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F E D E R A L R E S E R V E B A N K O F D A L L A S 1 9 9 4 A N N U A L R E P O R T é Fr dé ia t 1850 THE BETTMANN ARCHIVE 1801 ric Bast “In the exchanges that men carry on with one another there is only one thing that is and can be compared ... services rendered and received.” “Manufacturers, lawyers, doctors, civil servants, bankers, merchants, sailors, soldiers, artists, workers, all of us, such as we are ... render and receive services. It is in them alone that value resides, and not in the ... raw materials and ... natural resources ... that they put to work.” “One who has more talent renders more services ... from which it follows that he is voluntarily granted a greater remuneration.” “Capital is not an accumulation of material objects, dependent on the durability of matter, but an accumulation of values, that is, of services.” “Liberty tends inevitably to lead to the just equivalence of services, to bring about greater and greater equality, to raise all men up to the same, constantly rising standard of living.” Frédéric Bastiat championed revolutionary ideas in a revolutionar y age. Born at Bayonne, France, in 1801, Bastiat was 14 when Napoleon’s army fell at Waterloo and 29 during the Revolution of 1830. Living at the height of mercantilism but inspired by Adam Smith and Jean-Baptiste Say, Bastiat worked feverishly to promote free trade and other market-based economic principles that special interests sought to obscure. Rising to prominence in 1844 upon the publication of his first pamphlet, “The Influence of French and English Tariffs on the Future of the Two Peoples,” Bastiat gained a reputation as perhaps the greatest expositor of free market ideas who ever lived. It has been said that Bastiat killed protectionism with ridicule. In an outpouring of essays and public appearances, he used exaggeration to expose the fallacy of protectionist policies. Less acknowledged but nonetheless significant was Bastiat’s emphasis on services as the great denominator of all value. Bastiat’s career was cut short by illness, and he died in 1850 at age 49. CONTENTS PRESIDENT’S MESSAGE 1 THE SERVICE SECTOR: GIVE IT SOME RESPECT 3 THE YEAR IN REVIEW 23 BOARDS OF DIRECTORS 25 ADVISORY COUNCILS 27 STATEMENT OF CONDITION 28 STATEMENT OF OPERATIONS 29 STATEMENT OF SURPLUS 30 VOLUME OF OPERATIONS 31 OFFICERS 32 F 36 f President’s Message remember when they called them service stations. When Even though the recovery got off to a slow start in terms I started out pumping gas at my dad’s station, I used to of job growth, that’s ancient history now. We’ve had three years check the oil and wipe the windshields whether they of good output growth and two years of good job growth. 1994 needed it or not. I didn’t know it at the time, but I was was the best year of all. The economy strengthened throughout part of the service sector. Even so, I could still tell people the year, with real GDP growing at a 4.5-percent annual rate and what I did and they knew what I was talking about. Or, they could unemployment falling to a 5.4-percent rate at year’s end. For the just look at my fingernails. year as a whole, real GDP increased 4 percent, and the economy It’s more ambiguous these days. I guess I’m still in the gained 3.5 million new jobs. The consumer price index increased service sector. But when I have to fill in the little blank that asks my 2.7 percent from December to December for the second year in occupation, I hardly know what to write. Lately, I just put central a row. The “misery index,” the inflation rate plus the unemploy- banker. In any case, newsprint has replaced car grease on my hands. ment rate, was at its lowest level in many years. Chances are, you’re in the Monetary policy in 1994 service sector, too. Most people are backed off from the extraordinarily these days, although they may not be easy stance of the previous two aware of it and would be hard- years. The 50 mph head winds that pressed to define their job in a sen- had justified the extraordinary ease tence or two. Can you imagine ex- dissipated and turned into tail winds. plaining to a class of third-graders Much of the slack left over from the what a biogenetic engineer does? It’s recession gave way to conditions a lot easier to explain the tangible— associated with inflationary pressures that you build houses for a living— in the past. The policy adjustment than it is to explain the intangible— was apparently successful, as real that you analyze investment strate- growth remained strong and infla- gies to increase the values of your tionary pressures have yet to surface clients’ portfolios. in final consumer prices. Many pundits don’t give the We at the Federal Reserve service sector much respect. But that will continue our vigilance against doesn’t seem to matter to college inflation, which undermines the value students who are looking forward to of our money and erodes our faith entering the service sector as com- in our government and its institu- puter programmers, engineers, bank- tions. History has taught us that it is ers and accountants. How often do only through a sound, stable you hear that service workers are among the highest paid and the economy that job growth, productivity and opportunity will en- best educated? Instead, we hear that the country is going to hell in a dure and thrive. It has also taught us that as we move from manu- handbasket because services are replacing goods in our output mix. facturing to services, we will find new job opportunities that are Our annual report essay takes issue with that point of as good or better than what we’ve left behind. The lesson to re- view. It shows that our expanding service sector is not a sign of member is that it is our free enterprise system that has provided decline but a logical phase in our growing prosperity. In fact, it is us with the highest standard of living of any nation in the world. the strength of the service sector that has fueled the growth of This same system has enabled us to make the transition to a more the U.S. economy for the past several years—something else that service-oriented economy, a reflection of a richer and more pros- hasn’t gotten the respect it deserves. I call it the Rodney Dangerfield perous America. recovery. Many people still talk about the recovery from the last recession as if it were a very new and very fragile thing, but the recovery began in 1991. April 1 will mark its fourth anniversary, Robert D. McTeer, Jr. President and Chief Executive Officer and that’s no April Fool’s joke. F1f F2f “If God had made man a solitary animal, everyone would labor for himself.… But, since man is a social creature, services are exchanged for services.… Do this for me, and I will do that for you.” – Frédéric Bastiat mericans eat more meals than ever at restaurants— their health and well-being, Americans turn to doctors, from the fabled Brown Derby in Los Angeles to nurses, dentists, social workers, massage therapists, psychia- McDonald’s in Almost Anywhere, U.S.A. They take trists and pharmacists. No matter how well we take care of their clothes to the dry ourselves, ever yone eventually cleaners, their cars to a will need a funeral director. mechanic, their dogs and cats to All this — and much, veterinarians. They go to a barber much more — we call the service shop or a beauty salon for hair sector. care. Two-career families drop The service sector domi- young children off at day-care nates the U.S. economy. It makes centers. up two-thirds of the nation’s outFor their homes, Ameri- put. Nearly four of five Americans cans hire maids, gardener s, earn their livelihoods providing plumbers, carpenters, electricians, services. Not surprisingly, some- carpet cleaners, chimney sweeps, thing so big inspires a host of su- exterminators, interior decora- perlatives. Services is the economy’s tors, architects and alarm-moni- fastest growing sector. It leads the toring companies. Outside the economy with the most self-em- home, schoolteachers, police of- ployed, the most moonlighters, ficers, mail carriers, garbage col- the most people who work at lectors and other public servants home. Services is the economy’s contribute to Americans’ day-to- most diverse sector, encompass- day lives. Lawyers, accountants, ing neurosurgeons, college pro- stock brokers, insurance agents, fessors, delivery-truck drivers and financial planners and bankers dishwashers. It contains some of help keep finances and personal the newest professions and some affairs in order. of the oldest. It includes the most stable jobs and the least stable At night and on weekends, Americans sample the talents of a dazzling variety of ones. Service workers are the highest paid and best educated, enter tainers — television stars, athletes, actors, comedians, and they are the lowest paid and least educated. musicians, to suggest just a few. For their personal fulfillment, And that’s not all. they turn to fitness instructors, tutors, librarians, psychics, tour Services is probably the most maligned and least guides and music teachers. Whether buying a loaf of bread or understood sector of the economy. Americans hear time and a new car, shopping more often than not requires assistance again that the service sector is the equivalent of weeds in an from salesclerks. economy’s garden. Ser vice jobs are low-paying, low in pro- Getting from here to there, and back again, would be ductivity, low in status — or so the litany goes. They offer only a Lewis and Clark adventure without travel agents, ticket- scant prospects for advancement and crowd out the economy’s takers, baggage handlers and flight attendants. To maintain good jobs. F3f “Value is not inherent in matter.…If a material object renders a service for someone, it has value; if it renders no service, it has no value.…Whether or not a service has material form, it has value, since it is a service.” – Frédéric Bastiat The rise in services feeds fears about manufacturing’s THE SERVICE SECTOR: A STUDY IN DIVERSITY decline and about the nation’s “good” jobs going overseas. The service sector encompasses the myriad trans- Naysayers warn of an economy whose output is increasingly actions that don’t typically involve tangible commodities. The devoid of any material substance. The transition to services, somewhat arbitrary split between goods and services is per- they contend, will leave many Americans stuck in dead-end haps best defined by examples: if a consumer buys a new car, jobs, poorer than their parents, saddened by America’s loss of it counts in the goods category. Renting or repairing one is a national prestige. Convinced of service. If an astigmatic American impending demise and looking to purchases eyeglasses, that’s 3 place the blame, critics surmise that the fault lies with our free goods. A visit to the eye surgeon for radial keratotomy counts as 2.5 enterprise system. The market Americans on the road to prosperity. Its turn toward services has led us astray. One putdown perhaps Millions of employees economy has failed to keep a service. Building a television set is goods; equipping it with cable 2 programming is a service. Mak1.5 ing a key is manufacturing; duplicating it is a service. Painting the 1 walls of a newly constr ucted best captures the essence of service-sector phobia: “We’re becoming a nation of hamburger flippers” (Exhibit 1). This gloomy vision of a nation of hamburger flippers has been repeated so often it’s usually accepted with home counts as goods; waxing .5 0 the floors goes in the books as a service. Stone used in buildings ’48 ’54 ’58 ’63 ’67 ’72 ’77 ’82 ’87 ’94 EXHIBIT 1 Fast-Food Restaurant Employees, 1948 – 94 little question. That’s a mistake. If shows up as goods, but stone sculpted into a statue becomes a service performed by an ar tist. Printing a book counts as goods, but copying its pages is a service. Americans are going to understand the economic forces In reality, goods and services aren’t all that different. shaping their lives, they shouldn’t close their minds at the Both have value, and both are useful. Both can be bought, sound of a catchy phrase. sold and even bestowed. They’re just alternative ways of satis- Much of the bad-mouthing of the service sector fying consumer needs. Why, then, are services so often dis- amounts to only half-truths. A more thorough analysis reveals missed as second class? If someone manufactures a truck, it’s that the growth of services is neither a sign of failure nor a celebrated, yet if someone hangs on the back of one collect- reason for doom and gloom. It isn’t the result of a nefarious ing trash, it’s often denigrated, even though the only real value plot by foreigners or some bungling by policymakers. Rather, in a garbage truck is its use in the removal of waste. the rise of services, properly understood, merely reflects the Available statistics indicate that 95 million Ameri- evolution of what we consume and how we produce. It’s just cans, or roughly three-four ths of the work force, work in ser- progress — the progression of our tastes and our tools. And vice industries (Exhibit 2). The biggest providers of service jobs Americans’ living standards can continue to rise if we build are retail and wholesale trade, government, health care and the necessary human capital — intellectual capital —needed for the business professions. The number of service companies is the Information Age. booming. Service-producing establishments have grown one- F4f F5f EXHIBIT 2 A Snapshot of Where America Works Employment by occupation (in thousands) Total employed Executive, administrative and managerial 124,897 Goods-producing Agriculture Industry Total employed Farming, forestry and fishing Sales 3,920 15,065 18,794 16,754 13,868 7,956 5,173 5,117 3,606 2,066 799 787 2,743 340 8,745 6,489 1,449 2,013 3,031 80 50 14 171 17 37 8 55 20 2,908 73 28 5 57 5 240 31 122 17 2 Professional specialty 16,738 17,906 32,351 3,889 3,479 119 684 104 Construction Handlers, equipment cleaners, helpers and laborers Administrative support, including clerical Technicians and related support Mining Machine operators, Transporassemtation blers and and material inspectors moving Precision production, craft Other and services repair 7,921 1,068 165 71 55 478 27 4,544 81 523 879 30 Manufacturing 20,267 2,598 1,748 650 713 2,037 291 3,924 6,369 749 1,097 91 Service-producing 92,546 12,849 15,840 3,121 14,278 16,051 16,414 5,123 1,467 3,724 3,104 575 TCPU 8,707 1,096 474 315 277 2,371 256 1,210 137 2,015 542 14 Trade 26,204 2,336 519 174 10,842 2,419 4,944 1,417 401 1,049 2,011 92 FIRE Other services 8,192 2,241 269 151 2,058 2,863 324 170 18 17 15 66 43,406 5,839 13,734 2,278 1,077 6,799 9,232 2,102 887 591 496 371 6,037 1,337 844 203 24 1,599 1,658 224 24 52 40 32 Government NOTE: Data are for November 1994. TCPU stands for transportation, communication and public utilities. FIRE stands for finance, insurance and real estate. third faster than goods producers since 1980. What’s more, tively low, as with 3 percent for managers. Union membership by 1991 the roster of service firms exceeded 5 million, five goes from practically nil in finance, insurance and real estate times the count for goods. The service sector lends itself to to 37 percent in government and 30 percent in transpor ta- small-scale entrepreneurs. The average service firm employs tion and public utilities. Working conditions vary from the just 14 workers, less than one-third the number for a typical amenities of the plushest penthouse suite (corporate liquida- manufacturing company. tors) to long hours in extreme heat and cold, often on tired Average pay in service-producing jobs is $10.70 an feet (beat cops). Safety ranges from the relatively riskless of- hour, which, as the critics like to point out, trails the average fice to the peril of burning buildings (firefighters) or the nation’s manufacturing wage of $12.10 an hour, including over time. highways (truck drivers). Ser vice jobs offer some of the However, service-sector jobs range from the top of the scale economy’s most flexible work schedules (authors), as well as to the bottom. National Basketball Association players, the some of its most demanding (obstetricians). best-paid athletes in team spor ts, make an average of $1.6 What shouldn’t be missed about the service sector million a year. Corporate attorneys with 10 years experience is its relentless expansion, decade after decade (Exhibit 3). average an annual salary of $95,000. A computer whiz can The United States had a predominately agricultural economy expect about $48,000, a financial manager $40,000. Teachers’ two centuries ago, with 92 percent of Americans working on pay averages $30,000, and bus drivers earn $21,000. Janitors farms. At the star t of the 1900s, agriculture was still the pri- make $15,700, and cashiers, many of whom work par t-time, mary occupation, employing 40.4 percent of Americans, and earn $11,700. services, including government jobs, made up 31.4 percent of The service sector shows the same variability in U.S. employment. By 1930, the goods-producing industries — other characteristics. Average weekly hours go from 60 or manufacturing, mining and construction — had eclipsed agri- more for top white-collar professionals to as low as 28.8 in culture as a source of employment.Yet services, largely ignored retailing, a sector that depends heavily on par t-timers. The in the fanfare over the Industrial Age, already had grown to unemployment rate can be relatively high — almost 7.5 per- more than half the work force. By the end of the 1960s, the cent among transpor t workers, for example. Or it can be rela- service sector employed two-thirds of U.S. workers. The pro- F6f por tion of jobs in goods-producing industries had already 100 reached its peak in the early 1950s. In the past two decades, the transition toward service jobs continued to move steadily Percent of employment 80 forward. One undeniable lesson of this history: the rise of services is not some curiosity of modern times. It’s something experienced by our grandparents, and even their forebears, and it came in tandem with rising U.S. standards of living. What, then, of the nation of hamburger flippers? Services 60 40 Agriculture 20 It might seem that fast-food workers are indeed the standard Manufacturing, mining and construction of the service sector. In 1948, there were a mere 9,723 Ameri0 1800 cans working in fast-food restaurants. By 1994, there were 2.9 1840 1880 1920 1960 1993 million, making it one of the most rapidly growing occupaEXHIBIT 3 Employment: Americans Move to Services tions in the postwar era. The pay isn’t bounteous. A Bureau of Labor Statistics survey found average wages in fast-food outlets only 50 cents above the federal minimum wage of $4.25 in 43 states and most metropolitan areas.The top-paying places 6 average just $5.50 an hour. What critics ignore, however, is that these jobs aren’t Service-producing Other goods-producing Food and agriculture 5 Trillions of 1987 dollars really typical of services. Fast-food restaurants rely heavily on teenagers, temporary employees and workers with little or no job experience. Nearly 70 percent of fast-food workers haven’t yet celebrated their 20th bir thday. A high propor tion are par t-timers, with an average workweek of 29.5 hours. And there’s a rapid turnover rate. Nearly half the employees stay 4 3 2 1 on the job one year or less. Industry analysts estimate that the first job for one in 15 U.S. workers today was at a McDonald’s. 0 ’47 In other words, fast-food jobs are typically just first jobs for millions of American teenagers, a segment of society ’52 ’57 ’62 ’67 ’72 ’77 ’82 ’87 ’92 EXHIBIT 4 Gross Domestic Product with a historically high unemployment rate. The fast-food industry has brought convenience and cheaper food — just what the public wants — while helping teach our kids business. Far ment, manufacturing has slipped from 35 percent in 1953 to from being a blight on the economy, it’s just a peculiar indus- less than 16 percent today. Thousands of jobs in high-paying try. Few of its characteristics apply to the service sector as a industries such as steel and automobile production have been whole, and it’s misleading to use fast-food workers as the norm. lost in the past decade or so, most likely forever. The increase The other lightning rods for those who bemoan the in the number of service jobs in recent decades may make it look rise in services concern manufacturing and trade. Critics ar- as if that sector is looting manufacturing of its labor resources. gue that our economic system has failed to protect its good There are, however, other gauges of manufacturing factory jobs — that other nations somehow bested us by tak- that por tray no decline at all. Output in manufacturing, for ing away our manufacturing industries. These arguments have example, continues to rise, year after year (Exhibit 4). In 1992, popular appeal, but they fail to recognize that the U.S. economy the nation’s factories churned out $1.06 trillion in goods, up is producing what consumers want — relatively more services an inflation-adjusted 256 percent from 1947 and more than and relatively fewer goods. And they ignore how modern tech- 27 percent from 1980. As a proportion of GDP, manufacturing nology has improved the output of factory workers, freeing slipped to roughly 19 percent in 1992, which is more a tribute millions to provide additional services. to services’ phenomenal expansion than to a loss of manufac- Factory employment has fallen to 18 million, down turing output. The country is not manufacturing less. Quite from a peak of 21 million in 1979. As a por tion of employ- the contrary, it’s manufacturing more, just with fewer people. F7f F8f “Man’s wants…are not static, but progressive.” “Hardly has man got himself a shelter when he wants a house; hardly has he clothed himself when he wants adornment; hardly has he satisfied the needs of his body when study, knowledge, art open to his desires a new endless vista.” – Frédéric Bastiat 7 6.5 GDP Ratio, 1992:1947 6 5 4 3.4 2.9 2.8 3 2.0 2 1.3 1.1 1.3 Mining Construction 1.4 1 0 Farming, fishing, forestry Manufacturing Transportation Communications and public utilities GOODS-PRODUCING Wholesale and retail trade FIRE Other services SERVICE-PRODUCING EXHIBIT 5 Increase in Per Capita GDP by Industry, 1947– 92 As we use less labor to make the goods we want, more work- always better than service jobs. This just doesn’t stand up. ers can be spared for the production of services. The result for Workers in services, for example, are less likely to face unem- Americans: we can consume both more goods and more ser- ployment because demand in those industries is steadier. vices (Exhibit 5). To arbitrarily restore to the U.S. economy the Workweeks are generally shor ter ; job changes are fewer. The 3 million manufacturing jobs lost since 1979 would require rolling low wages in services, moreover, reflect mainly the low pay in back the impressive productivity gains made during the past retailing, a sector that attracts par t-timers and job-hoppers 15 years. The country would be much poorer for it. after “a little spending money.” Many people aren’t seeking There’s been much worry over the country’s per- jobs with long hours. Where do they find work? Not in manu- sistent deficits in merchandise trade, including more than $140 facturing. On average, factory employees work over time. In billion in 1994. International trade, however, benefits the United retail trade, people find jobs with shor ter and more flexible States by allowing people and other resources to do what hours, easier working conditions and, naturally, lower pay. they can do best. Throughout its history, our nation has shifted Many manufacturing jobs are dull, dir ty, dangerous and dead- to higher technology and to services, in which American com- end, especially for the low skilled. The service sector has its panies and workers have a comparative advantage. In nearly share of undesirable tasks, but they should be compared with every par t of the world, U.S. firms are selling movies, insur- the worst factory jobs — not, as so often is the case, with the ance, financial services, medical care and much more. In 1980, best. Scrubbing floors may leave a janitor’s back aching, but overseas sales of merchandise exceeded services by 5 to 1; by he’ll get little sympathy from an machine operator who spent 1994, the ratio had declined to 3 to 1. The United States runs eight hours changing spools of yarn in the noise and dust of a a mounting services surplus — about $60 billion last year. textile mill. Another myth is that manufacturing jobs are almost F9f What’s more, the wage edge for manufacturing shows signs of eroding. For many years now, pay in services has been maids free us from household chores and pet trainers take on rising relative to pay in goods. In 1980, the spread between aver- the task of teaching Fido to fetch the morning paper. age hourly wages in manufacturing and those in services exceeded By the way they spend their dollars, Americans are 20 percent. By 1994, the gap narrowed to less than 2 percent. telling the market that they want more ser vices, and the Setting aside retailing, U.S. service-producing jobs now actually economy is responding by providing them. Why do we want pay an hourly wage that’s 5 percent higher, on average, than manu- more services? For the most par t, it’s because we’re getting facturing (Exhibit 6). richer. It’s all tied up in economic progress: investment and There’s no reason to believe the trend toward higher service incomes will reverse itself. In fact, the most re- new technology improve our tools, make us more productive and raise our incomes. Then, we buy more services. cent evidence suggests that service occupations are offering Back in 1857, German economist Ernst Engel observed better pay and benefits to pull labor out of goods production. that as families made more money, they allocated a smaller A 1994 study by the U.S. Depar tment of Labor found that por tion of the household budget to food. Engel’s law applies most jobs created since the end of the last recession in 1992 to goods as a whole. Demand for food, clothing and shelter — paid more than the national average of $11.24 an hour. Signifi- and, indeed, for most manufactured products —doesn’t keep cantly, all the gains came in service industries, which added pace with increases in incomes. As we fill our stomachs with managers, professionals and salespeople. Goods-producing food, our garages with cars and our homes with gadgets, we industries had net declines in employment.The bottom line: the spend relatively more on services and less on goods. In econo- ser vice sector isn’t just producing the jobs. It’s creating good jobs. mists’ jargon, goods are necessities, but services represent “su- Sometime in the 1990s the critics probably will have to rethink perior” forms of consumption. A chicken dinner can serve to illustrate how con- their positions as service jobs become, on the whole, better pay- sumers behave. The very poor might buy a bird to raise in ing than manufacturing work. their own yards, and eat even the less desirable par ts. Those who are a little better off might go to a grocery store to buy GROWTH IN SERVICES: THE ROLE OF TASTES We value highly what services do for us. They make a whole chicken, then cut it up and cook it themselves. A fam- our lives easier, as with caterers at par ty time or a 24-hour tax ily that’s richer can afford to purchase precut pieces, perhaps preparer on April 14. They make our lives more enjoyable, as even skinless breasts. Their wealthier neighbor might stop by with a trip to the movies, the Super Bowl or a comedy play- the pick-up window at Kentucky Fried Chicken for an already house. Services make us more secure through insurance poli- prepared meal. And the even-richer household might go to a cies, alarm monitoring and 911 emergency operators. Most fancy restaurant for the chef ’s specialty — chicken cordon bleu. impor tant perhaps, services save us time — the scarcest of In this progression, what’s added are services, and the chicken, resources. Delivery companies bring pizza for a quick dinner, a good, becomes a smaller par t of the overall price. The same 1.2 13 Private service-producing (less retail trade) 12 1.1 11 Dollars Manufacturing (less overtime) 9 Ratio 1 10 Other services .9 .8 8 .7 7 .6 6 5 .5 ’80 ’82 ’84 ’86 ’88 ’90 ’92 ’47 ’94 EXHIBIT 6 Hourly Earnings ’52 ’57 ’62 ’67 ’72 ’77 ’82 EXHIBIT 7 R e l a t i v e P r i c e s : S e r v i c e s v s . Go o d s F 10 f ’87 ’92 phenomenon occurs throughout the economy, with nearly every- 40,000 thing consumers buy — from clothing to transpor tation. purchase goods. A homeowner who buys a lawnmower seeks nothing more than having his grass cut. Hiring a yardkeeping service accomplishes the same end, with less time and effort. The service solution usually costs more, so it’s not surprising that households only turn to professional lawn care as incomes rise. Similarly, a poor family’s source Dollars spent on goods In fact, services are what consumers want, even when they 30,000 56,500 20,000 38,500 31,500 24,500 20,500 16,500 12,500 10,000 of entertainment might be a television topped by rabbit ears. A better off family can afford more varied fare—movies, amusement parks, cable 0 television and travel, all of which are mainly services. 0 10,000 20,000 30,000 40,000 Dollars spent on services As they have more money, people move up to services or turn to goods embellished with a higher degree of service. They EXHIBIT 8, PANEL A H o u s e h o l d E x p e n d i t u r e s o n Go od s a n d S e r v i c e s b y I n c o m e , 1 9 9 0 –91 do this simply because they feel they are better off with more services, not because they are settling for some inferior form of consumption. Services, for the most par t, are a matter of choice. We 8,000 could do many of these jobs for ourselves, but often it’s so much easier to do what we do best and pay someone else to help with caterer or interior designer buys us time…which, more often than not, we use to enjoy other services, such as entertainment and travel. Total spending on recreational activities, adjusted for inflation, posted an average annual gain of 9 percent from 1970 to 1990. Dollars spent on goods life’s daily chores. Substituting the services of a financial planner, a 6,000 1990 1985 1975 1980 1965 4,000 The evidence of a shift to services with higher incomes is 1955 1950 1970 1960 compelling. Since at least the late 1940s, services have become more expensive relative to goods in the United States (Exhibit 7). Ex- 2,000 2,000 pressed in terms of goods, Americans value services 86 percent 4,000 6,000 8,000 Dollars spent on services more than they did in 1947. Two factors are at work to raise serEXHIBIT 8, PANEL B U . S . P e r C a p i t a R e a l E x p e n d i t ur es o n Go o d s a n d S e r v i c e s , 1 9 4 7 – 90 vices’ relative value. First, income-driven demand for services is increasing, putting upward pressure on services’ relative price. Second, new technology reduces the cost of producing goods, so their relative prices are falling. The significance of all this should not be overlooked. 8,000 Usually, people buy less of something as its price rises. The fact that suggests the strength of consumers’ preferences for services. The increasing demand for services shows up in statistics on how Americans at various income levels spend their money (Exhibit 8, Panel A). For consumers who spend $12,500, less than half of the budget goes to buying services. For consumers who have Dollars spent on goods demand for services keeps going up in the face of higher relative prices 6,000 U.S. Canada France Finland 4,000 Greece Mexico Portugal South Africa Thailand 2,000 more to spend, the propor tion expands steadily until, at $56,500, outlays for services rise to nearly 60 percent of consumption. What do these patterns say? They indicate that people first satisfy basic needs, like food and clothing, that are mainly commodities. After that, people begin to buy what makes life easier and more enjoyable. Necessities to wants, then to conveniences, to amusements and to luxuries — tastes evolve as people and societies grow wealthier. F 11 f India 0 0 2,000 4,000 6,000 8,000 Dollars spent on services EXHIBIT 8, PANEL C Per Capita Expenditures on Go o d s a n d S e r v i c e s b y C o u n t r y , 1987 To learn “is to harness Nature; to spare man all that is most physical, backbreaking, and brutish in the work of production; to make mind master over matter; to provide more and more.…” – Frédéric Bastiat The relationship between higher income and more These primarily benefit individuals on a physical, psychological services appears universal: it holds over time, and it holds across or emotional level. Often, they involve giving the customer a countries. Exhibit 8, Panel B illustrates the change in relative personal touch, a bit of pampering. On a flight from Dallas to composition of per capita demand for goods and services in London, both first-class and coach passengers arrive at the the United States from 1947 to 1990. Average income in- same time. The differences lie in the pleasure of the experi- creased by 21/2 times during that period, and so Americans ence — and the price. Consumption of more personal services is truly evidence of higher stan- indulged themselves with more services. And Exhibit 8, Panel C dards of living. 35 shows that this phenomenon isn’t a quirk of the United States. It 30 1972 Lastly, there are informa- 1993 tion ser vices— communication, education, retail and wholesale world as well. High-income countries, such as Canada, France and Finland, spend relatively more on services than poorer countries, such as India and Thailand. The data on this are very clear. Higher income households Millions of employees applies to other par ts of the 25 trade, financial ser vices, legal advice, scientific research, engi- 20 neer ing ser vices, computing 15 services and so on. These ser- EXHIBIT 9 vices have experienced rapid 10 growth over the past two decades as a vir tual explosion in 5 information technology has con- consume relatively more services. Richer countries consume more ser vices. And as America has progressed economically, we have sought more services. 0 Household services Information services Personal services nected all segments of society — households, businesses, academia, government, the news EXHIBIT 9 Services Employment media. Not all that long ago, for example, investor s needed a The r ipples spread throughout the economy. For example, there’s been a rapid ticker-tape machine to find out how their stocks were faring. growth in household services, replacing work once done by Now, the information comes via a device small enough to carry members of the family. Restaurant meals are but one example. in a pocket or purse. The personal computer, the facsimile On a per person basis, there are no more meals being pre- machine, the Internet, the cellular phone, cable television, sat- pared today than in the past. It’s just that a higher propor tion ellite dishes, even improved weather-forecasting radar — they were once cooked at home, which government statistics don’t all make information more expansive and more readily avail- count. Other examples of household services are day-care able. What’s even better, many of these faster, more in-depth centers, maid ser vices, bakers, caterers and yard mainte- sources of information are becoming cheaper as they become nance — all tasks that yesterday’s economy performed largely more universal. in the home. In our age, these services are moving into the As societies get richer, consumers will demand more cash economy, due principally to the higher wages women of all three kinds of services (Exhibit 9). Most of the hand- can earn working outside the home. wringing over services involves the jobs that replace work once Demand is up as well for personal services, includ- largely done in the home — the household services. Many of ing health care, transpor tation, grooming and enter tainment. these are the low-paying occupations captured in the carica- F 12 f F 13 f ture of fast-food restaurants. They have been growing faster As the economy advanced from the Agrarian Age than either personal or information services, with employment to the Industrial Age, the task of supplying energy transferred increasing by an average of almost 5 percent annually over the to steam power, internal-combustion engines and electric mo- past 20 years. The growth, though, is largely benign: house- tors. Machines reshaped the role of workers in the produc- holds with two wage earners require help with chores. In 1950, tion process. People learned how to use tractors, backhoes, the average family had roughly one person over age 16 avail- forklifts, cranes, lathes, metal stampers and other labor-saving able for housework and errands. Now, the ratio has slipped devices, and the economy grew more efficient. Industrial Age to two for every three families, meaning private businesses tools required less of people’s muscle, but they required work- have had to make up for the loss of as many as 30 million at- ers to apply their motor skills in operating the machines. The home workers. In the past decade, nearly all businesses that division of labor into separate small tasks yielded big gains in replace home production have shown strong gains in employ- output and wages for Americans, but often by putting them to ment and sales. work in repetitive, mindless tasks. Although household services are the fastest grow- With the next round of technological progress, ma- ing, they still aren’t the biggest employers. Personal services chines themselves began taking over more of the chores in provide nearly four times more jobs. Information ser vices’ running factories. Employees feared the new processes would employment is more than three times as big. Once again, the reduce the need for existing skills — and they were right. Mo- data belie the notion that service workers are predominately tor skills were needed less for production. Once again, people flipping burgers. What’s more, the growth of household adapted to the new technology by using different talents. services is slowing. The movement into the market of work Workers moved from the plant floor to the office and found traditionally done by women in the home has largely run its jobs that used more of their mental faculties. They kept ac- course. Household services’ employment rose by an annual counts, filled out forms and rubber-stamped decisions. For many average of 6.3 percent in the 1970s, 4 percent in the 1980s employees, the tasks were routine and, in the end, unsatisfying and barely 2 percent so far in the 1990s. As consumers satisfy because they used only a small por tion of human potential. their needs for restaurant meals and maids, growth in de- Today’s jobs rely even less on muscle power and mand for household services almost surely will slow fur ther. motor skills. Repetitive, formulaic intelligence is on the way Personal and informational services, with their better jobs, out, now being superseded by humankind’s unceasing inven- will likely eclipse the growth rate of household services. The tiveness. The signature technological advance of our era is the aging of the baby boomers and the lengthening of retirement microprocessor, the tiny “brains” embedded in computers, years are likely to increase demand for nursing care and rec- industrial robots and all sor ts of other tools. U.S. workplaces reational services. use literally billions of them. They crunch numbers faster and We are both producers and consumers. In one par t of our lives we work; in the other, we buy. It is inconsistent for keep tabs on records more accurately than any human being ever could. us to want mostly services as consumers yet produce mostly As the computer becomes the workhorse of mod- goods as workers. In the end, we’re going to have the jobs ern society, it takes only a few employees to do what used to that produce what we want. The tastes of consumers are a require dozens. The number of secretarial jobs, for example, powerful guiding force for an economy. has been declining since 1987 as computers and laser printers allow supervisors to produce their own correspondence. Law firms turn to on-line services, such as Lexis, to improve the GROWTH IN SERVICES: THE ROLE OF TOOLS By themselves, the shifting tastes of a richer nation productivity of legal assistants. Even in industrial settings, in- would drive an economy toward more and more services. creasingly intelligent computers are taking on mundane tasks The process gets much of its push, however, from improved that once required workers’ constant attention. A modern methods of production. Jobs of the distant past often made steel plant, for example, allows a handful of technicians at a human beings little more than beasts of burden — masters computer console to accomplish what in days past took hun- mainly of muscle power. The farmer trudged behind his plow; dreds of workers to do. Within U.S. manufacturing, modern the pick-and-shovel laborer clawed at the ear th; the steve- tools are pushing employment toward service-producing jobs. dore on a loading dock slung cargo over his shoulder. In 1976, 32 percent of manufacturing workers had manage- F 14 f EXHIBIT 10 Tools of the Ages Agrarian Age Plow Yoke Aqueducts Archimedes’ screw Saddle Treadmill Wheelbarrow Horse collar Windmill Dredger Pressure cooker Rifle Threshing machine Swing plow Cotton gin All-iron plow Reaper Binder Sheep shears Barbed wire Milking machine (4000 B.C.) (3000 B.C.) (600–500 B.C.) (200 B.C.) (200) (200–300) (300–400) (500) (870) (1540) (1680) (1730) (1732) (1780) (1793) (1808) (1826) (1850) (1868) (1873) (1878) Industrial Age Blast furnace Ball bearings Lathe Battery Steam engine Conveyor belt Circular saw Hydraulic jack Portland cement Standard nuts and bolts Sewing machine Electric loom Bessemer steelmaking Internal combustion engine Milling machine Drive chain Dynamite Two-stroke engine Blow torch Ace welder Diesel engine Electric motor (AC) Electric drill Assembly line Rocket Jet engine Nuclear reactor Laser Industrial robots Information Age (1300) (1794) (1798) (1800) (1800) (1804) (1810) (1812) (1824) (1825) (1846) (1846) (1860) (1860) (1862) (1864) (1866) (1878) (1880) (1886) (1892) (1892) (1895) (1908) (1926) (1939) (1942) (1960) (1961) Telescope Stethoscope Camera Telegraph Precision clocks Typewriter Telephone Phonograph Slide rule X-ray machine Radio Cash register Television Teletype machine Radar Tape recorder Electron microscope Computer Xerography Videotape recorder Satellites Laser Floppy disk Microprocessor Personal computer Fiber optic cables Facsimile machine Camcorder Cellular phone Compact disc Internet (1608) (1816) (1826) (1843) (1850) (1867) (1876) (1877) (1881) (1895) (1906) (1919) (1926) (1931) (1934) (1935) (1939) (1946) (1946) (1952) (1958) (1960) (1965) (1971) (1975) (1977) (1981) (1982) (1983) (1983) (1991) What’s a Person to Do? Agrarian Age Industrial Age Information Age Muscle power Motor skills, formulaic intelligence Analytic reasoning, creativity, humor, personal touch rial, professional, sales, technical or service jobs. By 1994, the teristics of service producers. The previous generations of tools mainly shaped white-collar contingent at a typical U.S. manufacturing facility the physical world. Tractors tilled the soil, and combines har- had risen to over 40 percent. There’s nothing new in all this. Since the dawn of vested the crops. Bulldozers moved the ear th, and cranes time, technology has been making some jobs obsolete. The helped build skyscrapers. Derricks drilled for oil, and pipelines benefit to society is that it liberates labor for other, more carried it to the refinery. Saws cut wood, and lathes shaped it impor tant tasks, creating new jobs, new industries and more into furniture. Engines, motors, gears, pulleys, presses, molds, output. And so it is today. Machines are taking over what looms, shears, metal-forming machines, conveyors — all ulti- people once did, with human beings finding their work in what mately had to do with transforming or transpor ting material machines can’t do or can’t do well. People are designing the goods. hardware, developing the software and teaching cybernetics. Today’s bellwether inventions — computers, fiber They are creating the enter tainment and enjoyment. They are optics, cellular technology, biogenetic engineering — are use- providing the helping hand and human face. What many people ful primarily for dealing, in some way, with ideas. They create, bring to the workplace in a modern economy are analytic rea- transform or move information (Exhibit 10). These tools help soning, creativity and a personal touch. These are the charac- companies make more informed decisions, find wider mar- F 15 f EXHIBIT 11 It’s Not the Industry; It’s the Education Percent with High school diploma or less Bachelor’s degree or more Median weekly wages Primary industry Projected growth 1992–2005 (percent) 7.0 75.8 $682 Professional specialty: engineers, architects, surveyors, scientists, physicians, nurses, pharmacists, professors, teachers, librarians, economists, psychologists, therapists, social workers, clergy, lawyers, writers, entertainers, athletes, photographers. Services 37.4 25.3 47.3 $664 Executives, administrators, managers: managers–marketing, advertising, purchasing, public relations, personnel, lodging, health, food serving, real estate; administrators–public sector, education, protective services; accountants and auditors, underwriters, financial officers, management analysts. Services 25.9 33.0 36.4 $551 Sales (excluding retail): insurance, real estate, advertising, financial securities and commodities salespersons; sales supervisors and proprietors. Services 20.2 23.5 29.6 $528 Technicians and related support: Laboratory, radiology and health technicians; licensed practical nurses; electrical and electronic technicians; surveying technicians; biological and chemical technicians; airplane pilots and navigators; computer programmers; legal assistants. Services 32.3 66.1 6.8 $501 Precision production, craft, repair: mechanics–automobile, aircraft, industrial machinery, heating and refrigeration equipment; repairers–electronic equipment, data processing equipment, communications equipment; tool and die makers, machinists, plant operators, inspectors, carpenters, masons, electricians, painters, plumbers, roofers. Goods and Services 13.3 75.4 4.6 $447 Transportation and material moving: truck drivers, bus drivers, taxicab drivers and chauffeurs; rail and water transportation workers; crane and tower operators; grader, dozer and excavating machine operators; industrial truck and tractor equipment operators. Goods and Services 21.8 47.5 15.0 $392 Administrative support, including clerical: secretaries, stenographers, typists, computer operators, clerks, travel agents, ticket agents, receptionists, telephone operators, mail carriers, messengers, dispatchers, meter readers, investigators and adjusters, bill collectors, bank tellers. Services 13.7 78.6 4.1 $348 Machine operators, assemblers: stamping-press machine operators; grinding, abrading and polishing press operators; sewing machine operators; launderers and dry cleaners; packing and filling machine operators; furnace, kiln and oven operators; slicing and cutting machine operators; welders; assemblers; production inspectors, checkers and testers. Goods – 3.4 64.4 8.4 $313 Service (excluding food service): dental assistants, nursing and health aides, janitors and cleaners, household maids and servants, hairdressers and cosmetologists, child care workers, police and detectives, guards, correctional institution officers, firefighters, flight attendants. Services 34.8 51.0 4.0 $312 Handlers, equipment cleaners, helpers and laborers: construction laborers, baggage handlers, machine feeders and bearers, service station attendants, car washers and equipment cleaners, hand packers and packagers. Services 17.4 40.4 9.4 $269 Farming, forestry, fishing: farmworkers, groundskeepers and gardeners, animal caretakers, timber cutting and logging. Goods 3.4 Occupation NOTE: Data on education, wages and projected growth are as of 1993. kets, cut costs and increase quality; they enable entrepreneurs Tools for the mind are rejuvenating industries. They to offer whole new services. Computers, modems, phone lines shape what Americans do at their jobs, today and in the future. and software, for example, make possible a proliferation of on-line databases on the Internet. Gene-splicing produces THE SERVICE SECTOR: THE EDUCATED DO BEST tomatoes that won’t die in a hard freeze. Software, compact There’s abundant evidence to show that the U.S. discs and laser printers can make almost any desktop a pub- economy’s shift to services comes mainly from changes in our lishing house. Fax machines allow restaurants to increase ac- tastes and tools. It’s an age-old story of economic forces at curacy and speed in filling take-out orders. work, with little role for heroes or villains. What’s going on F 16 f will someday, with the benefit of hindsight, be celebrated as crucial respect — education. When it comes to paychecks, progress — just as we today understand the switch from agri- it’s not the industry, it’s the education that matters most. The culture to factory work in the first half of the 20th century as more highly educated will reap the rewards of the growth a step forward in living standards. in services. As consumers push the economy toward produc- The returns to education are well-documented, and ing more services, as computer-driven machines take on more they are getting larger over time (Exhibit 12). Those with the of the manufacturing, leaving people to provide higher value least education and the lowest skills will, more often than not, services, employees will need different skills. A crackerjack have to settle for the least desirable jobs, whether producing drill-press operator can’t transfer to a job as a computer goods or services. In shor t, a Third World education is going repairer or a teacher, at least not without training. The chal- to command Third World wages, whether it’s in Nor th Korea lenge will be to give workers the service-oriented skills that or Nor th Carolina. Education will, if anything, become even more im- are needed for today and the 21st century. With their frequent conjuring of the image of ham- por tant as the shift to the service economy continues. The burger flippers, those who fail to recognize the progress of Department of Labor’s latest projections through the year 2005 American free enterprise por tray the shift toward services as indicate that the fastest job growth will come in two high- a downward spiral to low-skilled jobs, suitable only for the ill- wage categories — professionals and technicians, both of which educated. That’s not the case. If anything, the service jobs of project increases of more than 30 percent. Executives and today, as well as those that will be created in the future, re- nonretail sales and transpor tation will each rise by 20 percent quire higher skill levels and more education. or more (Exhibit 11). Another leader will be nonfood ser- In the United States, the highest pay can be found vices, a lower wage grouping, which figures to increase by more in occupations that require the most years of schooling (Ex- than 30 percent. By contrast, there will be slower expansion hibit 11). Interestingly, they are predominantly service jobs: in goods-producing jobs. Employment in core manufacturing professionals, managers, nonretail sales, technicians. On aver- occupations — machine operators and assemblers — is ex- age, pay in these pursuits exceeds what workers earn in con- pected to fall 3.4 percent. Yesterday’s core jobs were held by factory work- struction and factory jobs. There are, of course, lower paying service profes- ers. Tomorrow’s will be held by technicians. Estimates are that the sions. They include such occupations as dental assistants and number of jobs for technicians — clinical lab technologists, flight attendants, plus handlers, helpers, cleaners and laborers. radiologic technologists, licensed practical nurses, health para- These jobs differ from the top earners in ser vices in one professionals, engineering technicians and technologists, sci- 5 4.61 Index of earnings, high school = 1 1984 4.05 1990 4 3.58 3.24 3 2.62 2.31 2 1.82 1.40 1 1 .49 1 1.17 2.01 1.55 1.15 .45 0 Dropout High school graduate Vocational school Associate’s degree Bachelor’s degree Master’s degree Doctorate degree EXHIBIT 12 The Education Earnings Premium: Even Better than It Used to Be F 17 f Professional degree “What is education…if not the transmission from generation to generation of the knowledge acquired by society…of a treasure that is refined and increased every day?” – Frédéric Bastiat ence and mathematics technicians, computer programmers, chooses. It votes. paralegals and so on — will grow by more than 4 million by Intellectual capital emerges out of its own volition 2005. The hallmark of these jobs is education. Even in goods- in a way that’s far different from physical capital. It isn’t as- producing sectors, advances in technology will put a premium sembled on a factory floor or built on a vacant lot. A produc- on education. The factory worker of tomorrow will have to tive worker emerges only after long years of nurturing, including be more computer savvy, more analytical and better at han- schooling, work experience and socializing in an environment dling words and numbers. that steadfastly rewards long-term investment in learning. Modern machines are tools for the mind rather than Physical capital has no natural investment barrier. for the muscle, producers of services rather than goods. To Human capital often does. The cost of building physical capital fully grasp how the rise of services is changing our economy, is typically borne by businesses. Firms invest in new plants and we need to rethink our notions of capital. Traditionally, capital equipment, hoping to benefit from lower costs and higher prof- is simply machinery, land and structures. As services become its. The burdens of building intellectual capital, on the other more impor tant, though, productive assets are shifting away hand, fall to parents, taxpayers, employers and individual work- from physical capital and toward intellectual capital, the term ers. There’s a separation between who pays and who benefits. for what workers know that allows them to create value for Although investment in education has a high return (Exhibits consumers, including abilities to communicate, research, ana- 11 and 12) and billions of dollars flow into education, some lyze, market, solve problems, teach, comfor t, serve and enter- segments of society don’t have access to the financial resources tain. In the past, we used manufacturing labor to build “hard” and good schools needed to develop skills for today’s jobs. capital goods, the output of which was largely tangible prod- As a result, too many Americans are underinvested in educa- ucts. Today, we use service labor, such as teachers, to build tion. In the United States, the quality of intellectual capital “soft” capital, the output of which is largely services. varies widely— from world-class theoretical physicists to high school dropouts who can’t read. The Industrial Age required horsepower. Improving America’s brainpower is crucial. Today, The Information Age requires brainpower. The United States became the world’s leading eco- as in the past, the economy’s progress depends on accumulat- nomic power by efficiently providing a steady flow of physical ing additional capital. In the age of brainpower, there’s no guar- capital. Our country’s free market system erected relatively antee of economic growth, especially at the pace of yesterday. few barriers to building the capital required for the Industrial Progress could slow — indeed, it likely will slow — unless we Age. Through the magic of the market, capitalists and entre- find ways of creating the human capital demanded by the preneurs, directed by an incentive for profits, gave America Information Age. To get the most out of the new economy, the coun- the machines to produce the goods consumers wanted. The creation of intellectual capital isn’t as automatic. try must pay attention to the quality of its workers. The spot- Brainpower cannot be separated from the human beings who light will be on education, including retraining. It should be embody it. As a result, it enters the production process differ- embraced broadly. Education is not just sending more young ently, coming through the front door rather than the loading people to college. It’s on-the-job training, vocational schools, dock. Human capital is complex. It can’t be separated from career retraining, professional enrichment and postgraduate humans’ passions and insecurities. It has to eat, and it has to work. It’s learning from parents, grandparents and friends, sleep. It socializes. It can motivate itself. It can shirk, sulk and reading and studying independently. Even television, radio and get depressed and even destroy itself with drugs or alcohol. It newspapers can widen our horizons. F 18 f F 19 f F 20 f “Let men labor, exchange, learn, band together, act, and react upon one another, since in this way, according to the laws of Providence, there can result from their free and intelligent activity only order, harmony, progress, and all things that are good, and increasingly good, and still better, and better yet, to infinite degree.” – Frédéric Bastiat Education is not just studying hard. It’s studying the right subjects, adapting the curriculum to meet the needs of needed funding for polishing job skills. They would also give individuals more control over their own lives. business and industry, paying attention to market signals on what knowledge society values. CONCLUSION Education is not just accumulating knowledge and Service-sector phobia is misplaced. The question is cognitive skills. It includes developing personal skills and sensi- not, Will there be any good jobs? It’s whether our educational tivities to others’ needs, learning how to give and take and system will prepare workers to fill them. Moving from goods pro- embrace the idea of customer service. duction to ser vices doesn’t mean that wages and living We’re no longer in the fields or on the factory floors, standards will fall. It doesn’t mean that productivity will be for- where work was largely impersonal as we planted crops or ever constrained. It doesn’t mean that most Americans shaped metal. More than ever before, today’s work rewards can’t have good jobs, if they obtain the skills and education the us more for interpersonal skills, which must also be culti- new economy needs. Indeed, more services will mean a richer, vated. In a very meaningful sense, we’re all in the people busi- easier and more enjoyable life for most consumer s. A great deal of the anxiety about the ser vice ness now. In all modern nations, education involves public in- economy undoubtedly comes from the shift in the country’s stitutions, especially schools. Citizens and governments in nearly economic base. When in bygone days farmers left the fields all par ts of the United States are working on initiatives to im- for the factories, they had to refit themselves to produce dif- prove the country’s education from kindergar ten through high ferent products. In time, they learned quite well. As today’s school. That’s all to the good, but incentives are indispensable, Americans continue to move from manufacturing to services, just as they are in the accumulation of physical capital. many will find new employment oppor tunities that are as good Harnessing the power of consumer choice might or better than what they leave behind. be one of the best ways of improving the quality and effi- We shouldn’t forget that the transition to a more ciency of education. One proposal, popular among free mar- ser vice-oriented economy reflects rising incomes. And ket economists, involves distributing vouchers for school America’s free enterprise system will continue to raise our expenses to parents and letting them shop around for the living standards as long as we build the necessary capital — education they want for their children. If schools have to com- not just physical capital but intellectual capital as well. pete for students, they are more likely to improve the teach- Hand-wringing over the nation’s growth in services ing of basic skills and offer curriculums that pay off in better amounts to brooding over a blessing. It’s a boon, not a bane. qualified workers. Far from signifying failure, America’s transition to a service The United States can promote intellectual capital in other ways, too. It might grant investment in human capital economy is fur ther bounty from our nation’s free enterprise system. the same tax deductions as spending on physical capital, giving It’s time to stop putting down the service sector: give families greater incentive to invest more in education. It might it some respect, for serving each other is everybody’s business. treat the depreciation of human capital the same as physical capital, perhaps by allowing workers tax exemptions to retrain for new occupations. Individual Retraining Accounts might replace direct payments to the unemployed and provide badly F 21 f Acknowledgments U.S. Department of Commerce (Census of Business: Retail Trade and Census of Retail Trade, Geographic Area Series, United States, various years). ACKNOWLEDGMENT “The Service Sector: Give It Some Respect” was written by W. Michael Cox and Richard Alm. The essay is based on research conducted by W. Michael Cox, vice president and economic advisor, Federal Reserve Bank of Dallas. SELECTED RESOURCES Bastiat, Frédéric, Economic Harmonies, trans. W. Hayden Boyers, ed. George B. de Huszar (Irvington-on-Hudson, N.Y.: The Foundation for Economic Education, 1964). ———, Economic Sophisms, trans. and ed. Arthur Goddard (Irvington-on-Hudson, N.Y.: The Foundation for Economic Education, 1964). Exhibit 2 A Snapshot of Where America Works U.S. Department of Labor (Employment and Earnings, December 1994, Table A–19, “Employed Persons by Industry and Occupation”). Exhibit 3 Employment: Americans Move to Services U.S. Department of Commerce (Historical Statistics of the United States: 1789–1945; Historical Statistics of the United States: Colonial Times to 1970) and U.S. Department of Labor (Employment and Earnings). Exhibit 4 Gross Domestic Product U.S. Department of Commerce (Survey of Current Business). ———, Selected Essays on Political Economy, trans. Seymour Cain, ed. George B. de Huszar (Irvington-onHudson, N.Y.: The Foundation for Economic Education, 1964). De Bono, Edward, Eureka! An Illustrated History of Inventions from the Wheel to the Computer (New York: Holt, Rinehart and Winston, 1974). Exhibit 5 Increase in Per Capita GDP by Industry, 1947–92 U.S. Department of Commerce (Survey of Current Business). Eberts, Marjorie, and Margaret Gisler, Opportunities in Fast Food Careers (Lincolnwood, Ill.: NTC Publishing Group, 1989). Exhibit 6 Hourly Earnings U.S. Department of Labor (Employment and Earnings). Executive Office of the President, Office of Management and Budget, Standard Industrial Classification Manual, 1987. Exhibit 7 Relative Prices: Services vs. Goods U.S. Department of Commerce (Survey of Current Business, Table 2.2, various issues). Fuchs, Victor, The Service Economy (New York: Columbia University Press for National Bureau of Economic Research, 1968). Hiles, David R. H., “Health Services: The Real Jobs Machine,” Monthly Labor Review, Bureau of Labor Statistics, November 1992. Information Please Almanac (Boston: Houghton Mifflin Co., 1994). Exhibit 8 Panel A Household Expenditures on Goods and Services by Income, 1990–91 U.S. Department of Labor (Consumer Expenditure Survey, 1990–91). NOTE: Data are for consumer units of one person, 1990–91. Jerome, Harry, Mechanization in Industry (New York: National Bureau of Economic Research, 1934). Jorgenson, Dale W., and Barbara M. Fraumeni, “The Accumulation of Human and Nonhuman Capital, 1948–84,” in The Measurement of Savings, Investment, and Wealth, ed. Robert E. Lipsey and Helen Stone Tice (Chicago: University of Chicago Press, 1989, pp. 227–85). Panel B U.S. Per Capita Real Expenditures on Goods and Services, 1947–90 U.S. Department of Commerce (Survey of Current Business, Table 2.2, various issues, and Current Population Reports). Panel C Per Capita Expenditures on Goods and Services by Country, 1987 Organization for Economic Cooperation and Development and United Nations. Katz, Lawrence F., and Kevin M. Murphy, “Changes in Relative Wages, 1963–87: Supply and Demand Factors,” Quarterly Journal of Economics, February 1992, pp. 35–76. Lancaster, Kevin, “A New Approach to Consumer Theory,” Journal of Political Economy, April 1966, pp. 132–57. Nasar, Sylvia, “Statistics Reveal Bulk of New Jobs Pay Over Average,” New York Times, October 17, 1994, p. A1. North, Peter, The Wall Chart on Science and Invention (New York: Dorset Press, 1991). Organization for Economic Cooperation and Development, Department of Economics and Statistics, National Accounts, 1975–87. Silvestri, George T., “Occupational Employment: Wide Variations in Growth,” Monthly Labor Review, Bureau of Labor Statistics, November 1993. Smithsonian Institution, National Museum of American History, Information Age exhibit. Statistical Abstract of the United States, various issues. Exhibit 9 Services Employment U.S. Department of Commerce (Survey of Current Business). NOTES: As constructed, household services consist of residential care; child care services; eating and drinking places; retail bakeries; retail nurseries and garden stores; electric, gas and sanitary services; landscape and horticultural services; and car washes. Information services are communications; security and commodity brokers; holding and investment offices; nondepository institutions; insurance; real estate; business services; legal services; educational services; membership organizations; engineering and management services; job training and related services; general merchandise stores; building materials and garden supplies (less retail nurseries and garden stores); automotive dealers and service stations (less gasoline service stations); apparel and accessory stores; furniture and home furnishings; and miscellaneous retail establishments. Personal services are health services; amusement and recreation services; motion pictures; hotels and other lodging places; transportation; auto repair, service and parking (less car washes); depository institutions; food stores (less retail bakeries); wholesale trade; agricultural services (less landscape and horticultural services); social services; personal services; miscellaneous repair services; and services not otherwise classified. United Nations, National Accounts Statistics: Main Aggregates and Detailed Tables, 1991. U.S. Department of Commerce, Bureau of the Census, Historical Statistics of the United States: 1789 –1945; Historical Statistics of the United States: Colonial Times to 1970; Current Population Reports, series P–70, no. 21 and P70 –32, “What’s It Worth?”; Census of Business: Retail Trade and Census of Retail Trade, various years. Exhibit 10 Tools of the Ages De Bono, Information Please Almanac, North, Smithsonian Institution and Usher. Exhibit 11 It’s Not the Industry; It’s the Education Silvestri and U.S. Department of Labor (Monthly Labor Review and unpublished data). U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, October, November 1994, and various issues. U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings, various issues; Monthly Labor Review, various issues; Bulletin 2425, Consumer Expenditure Survey, 1990–91 (September 1993); unpublished data (matrix b1000, Industry and Occupation Tables, Table 10, “Employed Persons by Occupation, Educational Attainment, Sex, Race, and Hispanic Origin”). Exhibit 12 The Education Earnings Premium: Even Better than It Used to Be U.S. Department of Commerce (Current Population Reports). Usher, Abbott Payson, A History of Mechanical Inventions ( New York: McGraw-Hill, 1988). BASTIAT QUOTATIONS Van Giezen, Robert W., “Occupational Wages in the Fast-Food Restaurant Industry,” Monthly Labor Review, Bureau of Labor Statistics, August 1994. Inside cover—Selected Essays on Political Economy, pp. 169, 162–63, 174; Economic Harmonies, p. 131; Selected Essays, p. 185. Page 3—Economic Sophisms, p. 140. Page 4—Economic Harmonies, pp. 152, 150, 149. Page 9—Economic Harmonies, pp. 45, 39–40. Page 12—Economic Harmonies, p. 197. Page 18—Selected Essays, p. 240. Page 21—Economic Harmonies, p. xxx (front matter). DATA SOURCES AND NOTES FOR EXHIBITS Exhibit 1 Fast-Food Restaurant Employees, 1948–94 F 22 f The Year in Review n 1994, the Federal Reserve Bank of Dallas focused on DALLAS FED FINANCIAL SERVICES integrating its activities with the dramatic changes tak- In the financial services area, the Dallas Fed focused on ing place in the financial industry. The Dallas Fed intro- developing more efficient products, improving the quality of ser- duced a quality initiative program to enhance customer vice and implementing a cost-containment program to better serve service, continued efforts to streamline operations and the Bank’s customers. In check collection, the Bank offered several developed new services and products to provide more benefits new products to align its services with same-day settlement re- to customers. These efforts reflect the Dallas Fed’s ongoing com- quirements. By late 1994, an image pilot project was completed mitment to ensuring efficient, reliable financial services, sound and financial institutions were able to take advantage of full-image banking and economic growth in check delivery and provide image the Eleventh District. statements to their customers. The Bank also completed a number of programs to streamline op- ECONOMIC OVERVIEW The Eleventh District erations in the checks area, includ- continued its strong economic ing an upgrade in software that growth in 1994, outperforming provides a base for future check the national economy for the fifth product development. As part of consecutive year. A robust con- the Bank’s quality initiative pro- struction sector, a strong national gram, an automated adjustments economy and growing trade with system was implemented in 1994 Mexico drove economic prosper- to allow the Bank to research and ity in Texas, Louisiana and New resolve more adjustment cases on Mexico. In 1994, New Mexico a same-day basis. and Louisiana outperformed the In the currency and coin nation, while Texas grew at about area, the Bank prepared for the the same pace. Nonfarm em- installation of new high-speed cur- ployment in Texas, Louisiana and rency processing machines. In New Mexico rose 3.6 percent last 1994, the Dallas Office installed, year, compared with 3 percent for tested and began using the new the nation. high-speed currency processing The implementation of machines.The Branch offices in El the North American Free Trade Paso, Houston and San Antonio Agreement was an impor tant will receive the machines in 1995. The machines possess quicker source of strength for Texas. Despite political turmoil in Mexico, trade and investment increased, processing and more advanced counterfeit detection capabilities. and during the first six months of 1994, Texas exports to Mexico At the request of the Federal Reserve Board of Governors, the increased 13 percent, compared with the same period in 1993. Bank prepared a proposal to increase the number of storage loca- Moreover, in the District as a whole, gains in construction-related tions in its currency vault in 1995.The increased capacity is neces- sectors helped offset continued weakness in defense- and energy- sary to accommodate the storage of new, security-enhanced cur- related employment. rency planned for distribution in 1996.The Dallas Fed will serve as Despite a relatively weak energy sector, the Louisiana economy was bolstered in 1994 by rapid growth in the gaming a repository for the new currency and dispense the notes to other Reserve Banks. industry that resulted in strong employment growth in the con- In late 1994, the Dallas Fed formed an alliance with the struction, tourism and hotel industries. New Mexico, meanwhile, Southwestern Automated Clearinghouse Association and several continued to benefit from increased electric and electronic equip- financial institutions to promote automated clearinghouse origina- ment manufacturing and a stable defense industry. tions during the next few years. The alliance will enable the Bank F 23 f The Year in Review to strengthen its working relationship with financial institutions The 54 state-chartered banks under the Dallas Fed’s while also strengthening the role of financial institutions in elec- supervision in 1994 represented 5 percent of all insured commer- tronic payments. cial banks in the District and held 2.5 percent of insured commer- A rise in interest rates resulted in an increase in the cial bank assets. The 523 bank holding companies under Dallas number of Treasury securities transactions handled by the Bank. Fed supervision last year controlled 670 insured commercial banks Transactions more than tripled from the beginning of the year to that held approximately 38 percent of all insured commercial bank the final months of 1994. Consolidation continued to impact se- assets in the District. Thirty-five foreign banks from 14 countries curities operations, with the Dallas Office assuming the book- operated 20 state-licensed agencies and 23 representative offices. entry responsibility of the Branch offices in preparation for the introduction of a new national book-entry securities system. RESEARCH AND PUBLIC AFFAIRS During 1994, the economic research and public affairs areas continued to serve as a center for free enterprise research BANKING SUPERVISION; DISCOUNT AND CREDIT In 1994, the banking industry experienced a rebound in and economic education in the Southwest. The expansion of trade lending that had been missing in the industry recovery that began and the increasing economic integration among countries was an in 1990. Consolidation also continued to play a part in the indus- important focus of the Dallas Fed’s research and outreach efforts. try. Strong profits, improved asset quality and increased capital As part of this focus, the Bank sponsored a major international were also hallmarks during the year. However, in 1994, the return conference to examine the importance of long-term investment on District banking assets fell below the previous year’s, when capital and increased domestic saving to economic growth and accounting rules changes resulted in unusually large earnings. The development. Research on the impact of the North American return on assets in 1994 was approximately 1.03 percent, com- Free Trade Agreement and the General Agreement on Tariffs and pared with the 1.4-percent return of 1993. Reflecting the strength Trade was also at the forefront. Other issues studied included of the industry, the District had no bank failures in 1994. home equity loans, financial derivatives, the recovery in lending As the supervisor of state member banks and bank hold- and the changing nature and usefulness of our measures of money. ing companies in the Eleventh District, the Dallas Fed is respon- A number of publications were produced in support of sible for conducting examinations for safety and soundness and the Bank’s economic education and research efforts. In addition for compliance with consumer protection laws, as well as with the to Economic Review, The Southwest Economy, Financial Industry Stud- Community Reinvestment Act. Due to the improving conditions, ies, Financial Industry Issues and Houston Business, two new publi- the Bank conducted fewer examinations in 1994—366 exams, cations, Financial Industry Trends and Business Frontier, were intro- compared with 432 in 1993. Of the 366 examinations, 51 were duced. Financial Industry Trends focuses on changes in the financial reviews for compliance with consumer and civil rights legislation. industry, while Business Frontier explores U.S.–Mexican border eco- During six forums around the District sponsored by the Dallas nomic issues. Efforts to educate teachers, students and the gen- Fed, Bank representatives met with financial institution leaders to eral public about free enterprise, monetary policy and the role of discuss concerns about regulatory burden, changing legislation and the Federal Reserve were supplemented by other outreach pro- fair lending issues. grams such as the Bank’s tour program, which completed its first Consolidation within the industry continued, with fewer year in the new headquarters. and larger financial institutions as a result. The Dallas Fed pro- As part of its efforts to encourage and promote com- cessed 245 applications—compared with 207 in 1993—for merg- munity development in the Eleventh District, the Bank hosted a ers and acquisitions, changes in control and management, and other community investment conference and workshops on economic actions requiring regulatory approval. development and community reinvestment policy issues. Because of increased use of seasonal lending to meet All this reflects a year of significant activity for the Dallas the temporary liquidity needs of financial institutions throughout Fed and the banking industry. As banking continues to evolve, the the District, the number of loans extended by the Dallas Fed’s Federal Reserve Bank of Dallas will continue to endeavor to pro- discount window increased from 210 in 1993 to 400 in 1994, with vide the most efficient and cost-effective financial services avail- total credit extended increasing to $884 million in 1994, com- able, while fostering safe and sound banking throughout the Elev- pared with $380 million in 1993. enth District. F 24 f Board of Directors Federal Reserve Bank of Dallas Seated (from left): J. B. Cooper, Jr., Farmer, Roscoe, Texas; Roger R. Hemminghaus (Deputy Chairman), Chairman of the Board, President and Chief Executive Officer, Diamond Shamrock, Inc., San Antonio, Texas; Cece Smith (Chairman), General Partner, Phillips–Smith Specialty Retail Group, Dallas, Texas; James A. Martin, Third General Vice President, International Association of Bridge, Structural and Ornamental Iron Workers, Austin, Texas. Standing (from left): Gayle M. Earls, President and Chief Executive Officer, Texas Independent Bank, Dallas, Texas; Peyton Yates, President, Yates Drilling Co., Artesia, New Mexico; Milton Carroll, Chairman of the Board and Chief Executive Officer, Instrument Products, Inc., Houston, Texas; Eugene M. Phillips, Chairman of the Board and President, The First National Bank of Panhandle, Panhandle, Texas. El Paso Branch Seated (from left): Veronica K. Callaghan, Vice President and Principal, KASCO Ventures, Inc., El Paso, Texas; Alvin T. Johnson (Chairman), President, Management Assistance Corp. of America, El Paso, Texas; Patricia Z. Holland-Branch, President/Director of Design, PZH Contract Design, Inc., El Paso, Texas. Standing (from left): Hugo Bustamante, Jr., Owner and Chief Executive Officer, CarLube, Inc., ProntoLube, Inc., El Paso, Texas; Wayne Merritt, Chairman of the Board and President, Texas National Bank of Midland, Midland, Texas; W. Thomas Beard, III (Chairman Pro Tem), President, Leoncita Cattle Co., Alpine, Texas; Ben H. Haines, Jr., President and Chief Executive Officer, First National Bank of Dona Ana County, Las Cruces, New Mexico. F 25 f Board of Directors Houston Branch Seated (from left): I. H. Kempner, III (Chairman Pro Tem), Chairman of the Board, Imperial Holly Corp., Sugar Land, Texas; Judy Ley Allen (Chairman), Par tner and Administrator, Allen Investments, Houston, Texas; Judith Craven, President, United Way of the Texas Gulf Coast, Houston, Texas. Standing (from left): Walter E. Johnson, President and Chief Executive Officer, Southwest Bank of Texas, Houston, Texas; Rober t C. McNair, Chairman and Chief Executive Officer, Cogen Technologies, Inc., Houston, Texas; J. Michael Solar, Managing Par tner, Solar & Ellis L.L.P., Houston, Texas; T. H. Dippel, Jr., Chairman of the Board and President, Brenham Bancshares, Inc., Brenham, Texas. San Antonio Branch Seated (from left): Juliet V. Garcia, President, University of Texas at Brownsville, Brownsville, Texas; Erich Wendl (Chairman), President and Chief Executive Officer, Maverick Markets, Inc., Corpus Christi, Texas; Carol L. Thompson (Chairman Pro Tem), President, The Thompson Group, Austin, Texas. Standing (from left): Jack Moore, Owner/Manager, T. J. Moore Lumber, Inc., Ingram, Texas; Gregory W. Crane, President and Chief Executive Officer, Broadway National Bank, San Antonio, Texas; Douglas G. Macdonald, President, South Texas National Bank, Laredo, Texas; H. B. Zachry, Jr., Chairman of the Board and Chief Executive Officer, H. B. Zachry Company, San Antonio, Texas. Effective December 31, 1994 F 26 f Advisory Councils Financial Institutions Small Business and Agriculture Federal Advisory Council Member James A. Altick President and Chief Executive Officer Central Bank Monroe, Louisiana Patrick E. Boyt Managing Partner P. E. Boyt Farms Devers, Texas Charles R. Hrdlicka Chairman and Chief Executive Officer Victoria Bankshares, Inc. Victoria, Texas Jack Antonini President and Chief Executive Officer USAA Federal Savings Bank San Antonio, Texas Ron Davenport Owner Davenport Cattle Co. Friona, Texas John H. Arnold President and Chief Executive Officer Southwest Corporate Federal Credit Union Dallas, Texas Robert D. Dooley Partner KPMG Peat Marwick Dallas, Texas Robert G. Greer Chairman Tanglewood Bank, N.A. Houston, Texas T. Mike Field Agriculture and Real Estate Lubbock, Texas Ron Humphreys Senior Vice President Marketing and Operations First Savings Bank FSB Clovis, New Mexico Don Powell Chairman, President and Chief Executive Officer The First National Bank of Amarillo Amarillo, Texas Jimmy Seay President and Chief Executive Officer The City National Bank Mineral Wells, Texas Sandra M. Smith President and Chief Executive Officer Texas Federal Credit Union Dallas, Texas Hayden D. Watson Executive Vice President First Interstate Bank of Texas, N.A. Houston, Texas Effective December 31, 1994 Annette Bailey Hamilton Chairman of the Board Annette 2 Cosmetiques, Inc. Dallas, Texas J. Jay O’Brien Cattleman Amarillo, Texas Lois Farfel Stark President Stark Productions, Inc. Houston, Texas Charles R. Tharp Partner/Manager Tharp Farms Las Cruces, New Mexico L. C. Unfred Farmer L.C. Unfred Farms New Home, Texas Jeffrey W. Wilson President Cattle Baron Restaurant, Inc. Roswell, New Mexico F 27 f Statement of Condition December 30, 1994 (Thousands) December 31, 1993 (Thousands) ASSETS Gold certificate account * Special drawing rights certificate account ** Coin Loans to depository institutions Securities: Federal agency obligations U.S. government securities Total securities Items in process of collection Bank premises (net) Other assets Interdistrict settlement account TOTAL ASSETS $ 453,000 377,000 27,997 0 $ 510,000 377,000 41,648 0 $ 137,539 13,786,009 13,923,548 512,950 157,398 1,938,691 (1,303,041) 16,087,543 $ 198,648 14,219,076 14,417,724 511,231 158,195 1,930,269 (2,830,800) 15,115,267 $ 12,916,808 $ 12,096,542 $ 2,139,587 10,200 28,466 2,178,253 331,862 166,958 15,593,881 $ 2,020,501 9,646 3,767 2,033,914 380,451 112,290 14,623,197 $ $ LIABILITIES Federal Reserve notes Deposits: Depository institutions Foreign Other Total deposits Deferred credit items Other liabilities TOTAL LIABILITIES $ $ CAPITAL ACCOUNTS Capital paid in Surplus TOTAL CAPITAL ACCOUNTS TOTAL LIABILITIES AND CAPITAL ACCOUNTS $ $ $ 246,831 246,831 493,662 16,087,543 * This Bank’s share of gold certificates deposited by the U.S. Treasury with the Federal Reserve System. ** This Bank’s share of special drawing rights certificates deposited by the U.S. Treasury with the Federal Reserve Bank of New York. F 28 f $ $ $ 246,035 246,035 492,070 15,115,267 Statement of Operations For the year ended December 30, 1994 (Thousands) For the year ended December 31, 1993 (Thousands) CURRENT INCOME Interest on loans Interest on government securities Income on foreign currency Income from priced services Other income Total current income $ $ 298 749,205 64,548 49,451 306 863,808 $ 116,091 8,164 107,927 10,151 118,078 745,730 $ $ 97 687,482 87,713 54,171 236 829,699 CURRENT EXPENSES Current operating expenses Less expenses reimbursed Current net operating expenses Cost of earnings credits Current net expenses CURRENT NET INCOME $ $ $ $ $ $ $ 115,241 9,317 105,924 7,932 113,856 715,843 PROFIT AND LOSS Additions to current net income: Profit on sales of government securities (net) Profit on foreign exchange transactions (net) Other additions Total additions Deductions from current net income: Loss on sales of government securities (net) Loss on foreign exchange transactions (net) Other deductions Total deductions Net additions (deductions) $ 0 175,247 28 175,275 $ $ $ $ 893 0 11 904 174,371 $ $ 0 0 29,448 29,448 (9,429) Cost of unreimbursable Treasury services $ 2,111 $ 2,371 Assessment by Board of Governors: Expenditures Federal Reserve currency costs $ $ NET INCOME AVAILABLE FOR DISTRIBUTION $ 10,490 12,950 894,550 9,932 16,564 677,547 $ $ F 29 f $ $ 1,583 18,426 10 20,019 Statement of Surplus For the year ended December 30, 1994 (Thousands) Surplus, January 1 Net income available for distribution LESS: Dividends paid Payments to the U.S. Treasury Net Amount Transferred to (from) surplus Surplus, December 30/31 $ $ $ F 30 f 246,035 894,550 14,638 879,116 796 246,831 For the year ended December 31, 1993 (Thousands) $ $ $ 211,943 677,547 14,334 629,121 34,092 246,035 Volume of Operations DISTRICT SUMMARY Number of Pieces Handled 1994 1993 Currency received and counted Coin received and counted Food stamps redeemed Dollar Amount (Millions) 1994 1993 1,214,654,518 1,321,577,319 451,927,577 1,137,737,587 1,333,702,015 464,601,664 17,668 192 2,383 17,207 197 2,397 6,581,229 6,434,362 9,207,058 10,636,233 1,134,603,637 341,575,945 29,969,944 1,146,543,615 503,800,889 29,740,142 650,455 97,246 29,524 671,187 139,944 31,609 179,424,428 46,931,597 151,236,263 50,652,442 614,637 67,692 576,709 60,724 6,642 8,841 6 9 356,623 2,954,922 2,529,673 2,877,908 400 210 885 389 Transfers of funds CHECKS HANDLED Commercial—processed * Commercial—fine sorted U.S. government checks ACH ITEMS HANDLED Commercial U.S. government COLLECTION ITEMS HANDLED ** U.S. government coupons paid ISSUES, REDEMPTIONS, EXCHANGES OF U.S. GOVERNMENT SECURITIES *** LOANS Advances made * Exclusive of checks drawn on Federal Reserve Banks. ** Noncash Collection Service was discontinued in the Eleventh District. *** Data reflect the discontinuance of the Savings Bond Service in the Eleventh District. F 31 f Officers Federal Reserve Bank of Dallas Dallas Gloria V. Brown Assistant Vice President and Community Affairs Officer Sharon A. Sweeney Associate Counsel and Associate Secretary Robert D. McTeer, Jr. President and Chief Executive Officer Stephen P. A. Brown Assistant Vice President and Senior Economist Evelyn LV. Watkins Accounting Officer Tony J. Salvaggio First Vice President and Chief Operating Officer Terry B. Campbell Assistant Vice President El Paso J. Tyrone Gholson Senior Vice President Robert D. Hankins Senior Vice President Helen E. Holcomb Senior Vice President Larry J. Reck Senior Vice President Harvey Rosenblum Senior Vice President and Director of Research Robert G. Feil Assistant Vice President Johnny L. Johnson Assistant Vice President Joanna O. Kolson Assistant Vice President C. LaVor Lym Assistant Vice President James R. McCullin Assistant Vice President Dean A. Pankonien Assistant Vice President Millard E. Sweatt Senior Vice President, General Counsel, Ethics Officer and Secretary John R. Phillips Assistant Vice President Earl Anderson Vice President Larry C. Ripley Assistant Vice President Basil J. Asaro Vice President Gayle Teague Assistant Vice President Lyne H. Carter Vice President Michael N. Turner Assistant Vice President W. Michael Cox Vice President and Economic Advisor Stephen M. Welch Assistant Vice President Billy J. Dusek Vice President Kermit S. Harmon, Jr. Vice President Joel L. Koonce, Jr. Vice President Robert F. Langlinais Vice President and General Auditor Marion E. White Assistant Vice President Bob W. Williams Assistant Vice President Emilie S. Worthy Assistant Vice President Meredith N. Black Supervisory Information Officer John V. Duca Research Officer Rebecca W. Meinzer Vice President and Administrative Officer KaSandra M. Goulding Public Affairs Officer Genie D. Short Vice President William C. Gruben Research Officer Larry M. Snell Vice President Evan F. Koenig Research Officer W. Arthur Tribble Vice President William C. Morse, Jr. Operations Officer F 32 f Sam C. Clay Vice President in Charge J. Eloise Guinn Assistant Vice President Javier R. Jimenez Assistant Vice President Houston Robert Smith, III Senior Vice President in Charge Vernon L. Bartee Vice President Richard J. Burda Assistant Vice President René G. Gonzales Assistant Vice President Luther E. Richards Assistant Vice President Robert W. Gilmer Research Officer Kenneth V. McKee Audit Officer San Antonio James L. Stull Senior Vice President in Charge Taylor H. Barbee Assistant Vice President Richard A. Gutierrez Assistant Vice President D. Karen Salisbury Operations Officer Effective January 1, 1995 PHOTO ) D ANIEL S ANCHEZ (P RESIDENT ’ S PHOTOS ) AND DIRECTORS ’ THE P HOTOGRAPHY : R ICK GRUNBAUM (B OARD IS ONE OF OF THE FEDERAL RESERVE BANK OF DALLAS REGIONAL FEDERAL RESERVE BANKS IN UNITED STATES. TOGETHER WITH THE BOARD OF GOVERNORS IN WASHINGTON, D.C., THESE ORGANIZATIONS FORM THE FEDERAL RESERVE SYSTEM FUNCTION AS THE NATION ' S CENTRAL BANK . SYSTEM'S AND THE BASIC PURPOSE IS TO PROVIDE A FLOW OF MONEY AND CREDIT THAT WILL FOSTER ORDERLY ECONOMIC GROWTH AND A STABLE DOLLAR. IN ADDITION, I LLUSTRATION : DANIEL S ANCHEZ FEDERAL RESERVE BANKS SUPERVISE BANKS AND BANK HOLDING COMPANIES AND PROVIDE CERTAIN FINANCIAL SERVICES TO THE BANKING INDUSTRY, THE FEDERAL GOVERNMENT AND THE PUBLIC. SINCE 1914, L AURA J. B ELL DALLAS THE THE FEDERAL RESERVE BANK OF HAS SERVED THE FINANCIAL INSTITUTIONS IN ELEVENTH DISTRICT. THE ELEVENTH DISTRICT EN- AND COMPASSES 350,000 SQUARE MILES AND COMPRISES THE D ESIGN : D ANIEL S ANCHEZ STATE OF TEXAS, NORTHERN LOUISIANA ERN NEW MEXICO. THE THE FEDERAL RESERVE BANK D ALLAS G RAPHIC ARTS D EPARTMENT . OF F EDERAL R ESERVE B ANK F 33 f AND SOUTH- THREE BRANCH OFFICES OF OF D ALLAS P ASO, HOUSTON AND SAN ANTONIO. AND PRINTED BY THE P RODUCED 12 ARE IN EL F EDERAL R ESERVE B ANK OF D ALLAS 2200 N ORTH P EARL S TREET D ALLAS , T EXAS 75201 (214) 922-6000 E L P ASO B RANCH 301 E AST M AIN S TREET E L P ASO , T EXAS 79901 (915) 544-4730 H OUSTON B RANCH 1701 S AN J ACINTO S TREET H OUSTON , T EXAS 77002 (713) 659-4433 S AN A NTONIO B RANCH 126 E AST N UEVA S TREET S AN A NTONIO , T EXAS 78204 (210) 978-1200