crime, unem- 

 ployment, old age, and medical costs. Environmental protection has 

 recently been added to this list. These services are costly and most of 

 them are tax-supported instead of yielding tax revenues. Even as 

 population movements toward urban centers have increased, erosion 

 has occurred in the urban tax base as the wealthier segment of the 

 urban population — and industry as well — has left the central city for 

 the suburbs. 



Another complicating factor, perhaps more transient, is the shift 

 in the demographic distribution of population toward the young and 

 old parts of the lifescale; these are less productive than persons in 

 the middle range but absorb services at a higher rate. 



The U.S. tax structure, which is effective in an expanding economy, 

 tends to amplify cycles of high and low economic activity. 



In turn, depression of the economy tends to worsen all the other 

 economic problems that appear as the Nation proceeds further into 

 the "services" phase. As the tax base shrinks and the service- industries 

 grow, the ability of the Federal Government to support ambitious 

 programs diminishes, while the demand for services and payment for 

 them continues to grow. 



The extractive industries in the United States (accounting for half 

 the labor force in 1890) now employ less than 5 percent of the labor 

 force; manufacturing perhaps another 25 or 30 percent: and services 

 the rest. The trend is toward further shrinkage of the first two and 

 expansion of the third. 



Shrinkage of the tax base and expansion of tax-supported activities 

 have important implications for diplomacy: as to ability to fund 

 military programs, support foreign assistance, contribute to United 

 Nation-, agencies a major fraction of their support, and invest in large 



re earch and develop nt efforts whose product is increasinglj resisted 



h> the industrial sector as profit margins narrow. The pattern of U.S. 

 trade is likewise disrupted by internal economic dislocations. Stag- 

 flation, decline in the value of the dollar, and increasing compel it ive 

 difficult} of U.S. industry all lead, in turn, to balance-of-payments 

 deficit-, making funding of U.S. programs abroad difficult. 



A public stniithiKi in services and welfare rise, demands grow for 



a afer and more wholesome environment, control over hazardous 

 condil ion in indust rj , and reduced impacts of mining and forestry on 

 wilderness area-. 



