"Hog Butcher for the World

Tool Maker, Stacker of Wheat,

Player with Railroads and the Nation's Freight Handler;"

That is what the poet Carl Sandburg saw 71 years ago when he looked at Chicago, the "Stormy, husky, brawling City of Big Shoulders," in the spring of America's industrial age.

But in Chicago and everywhere else, that image has been receding for more than 30 years, as manufacturing employment has steadily been displaced by a growing service sector.

That shift picked up momentum in the 1980s, which has whipsawed American producers with a long, deep recession, followed by a recovery that has brought an unprecedented stream of imported manufacturered goods into the United States.

Over the past five years, the dynamic industries in the American economy have been services: soft drinks and other beverages, tobacco, health care, oil field services and publishing were the top five industries in average annual profit growth, according to Forbes' Annual Report on American Industry for 1985.

There was only one manufacturer -- computer makers -- among the top five industries ranked according to sales growth over the past five years. The savings and loan industry, financial institutions, banking and natural gas pipelines were the other four.

Sandburg's hog butchers, tool makers, railroads and freight handlers finished far down on the list, in the company of auto, steel and coal.

To some worried observers, the retreat of these basic manufacturing industries is evidence of a general weakening of the nation's economic strength. They warn that the expansion of the service sector may signal the emergence of a fast-food society less and less competitive with the world's other industrial powers.

"We can't afford to become a nation of video arcades, drive-in banks and McDonald's hamburger stands," Chrysler Corp. Chairman Lee A. Iacocca declared last year. The country can't condemn its youth to a livelihood of sweeping up behind an army of Japanese-built robots, Democratic presidential nominee Walter Mondale said last year.

It isn't a simple problem.

Much of the beating that U.S. manufacturers have been taking in the past two years has been caused by the high price of the dollar compared with foreign currencies, rather than bad management, poor engineering, shoddy workmanship or other competitive weaknesses within American manufacturing companies.

The strength of the dollar lowers the effective price of imports entering this country and boosts the price of the American-made goods headed overseas.

It has tended to mask some impressive improvements in competitiveness by American manufacturers in the past few years, thanks to their heavy investment in new technology and a tough approach to cost-cutting. Thus, the potential competitive strength of U.S. manufacturers may really be better than the trade deficits indicate -- but that won't be clear until the dollar weakens. The problem is, that isn't expected to happen until the second half of 1985, if then, and in the meantime, manufacturing will continue to suffer.

Even with a high dollar, manufacturing made an impressive recovery in 1984, according to Data Resources Inc., with output rising nearly 12 percent for the year, compared with 1983, thanks to large gains in high-tech and sophisticated equipment areas.

DRI predicts that the growth of computers, telecommunications, biotech and factory automation sectors will more than offset declines in older, basic industries such as steel products, permitting manufacturing to hold on to the same share of the nation's economy it now has.

Manufacturing comprised nearly 37 percent of the economy in 1980, compared with 52 percent for services. According to DRI's projections, that relationship will be essentially the same in 1990.

DRI and other economic forecasters make an important distinction between the share of manufacturing in the nation's economic output and the share of manufacturing jobs in the economy.

"Manufacturing jobs will continue to decline as a share of overall employment, increasing only 4.9 percent between 1982 and 1995, when total employment is expected to grow 27.9 percent, a New York Stock Exchange study predicted last year.

But that decline will not be translated into a decline in the importance of manufacturing in the economy, the study concluded. With rapid advances in automation, manufacturers will be turning out more products with fewer employes.

The spread of high technology throughout manufacturing is giving an important boost to a group of services closely related to manufacturing -- consulting, data processing, and engineering among them.

The Federal Reserve Bank of Cleveland, in a recent study, noted that the service economy is not growing uniformly.

"Over the years, a new service sector has been emerging, fostered by new technologies, most notably the computer," the Cleveland Fed reported.

Spending on producer services -- including finance, insurance, legal and business services -- has been expanding twice as fast as that for the entire service sector. Health care and other related services also have expanded.

Other, traditional kinds of services -- retail and wholesale trade, government services and consumer services, including travel, lodging and entertainment -- have a smaller share of the service dollar than they did a decade ago.

This trend gives hope that the predictions of a "hamburger" economy will not prove true, because the fastest-growing part of the service sector is generating jobs that offer good opportunities for pay, benefits and advancement, said David Wyss, of DRI.

The NYSE study noted: "There is a higher concentration of professionals and technicians working in the personal and business services than in any other sector of the economy except for civilian government."

Based on that assumption, the NYSE study sees little change in the makeup of the service sector a decade from now. "The importance of the various occupational groups in the employment mosaic will be much as it is today. Service workers -- the waiters and waitresses, the food service workers, the nurses, the cooks and chefs and the building custodians -- will account for less than 20 percent of all jobs, just as they do today."

Some of the shift toward services is simply an inevitable result of changes in the makeup of the population, noted DRI's Wyss. As the average age of the U.S. population continues to increase, there will be a growing demand for health care -- a trend that already is having a powerful impact on the economy, creating new companies, demands for new products and new jobs.

But some experts remain worried that the United States will find it increasingly difficult to sell abroad if the shift toward services and away from manufacturing continues.

"While the service sector has created millions of new jobs since 1970, our competitive core still largely lies in manufacturing . . . ," Harvard Business School professors Bruce R. Scott and George C. Lodge wrote in their recent book "U.S. Competitiveness in the World Economy."

"Beginning with our industrial revolution shortly before the Civil War, the growth of the manufacturing industry has been the principal vehicle of U.S. economic growth," the late Otto Eckstein said in an analysis of U.S. competitiveness published last year by DRI.

As Scott and Lodge point out, the nation's standard of living depends to a great extent on the ability of U.S. producers to export because that, in turn, enables Americans to buy the foreign goods that society wants and depends on, from oil and strategic metals to Japanese subcompacts and consumer electronics and low-cost shoes and clothing from Asia.

Although there is a long history of negotiated international agreement promoting freer trade in manufactured goods, there is no such consensus on trade rules in many emerging areas of trade in services, such as computer software and telecommunications.

Trade in services makes up one-fifth of world trade, but there is "no coherent system of rules or procedures," concludes a study by the American Enterprise Institute. Service industries such as shipping, tourism, banking, accounting and telecommunications have become international, each raising difficult new problems for the world's trading nations. And in a world that appears increasingly vulnerable to protectionism, these issues will be hard to handle.