Critique of The Economic Base Concept
The economic base concept emerged in the 1920s, when economics focused on different industrial strengths and economic techniques were not as nuanced. The exporting (basic) activities were manufacturing and trade activities and they could be readily identified in the data series. One could think of changes in those activities as causing growth or decline.
Today, export activities purchase many services, and the comparative advantage of an area may well lie in the services it produces. Peter Drucker (1986) imagines a world dominated by trade in ideas and designs. There is little merchandise trade because technology permits small-scale manufacturing. Such a world would change our ideas of what’s basic.
The concept is that of a trading region. But in practice economic base concepts are often applied to areas that fit the concept. The Minnesota study, cited before, compared the Minnesota to the US. One can speak of the economic base of Saint Paul, Minneapolis, or Duluth, but to go on and compare such areas using economic base techniques isn’t very meaningful.
Forecasting is a precursor to actions, and there is no explicit way to get from the economic base to the kinds of actions most communities are interested in. That is, the economic base study doesn’t say what to do. Leaders say they want desirable economic activities, such as high tech ones. Indeed, we have seen studies of the transport needs of high tech industries, studies done prior to investments to attract such industries (for example in Pennsylvania). Again, the economic base study doesn’t say what to do.
Even if we could make what-to-do linkages, the calculus of “desirable” is not simple. We suppose that high pay, little environmental insult, upward mobility for workers, and stability or growth are among the attributes desired of new activities. The table below gives information on the pay attribute. Clearly, that attribute has to be traded off against other attributes.
| Industry | Average weekly earnings (April 2003) |
|---|---|
| Mining: | 774.58 |
| Construction: | 721.58 |
| Manufacturing: | 629.43 |
| Transportation and public utilities: | 670.32 |
| Wholesale trade: | 627.13 |
| Retail trade: | 296.80 |
| Finance, insurance, and real estate: | 611.90 |
| Services: | 507.43 |
| Total private: | 511.39 |
Read more about this topic: Economic Base Analysis
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