Tuesday, March 8, 2011

A Rebirth of American Manufacturing?

There is a lot of talk these days about the rebirth of American manufacturing. Forget it, there won't be any rebirth, just a bounced back from a weaker dollar. The trend is down, definitively down. And not just in the U.S.A., everywhere in the industrialised world.

Yet, a case can be made that, like for agriculture before, even though manufacturing employment is now trending down for several decades, production in the sector is still growing. You would be right to point out that it is not growing as fast as GDP; which would explain why the share of manufacturing in our economies is trending down. Yet, it is still growing in absolute terms. And according to Jeff Jacoby "US manufacturing still tops China’s by nearly 46 percent".

It's just that we make "stuff" with less and less workers and more and more efficiently. There is also another reason why we actually don't make that much "stuff": We contribute to its making by providing high-value adding services. Recall my recent post on the real impact of the ipad on the US trade deficit. In other words, we found ways to make more money and create better jobs in manufacturing by selling services to manufacturers. It's just that, for most people including government statisticians, these jobs don't look like jobs in the manufacturing sector. But, if you stop to think about it, they are.

Tricky, isn't it?

Here is Jeff Jacoby's piece Made in the USA published in the Boston Globe last month:

IN ECONOMICS as in apparel, most fashions come and go. But like the navy blazer or the little black dress, bewailing the decline of American manufacturing never seems to go out of style.

“They’re closing down the textile mill across the railroad tracks

Foreman says these jobs are going boys and they ain’t coming back.’’

So sang Bruce Springsteen in “My Hometown,’’ a hit song from his 1984 album, “Born in the U.S.A.’’ More than a quarter-century later, that sentiment (if not the song) is as popular as ever.

“You know, we don’t manufacture anything anymore in this country,’’ says Donald Trump in an interview with CNNMoney. “We do health care; we do lots of different services. But . . . everything is made in China, for the most part.’’

The Donald has his idiosyncrasies, but on this issue he is squarely in the mainstream.

A recent Heartland Monitor survey finds “clear anxiety about the decades-long employment shift away from manufacturing to service jobs,’’ National Journal’s Ron Brownstein reported in December. The “decline of US manufacturing’’ is giving Americans a “sense of economic precariousness’’ — only one in five believe that the United States has the world’s strongest economy, versus nearly half who think China is in the lead. “Near the root of the unease for many of those polled is the worry that the United States no longer makes enough stuff.’’ When asked why US manufacturing jobs have declined, 58 percent cite off-shoring by American companies to take advantage of lower labor costs.

There’s just one problem with all the gloom and doom about American manufacturing. It’s wrong.

Americans make more “stuff’’ than any other nation on earth, and by a wide margin. According to the United Nations’ comprehensive database of international economic data, America’s manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China’s output of $1.48 trillion by nearly 46 percent. China’s industries may be booming, but the United States still accounted for 20 percent of the world’s manufacturing output in 2009 — only a hair below its 1990 share of 21 percent.

“The decline, demise, and death of America’s manufacturing sector has been greatly exaggerated,’’ says economist Mark Perry, a visiting scholar at the American Enterprise Institute in Washington. “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.

So why do so many Americans fear that the Chinese are eating our lunch?

Part of the reason is that fewer Americans work in factories. Millions of industrial jobs have vanished in recent decades, and there is no denying the hardship and stress that has meant for many families. But factory employment has declined because factory productivity has so dramatically skyrocketed: Revolutions in technology enable an American worker today to produce far more than his counterpart did a generation ago. Consequently, even as America’s manufacturing sector out-produces every other country on earth, millions of young Americans can aspire to become not factory hands or assembly workers, but doctors and lawyers, architects and engineers.

Perceptions also feed the gloom and doom. In its story on Americans’ economic anxiety, National Journal quotes a Florida teacher who says, “It seems like everything I pick up says ‘Made in China’ on it.’’ To someone shopping for toys, shoes, or sporting equipment, it often can seem that way. But that’s because Chinese factories tend to specialize in low-tech, labor-intensive goods — items that typically don’t require the more advanced and sophisticated manufacturing capabilities of modern American plants.

A vast amount of “stuff’’ is still made in the USA, albeit not the inexpensive consumer goods that fill the shelves in Target or Walgreens. American factories make fighter jets and air conditioners, automobiles and pharmaceuticals, industrial lathes and semiconductors. Not the sort of things on your weekly shopping list? Maybe not. But that doesn’t change economic reality. They may have “clos[ed] down the textile mill across the railroad tracks.’’ But America’s manufacturing glory is far from a thing of the past.

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