Economics
Economic policy
Manufactured concern
Sep 10th 2010, 15:48 by R.A. | WASHINGTON
MATT YGLESIAS says he's unhappy with Louis Uchitelle's use of the chart at right to illustrate the evolution of American manufacturing. What we see there is a decline in share of manufacturing in output. Mr Yglesias notes that one might just as easily look at indexes of actual output, which have increased steadily over the past half century (though manufacturing, a highly cyclical sector, saw a big drop in production in this recession, in America and abroad). In recent years, annual American manufacturing output has been between $1.5 and $2 trillion, which means that, for the moment, America is the world's biggest manufacturer (though China will likely move to the top spot in 2011).
Why has the share of manufacturing in the economy declined? Well, one answer is that rising productivity has made manufactured goods very cheap relative to services, and so Americans now devote a much larger share of their incomes to things like health services, education, and so on. To the extent that the American economy has become overly dependent on domestic consumption, that has likely contributed to a more rapid decline in the share of manufacturing output in the economy. But we're not talking about a big difference here. Services account for about 77% of American economic activity and about 72% of industrial powerhouse Germany's economic activity.
In other words, America has a large industrial sector by almost any standard. It is true that manufacturing employment has steadily fallen for thirty years, but that is largely due to dramatic increases in productivity—the very innovations that have made manufactured goods better and more affordable. High-wage manufacturing jobs have been eliminated, in large part, due to automation. And American workers are too valuable to do the low-wage manufacturing work that dominates economies in places like emerging Asia (neither would most Americans find such jobs to be particularly desirable). But this entirely healthy evolution of the economy is portrayed as a catastrophe. Here's Ezra Klein:
The thing about losing those jobs is that we've lost more than those jobs: We've lost those skills and that infrastructure, and the advances that would've been built on top of both. Now we want to get all that back, because what we tried instead didn't work. But we can't just call for a do-over. Like so much else in manufacturing, we need to build much of it from scratch.
Let me remind you that America produces over $1.5 trillion in manufacturing output every year. That doesn't seem like scratch to me. There are still nearly 12 million Americans employed in the manufacture of physical goods, and many, many more involved in the design, engineering, and management of production processes that bring physical goods to market. So what's the big worry?
I asked Mr Klein that question over twitter, and he responded (this is lightly edited to de-twitter the language):
The problem with the decline in manufacturing jobs is that we've not figured out what can replace them. Healthy industrial output doesn't solve that.
It's true that there are a lot of unemployed Americans, and it's true that we don't know where most of them will end up working. But this is not an argument for support of the manufacturing sector. On the contrary, the fact that we don't know where new employment growth will be is a good reason to emphasise flexibility and investments in fundamentals over aid to specific sectors.
In the early part of last century, big improvements in agricultural productivity led to the loss of millions of agricultural jobs. Decades of massive agricultural aid haven't been able to restore employment in the agricultural sector. But the American economy managed to absorb and enrich many former agricultural workers through several key means. Through prioritisation of and investment in cheap and accessible secondary and university education, for one. Through substantial investments in infrastructure, for another. And through geographic mobility; workers poured out of agricultural areas in the south and midwest and into great northeastern and midwestern cities and west coast boomtowns.
If there are good opportunities to be exploited in American manufacturing, then the best way to make sure they are realised is to invest in education and infrastructure and to find ways to maintain labour mobility. And I feel pretty confident that if America focuses on those policy priorities, its workers will be just fine whether or not manufacturing employment continues to decline relative to other occupations.
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Excellent article!
I have so many problems with this post. Here are a few:
1) Some portion of Americans will always have their highest calling in low-skill labor. Offshoring these functions has left them without the bottom rung of the ladder that their children might have used to climb higher. And low-skill service sector jobs are--no matter what you say--just not the answer for anyone but student/youth/summer employment. There isn't the satisfaction of seeing the tangible results of a day's toil that can sustain career-long devotion to menial manufacturing/agricultural work for the betterment of the next generation.
2) We need to worry as much about what other countries gain as we do about what the U.S. loses. There is a lot of useful waste from manufacturing--scap material, 'borrowing' of company tools for personal use, overbuilt transportation and power systems, etc. Those fruits will strengthen others who will now compete for the same scarce resources we like to have in our world.
3) One must also consider the prospect that political conflicts will disrupt trading. Which would you rather be without in the event of a worldwide conflagration: toilet paper and clothing, or call center services and accountants? Services do not help us toward self-sufficiency.
Lastly, get real people. Do you really think that the U.S. can afford its profligate lifestyle as we keep a smaller and smaller share of the value-added content aboard the world's container ships? We either grab back that share, or we'll have to deal with our homegrown slackers/idiots in a far less nice way...
@Anandakos,
You, with the American pride, rather seem to have focused on my rhetorical expressions than context.
“…we have sinned” rang a bell; the forbidden fruit may have been a metaphorical expression of luxury, or expansionary policy in terms of macroeconomics, of which you would have to pay the debts when they are due, and you have to en masse on the doomsday – as another metaphorical expression.
One of the most plausible measurements as to how an economy is luxurious is its carbon emission per capita, of which, needless to say, the US is among the worst in the world. Americans are embarrassed to see the statistics because they think they live just innocent whereas the figures appear as if were blaming them. Yes, they do live innocently, and I understand your rage, if any, at my expressions; I do not think all the American individuals, though with some exceptions, have been indulging themselves into dissipation, either. I am just arguing that the paradox, in which you both live 'innocent' and you waste resources and capitals, comes from the geographical structure. As R.A. says "…the best way to make sure they are realised is to invest in education and infrastructure and to find ways to maintain labour mobility", the blogger may be thinking similarly.
That is why I suggested that the US, even slowly, start urban restructuring, inter-urban network restructuring, and education programme to let them know how the geographical structure may affect the economy when it is real that resources are getting limited. I stress that renewing or newly buiding items of infrastrucutre which may eventually maintain or aggravate the geographical status quo is simply a poor choice.
With the improved geographical structure it would be much easier for businesses to collect tangible capitals and human resources to restore the economic structure that would both promote the small and medium-sized businesses, which are also vital to maintain the manufacturing industry as, with the great help from the indirect financing, they own fixed assets which would otherwise be financial burdens for the original contractors so that the financial risks would be dispersed, and increases in demand with less leverage. It is indeed your culpa, though not sin, that you have let what you call the Wal-Mart economy rampant.
Jer_X: “The problem I see is that even if we had fully free markets we wouldn't have freedom of mobility.”
I don’t follow. Why would that be?
Jer_X: “If it is more profitable to manufacture in China, then that is where the manufacturing should be done, right?”
Right! But let’s make sure that the reason really is costs and profits. If the reason is taxes and regulations, then the state is deciding where manufacturing will take place and not entrepreneurs and workers. Americans have the lowest total labor costs in the world. Our total labor costs are lower than the total labor costs in China for most things, textiles not included. The difference in profits lies mostly with taxes and regulations.
Anandakos: “Well there you go again, ex cathedra telling us that our education system doesn't work.”
Thanks for the promotion!
Anandakos: “I suppose that's because it's not owned by Rockwell and General Dynamics.”
I’m certain that would fix a lot of things.
Andandakos: “let me tell you the real reason that our public education system produces such massively poorer results than it did half a century ago. “
I don’t agree that is does.
The logic of overeducation is simple: if the state requires you to do something and requires you to pay for it, I can guarantee you that you will spend more and get less than you want. Look at all of the bridges to nowhere the state builds every year.
Mobility and fungibility of skills in the labour force are critical factors for any economy but especially an economy that is facing a constant structural shift away from manufacturing, which, as the article notes, is quite probably a good thing.
The abilities and skills that underpin manufacturing are not lost, however, they have changed: from basic knitting manufactures towards knowledge intensive design and creation. This shift is not one limited to the 21st or 20th century either, it is one that we've embraced over the past three hundred years of industrialisation and development.
I am concerned, similar to the free exchange author, at our leaders calls for a renewed vigour in our 'manufacturing heartland', this is a worrying trend. We are gaining from the efficiency trends and the knowledge enrichment that is part and parcel from our shift away from manufacturing, let us not become protectionist with waves of nostalgia over a bygone industrial era.
Tariq Scherer
http://scherer.dyndns-web.com/
What is more important is not the biggest but the strongest manufacturing power? For example, 1 dollar shirt sold in China can be sold for up to 100 buck here because of holding the intellectual property rights.
JWP,
What a great tragedy! "Americans didn’t seem to come to like my suggestion…. Are they a hopeless bunch?" Obama is "drifting away from the right path" as you have brought it down from ON HIGH!
Forgive us Father, for we have sinned!
Mea culpa! Mea culpa! Mea maxima culpa!
1. Better always distinguish capital productivity from labour productivity, the former of which contradicts the latter, as total productivity, which is what you mean when you say productivity, is just bullshit;
2. The more each city is compact and densely populated, the more efficiently you can obtain capital goods;
3. The service industry builds more intangible capital such as financial capital than tangible capital such as facilities while the manufacturing industry builds more tangible capital than intangible capital.
The Americans notice none of the three - so far – utterly like the Polish-Lithuanian Commonwealth policymakers during the 16-18th century when the massive export of grains from America started to ruin the economy of which structure was surprisingly, or rather scandalously, identical to that of the 21st century United States; the US dollar might already have become a boratynka thanks to Messers Obama and Bernanke.
R.A. says: “If there are good opportunities to be exploited in American manufacturing, then the best way to make sure they are realised is to invest in education and infrastructure and to find ways to maintain labour mobility. And I feel pretty confident that if America focuses on those policy priorities, its workers will be just fine whether or not manufacturing employment continues to decline relative to other occupations.” I suggested the other day in this blog section on August 31 as follows (cf. the 12th and 15th comments in the “Reader’s Comments” of the then entry, linked below):
How to fix unemployment
http://www.economist.com/blogs/freeexchange/2010/08/labour_markets_6
Americans didn’t seem to come to like my suggestion…. Are they a hopeless bunch?
Mr Obama doesn’t understand this at all, and his recent scheme of improving infrastructure, though apparently plausible and similar to my suggestion at a glance, is in fact something that is drifting away from the right path. As with the scheme he is apparently following Schumpeter, he doesn’t really understand the Austrian.
Fundamentalist,
Well there you go again, ex cathedra telling us that our education system doesn't work. I suppose that's because it's not owned by Rockwell and General Dynamics.
Well, let me tell you the real reason that our public education system produces such massively poorer results than it did half a century ago. It doesn't have a pool of indentured servants to exploit.
Before the Women's Movement there were essentially three options for a smart, ambitious woman who wished to be independent: secretary, nurse or teacher.
Secretary was little more than auxiliary wife without the community property protections but usually with the same "responsibilities". With nursing there's the problem of blood and body fluids of which not every smart woman is tolerant, and then there were also the doctors, with their expectations of "access". So that leaves teaching, the one area where an independent-minded woman could have a bit of genuine responsibility and control.
Yeah, yeah, there was the -- always male -- "your pal the principal" down the hall, but he rarely visited the classroom.
So, basically if you were my age you were mostly taught by women in the right-hand second standard deviation of intelligence. I actually learned how to diagram sentences using two formats, while kids today have never heard the phrase "diagram a sentence". (That's an adverbial phrase there after the comma.) Unfortunately, neither have most of their teachers below high school specialist English teachers.
Today the women from the same cohort of intelligence are leading attorneys, doctors, CEO's and politicians. If you want them back in the classroom you need to pay them a lot more and ban low-intelligence voters from serving on meddling "Christian" school boards.
The argument is that we have a smaller sector but that doesn't matter because of the stunning increase in productivity.
The chart at this link shows what is really going on.
America has lost 40% of its manufacturing jobs since China joined the WTO.
Look at the amazing chart, 2nd chart down, of manufacturing employment since 1970. Whoa, we took a hit, people, when China joined the WTO.
link:
http://www.huffingtonpost.com/dave-johnson/china-springs-the-trap_b_6818...
"... the best way to make sure they are realised is to invest in education and infrastructure and to find ways to maintain labour mobility. And I feel pretty confident that if America focuses on those policy priorities, its workers will be just fine ..."
So, we're screwed?
Only loosely related but if anyone else took exception to Brooks' column today lauding manufacturing work over "genteel" work I have two posts on the subject up.
http://tzimiskes.blogspot.com/2010/09/brooks-on-genteel-nation-part-1.html
http://tzimiskes.blogspot.com/2010/09/brooks-on-genteel-nation-part-2.html
The problem I see is that even if we had fully free markets we wouldn't have freedom of mobility. If it is more profitable to manufacture in China, then that is where the manufacturing should be done, right? And if some Americans cannot, or don't want to, move up the value ladder as low-skilled jobs move overseas, then shouldn't those people by all rights follow the jobs to China?
Jer_X, I don't know if freer markets bring back low-skilled manufacturing work. With some products, such as clothing, it's hard to automate the process so they will always be labor intensive and low-skilled.
But I would imagine that many medium-skilled jobs would come back if manufacturing didn't have to deal with Byzantine regulations and the second highest corporate tax rate in the developed world.
migmigmigmig, Would you call what takes place in public schools education? I oppose more spending on public schooling and college degrees. I favor better education. There is a huge difference. Do journalists really need a college degree? Journalists of the past were far superior to today's journalists and they had very little schooling, but were very well educated. Do lawyers really need three years post grad schooling? Has it improved the legal profession at all? We have far too much and too expensive schooling with very little education.
You aren't implying that manufacturing jobs for low-skilled people would come back with free markets though, are you?
I agree fundy, I suppose I should have said 'somewhat free and open' or 'marginally free and open'.
Ezra: "The thing about losing those jobs is that we've lost more than those jobs: We've lost those skills and that infrastructure, and the advances that would've been built on top of both. Now we want to get all that back, because what we tried instead didn't work. But we can't just call for a do-over. Like so much else in manufacturing, we need to build much of it from scratch."
"We"? I didn't lose those skills. And I never had them.
Ezra again: "The problem with the decline in manufacturing jobs is that we've not figured out what can replace them. Healthy industrial output doesn't solve that."
Let's replace the invisible hand with Ezra's hand so we can finally live in Utopia.
And hey, while we know better than the market how to allocate resources, let's bring back the manufacturing of horse buggies too. Did anyone ever pinpoint exactly where each of those workers went? Those poor people have been unemployed for almost a century!
I agree with Fundy:
Invest in education? SOCIALISM!!!!