Manufacturing versus service profit

It is remarkable that even after ruling the economic horizon for decades, capitalism still has not concluded the debate between which is better, a manufacturing economy or a service economy. For the supporters of manufacturing, the good news is that in the just concluded Economists debate, the motion, "This house believes that an economy cannot succeed without a big manufacturing base" was passed with a colossal majority of 76% votes.
Perhaps, Pakistan's economic and financial gurus will finally stop harping about the benefits of the service sector for economic growth!
However, prior to commencing service sector bashing, convention demands that the knowledge portion of the write up be wound up. According to Wikipedia, manufacturing is the use of machines, tools and labour to produce goods for use or sale, while Services is the non-material equivalent of a good. Imagine a sector which cannot even be defined on a stand-alone basis is in contention for the top spot.
For those already propagating a conspiracy theory, the author associates with the service sector and hence advocacy for manufacturing cannot be prejudiced in nature. But seriously, reinforcing one by default does not suggest that the other be down and out. Service sector is a pivotal enabling technology which supplements manufacturing.
"Capitalism and double entry bookkeeping are absolutely in-dissociable; their relationship to each other is that of form to content" - Werner Sombart (1863-1941). Here in lies the prejudice, accounting services are essential for both sectors; perhaps lawyers or maybe even doctors can dream up a similar cliché!
The primary difference between the two sectors is the tangibility of the output. Tangible goods can be produced, improved upon by technology, stored as inventory and consumed as necessitated by desire or need. On the other hand services can only be produced when a demand arises, can hardly be stored and rarely automated. The variations can best be illustrated by a comment during the dot.com boom, "when they start sending cola through a wireless network is when I will start believing in a larger purpose for the internet, other than mass dissemination of pornography".
Irrespective of the earlier rebutting, the differences between the two sectors at the boundary become quite fluid. Referring to accounting terminology, service and manufacturing are so closely interlinked and associated that any attempts to disjoin them will inevitably meet with implosion. Why all the hassle than?
The more recent antagonists of the contest emanate out of the West. After the extremely disastrous performance by their financial services sectors, and yes in this case the baby should be thrown away too, a support for manufacturing remerged which was opposed by the beneficiaries of the status quo, for obvious reasons. In 2011, service sector was a whopping 63% of world nominal GDP, and there are no marks for guessing that the average is inversely proportional to your position on the globe. Service sector is more than 70% of GDP in the case of all developed western nations.
In substance, however, a nation should be indifferent on how it makes profit, and every nation has its own unique resources to earn from. The prerequisites for setting up successes like Google or Facebook in the service sector are a highly educated workforce and a technologically advanced society. Developing nations dependent upon aid for meeting the needs of their country's basic education programs should plan for more realistic objectives when it comes to economic growth. In Pakistan's case, can we claim to have maximised value addition on our primary produce, cotton? Hardly!
History is a better guide. Europe's transition to a developed continent was on the back of its industrial revolution. And as they say, "Once you are rich, you decide what you wanna do!"
Until than, you focus on making profits by exploiting the resources you have, your national assets. Personally, GDP is not an indicator of the wealth of a nation; at best it is an indicator of a nation's annual revenue. Profit is determined by subtracting national assets consumed in earning this revenue. Complex accounting concepts, but even economists are debating upon what exactly constitutes a nation's wealth. As an example how wealthy is Saudi Arabia, its GDP for 2011 or the value of the oil reserves under its soil.
In the aforestated example should Saudi Arabia be focusing on its national asset, oil, or financial services?
Which brings us to the key reason as to why a developing nation should focus on manufacturing? Services are not location centric. While it would be impossible to move the oil reserves of Saudi Arabia, financial excellence will follow the money. Outsourced services are predictable as long as they can be paid for, and in most cases such services pacify luxurious wants rather than necessary consumption.
Home grown service sector for internal consumption or exports, as in the case of Bangalore, are profitable. Imported services are a bane for the national budget. Quality of life or consumer choice beyond means is no excuse for importing services, or goods for that matter. Living within developing nations available resources ordains that imports be limited to necessities only.
Even in terms of employment, unskilled labour is better utilised in manufacturing. Vocational training may provide temporary respite, but at the end of the day there can be no substitute for quality grass root education. Achieving those standards however is the chicken and egg situation. Earning profits to pay for this dream is the only solution, and that will require focused exploitation of national assets and for a developing nation, the only options are in the manufacturing sector!
In the earlier parts of this series enough has been said in defence of protectionism, essential for manufacturing in infancy. Even service corporations such as National airline, Pakistan Railways, telecom, utility stores and others need to be protected from the global corporations with vastly more resources.
But we digress; the key issue is that a strong manufacturing base is necessary for the growth of any developing nation. In Pakistan's case development budgets and aid funds should be directed towards facilitating investment in manufacturing projects and for creating employment opportunities in that sector alone. It goes without saying, that such initiatives should take cognisance of available resources.
All is fair in war and trade!