In the early days in the now 20-plus year history of SCDigest, I ran a series of these First Thoughts columns on “Can – and should – US Manufacturing be Saved?”
It was very popular. I think the most interesting issue in that mix was which of the two questions was more important.
That series years ago came to mind last week, when the Wall Street Journal ran a guest column titled “Factories aren’t the Future” by Martin Eichenbaum, an economics professor at Northwestern University.
Eichenbaun notes that politicians on both sides of the aisle promise to restore manufacturing to its historic role as the foundation of good jobs for Americans..
Gilmore Says.... |
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I come out on this as I did almost 20 years ago: US manufacturing should be saved, but whether it can be is a doubtful proposition.
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However, many in the US blame low cost countries, notably China and Mexico, for unfairly stealing many of those jobs.
Eichenbaum notes that “Voters pine for a golden age in our immediate rearview mirror when most Americans had high-paying, stable manufacturing jobs.”
However, the facts tell a different story.
Citing Bureau of Labor Statistics data, Eichenbaum notes that manufacturing’s share of non-farm employment has declined from roughly one-third of the total in 1947 to approximately just 8% at the end of 2023.
It should also be noted that there was a slight increase in the rate of decline around 2001, when China entered the World Trade Organization. However, “You have to stare pretty hard to see the effect,” Eichenbaum writes, adding that “In any event, that effect is trivial compared to the long, slow, inexorable decline in the importance of manufacturing as a source of US jobs.”
So those are the facts. But the question is, has the decline in manufacturing jobs been the economic catastrophe, as many claim?
Hardly, Eichenbaum days.
Inflation-adjusted gross domestic product per capita has increased from about $15,000 in 1947 to about $66,000 in 2023. Real per capita disposable income rose by a similar rate.
“So it isn’t true that our prosperity depends on having most people work in the manufacturing sector - quite the opposite,” Eichenbaum states.
A key factor in this: technology has dramatically driven labor productivity in manufacturing much higher. For example, automakers in the US and abroad need far fewer employees now than they did in 2000 to make better cars than they used to.
“That’s a powerful force reducing employment in the auto sector - and the same is true in many other industries,” Eichenbaum notes.
He further comments that per capita income couldn’t have risen so dramatically if most of the workers who left manufacturing landed up working in fast-food restaurants.
While manufacturing jobs have dropped substantially, jobs in finance, healthcare technology, and many others have more than picked up the slack.
Eichenbaum thankfully does acknowledge that the loss of manufacturing inflicts real costs on some people. He notes, for example, that as he started his career teaching at Carnegie Mellon University in Pittsburgh there was significant pain when manufacturing, especially steel production, declined in that area.
“Proponents of free markets sometimes forget that there are real political consequences of ignoring the human cost of change,” Eichenbaum says.
So what to do?
The right answer to the challenge of change, Eichenbaum writes, involves at least three initiatives.
(1) The government must materially help the people who are affected and help them find jobs in which they can take pride.
(2) Next, parents and educators must provide children with the skills they need to thrive in a constantly changing world.
(3) Finally, politicians must remove unnecessary regulations and other barriers to growth in emerging sectors of the economy.
The wrong answer, he adds, “is to pine for a mythical golden age that never existed. Pittsburgh is now a thriving center of education, research and health services. It didn’t get there by trying to bring back the 1950s.”
So what to make of that?
One thing Eichenbaum doesn’t address is that with massive outsourcing the US is dependent on China and other countries for critical items in medicines, semiconductors and more.
Steps have been taken to address this, but not enough in my opinion.
I have also seen evidence that when manufacturing for a given company is offshored, most of the time the design and other engineering work usually follows, so you lose both competencies – and jobs.
I come out on this as I did almost 20 years ago: US manufacturing should be saved, but whether it can be is a doubtful proposition.
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