Monday, April 08, 2013

Shed no tears over the demise of America's manufacturing. It ain't dead!

I should know by now, after all these years, that political leaders rarely say anything really meaningful in public.  Thus, I should ignore all their chest-thumping on bringing manufacturing back to America, and how we should be worried over manufacturing's decline.

But, I am human and I err--I point my ears towards them and then have an urge to puke!

What decline in manufacturing?

Robert Samuelson tackles this issue of "manufacturing isn't dead":
The transition from factory to office has raised living standards, curbed pollution and reduced the number of grueling, often-monotonous jobs. Yet this largely beneficial transformation suffers in the popular imagination. The vast “service sector,” which now dominates the economy, is seen as inferior, low-paying and even frivolous because it produces nothing tangible.
Exactly!

I bet the same people who talk with fondness for the manufacturing that is "dead" would have been the kinds of people lamenting about the "death of agriculture" a hundred years ago, without understanding that these are positive changes as a result of higher and higher productivity.

Of course, I have traveled this path before.  For instance, in May 2009, I quoted Robert Reich, who was President Clinton's Labor Secretary:
Any job that's even slightly routine is disappearing from the U.S. But this doesn't mean we are left with fewer jobs. It means only that we have fewer routine jobs, including traditional manufacturing. When the U.S. economy gets back on track, many routine jobs won't be returning--but new jobs will take their place. A quarter of all Americans now work in jobs that weren't listed in the Census Bureau's occupation codes in 1967. Technophobes, neo-Luddites and anti-globalists be warned: You're on the wrong side of history. You see only the loss of old jobs. You're overlooking all the new ones.
Yet, this logical explanation always loses to a faith that manufacturing is the key to boost up an otherwise anemic economic recovery?  Samuelson again:
Almost everyone seems to yearn for a manufacturing renaissance. This would, the reasoning goes, solve many problems. It would kick-start the sluggish recovery. By providing well-paying jobs, especially for semi-skilled men, it would strengthen the middle class. By restoring a heritage of “making things,” it would reduce U.S. trade deficits and re-establish our global economic pre-eminence. No doubt, millions of Americans endorse this appealing vision. It’s make-believe.
The mirage appeals to politicians and the regular folk alike, it seems.  And these people make it seem that we don't manufacture any damn thing anymore; again, I blogged about this in 2011:
America still makes a ton of stuff, and we make more of it now than ever before in history.’’ In fact, Americans manufactured more goods in 2009 than the Japanese, Germans, British, and Italians — combined. American manufacturing output hits a new high almost every year. US industries are powerhouses of production: Measured in constant dollars, America’s manufacturing output today is more than double what it was in the early 1970s.
Samuelson also reminds readers about the same thing:
[In 2010] U.S. manufacturing production of nearly $1.8 trillion was the largest in the world; it was slightly ahead of China’s, about two-thirds higher than Japan’s and nearly triple Germany’s. China may now be No. 1, but the U.S. remains a manufacturing powerhouse. In 2011, near-record output was 72 percent more than in 1990 and six times greater than in 1950. Recall some American-made products: commercial jets, earth-moving equipment, gas turbines.
Logic and evidence don't capture people's attention and imagination as make-believe scenarios do.  No wonder religions continue to flourish!  But, I digress :)

As I noted in a post two years ago, The Onion, which is awesome at satirizing any issue, took on this notion of American manufacturing is dead.  And, of course, there is that other problem of defining what manufacturing is!

Anyway, as Samuelson concludes:
It’s a mistake to romanticize manufacturing and disparage services, portraying them as separate economic realms in competition with each other.
Finally, as Reason noted a while ago, to focus on Made in America is pretty darn stupid!


2 comments:

Ramesh said...

Oh American manufacturing isn't dead by a long long shot, as you have eloquently argued.

The problem is that it absorbs fewer and fewer jobs. Record outputs, and yet lower numbers of workers. That's good fron one sens - higher productivity, affordability and there expansion of consumption, etc etc. But it doesn't take away the problem of how to get employment up.

The services sector does a great job in providing many jobs and we should not disparage it. And yet, even that is not enough. Manufacturing does have to play its part in providing jobs. And therein lies the problem.

In society there will always be the highly capable and educated and the lowly capable and educated. What do we do with those not skilled. No society can ignore them (as the rabid right would like us to do). Neither can it keep them perpetually on the dole(as the loony left would like). We have to create employment opportunities for them. And therein comes manufacturing and agriculture which have absorbed large doses of semi skilled and unskilled people in the past.

My theory on this is that American wages have to fall. There is no way you can remain unskilled and expect to earn $15000 K. That's just not an option. And its a complete misnomer that if you earn less than this amount you can't live in the US. Therein lies the real problem I believe. A generation of Americans has got used to being unskilled and living a standard of life that was the best in the world. Now that is not possible.

Sriram Khé said...

Yes, the real--a very real--problem is that of unemployment. Whether it is in a discussion of manufacturing or higher education, the bottom-line challenge is the same one of how to increase employment ... unfortunately, in both the issues, we have been presenting to the public the most distorted versions possible, getting their hopes up and then shattering their economic dreams.

When you write that American wages have to fall, you are essentially advocating against mandating minimum wages. While I am not enthusiastic about high "living wages" I am also not keen on no mandated minimum. I suppose we will both agree that this is a public policy issue that merits a great deal of rhetoric-free debate, which won't happen in the current American climate!

I have been warning students for a long time a variation of what you write as "A generation of Americans has got used to being unskilled and living a standard of life that was the best in the world." I tell them in their grandparents' world, even a high school dropout could live a decent lower-middle class life by working hard, even without any special skill. But, that is long gone. And that they don't have any guarantees anymore of leading a middle class life just because they were born here in the US of A. But, I suspect that I am in the minority when I tell them such things and, therefore, I am a Cassandra warning about the dangers ahead :(