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INDEED — WHAT IS THE MATTER with manufacturing
in our country? Well, the answer might be nothing. At least
nothing out of the ordinary in the capitalist system.
But wait. Doesn’t everyone say that all our manufactured
goods are made outside the United States? Aren’t manufacturing
jobs being outsourced to China, India and other countries in
Asia and the subcontinent? The answer to all these questions is,
yes! But…
What really happened to U.S. manufacturing is fourfold:
globalization, comparative advantage, automation and policy
neglect at the national government level – all pretty natural
in the American capitalist system. The first three of these are
unavoidable, but the last, policy, can be addressed. More about
policy neglect later in the essay. Let’s look at the unavoidable
after a little statistical background.
Numbers and Trends
Since World War II, manufacturing has grown steadily. There
have been some down years, but the slope of the line over the
years has been upward. While ubiquitous — with factories
emitting smoke into the atmosphere and employees queued up
for the shift change — at its peak, manufacturing employment
never exceeded 32% of the total non-farm labor U.S. labor force
and was never more than 27% of GDP.
Between 1950 and 1970, manufacturing GDP grew at 3%;
between 1970 and 1990, it grew at 4%. Since 1990, manufacturing
GDP has grown at less than 2%. While growth between World
War II and 1990 was good, and since then has been slow, there
was always growth.
Employment is a different story. In the years since the war,
manufacturing employment grew 18% until 1990 then declined
by 33%! So as output grew, employment gradually declined,
suggesting that productivity, abetted by automation, has grown.
We are, in fact, a much more productive manufacturing nation.
Increased productivity is good news. All we need now is to put
that productivity to use making things. And therein lies the
problem – we need to make and sell more goods. With all the
positive productivity gains, the use of our bounty languishes
in its sight. Manufacturing capacity utilization stands at 75%,
its lowest in more than 20 years. Most economists think that
capacity utilization has to be in excess of 80% for the industry to
be healthy and investing. Manufacturing output isn’t declining,
it’s just anemic.
The Unavoidable and the Inevitable
Now let’s look at the unavoidable international phenomena
and their effect on our ability to sell more. If India and China
weren’t growing their manufacturing base, the United States
would be producing more goods. We can’t stop globalization
nor its close relative, comparative advantage, which is the labor
cost differential enjoyed by developing countries. In a world that
is experiencing rising expectations for the economic well-being
of its citizens, industrialization is a rational policy for developing
nations. We can see this industrialization/globalization as a
threat or as an opportunity — and embrace it intelligently.
Comparative advantage will eventually take care of itself. Over
time, wages in industrializing countries grow (just as they did in
Japan), and the advantage disappears, often going to another
less developed country until it, too, experiences wage growth.
So it goes.
To try to compete with low-labor-cost countries amounts to
a “race to the bottom.” The net effect of comparative advantage
is that we are unlikely to see high labor content products,
sneakers for example, manufactured in the United States any
time soon. These two international factors won’t cease because
we wish them to. We can, however, take advantage of them
through policy.
Here in the United States, automation, which is inevitable,
reduces aggregate demand among our citizens by requiring
fewer workers and wage payments. The dramatic productivity
growth since 1970, occasioned by automation and a better
educated work force, has not been accompanied by comparable
wage growth in manufacturing (or in other industries for that
matter). Manufacturing wages grew in the post-war years up
until 1980 and then began to level out. There were various
reasons for this growth in wages and for the subsequent
leveling, chief among them the influence of unions on the
upside and their decline in the recent leveling period. Changing
wage patterns is a complicated topic not in the scope of this
essay. However, manufacturing employment and production
(and the consequent purchasing power it can provide) can be
influenced by promoting the quantity of output. In manufacturing
operations terms, we need to manage demand to get factories
operating three shifts.
What’s to be Done?
Manufacturing’s share of GDP is now at 12%, about
$1.8 trillion in output. Its share of total non-farm employment
is 9%, with about 12 million workers. Goals for growth, GDP
share and quantity must be set — and policy directed toward
meeting them. Employment goals are not necessary, as growth
and output quantity will force the employment numbers up.
In 1990, the share of GDP represented by manufacturing was
17%. Perhaps this would be a good, though aggressive, goal to
achieve over the next 10 years. Assuming very modest annual
GDP growth, a 17% share of GDP in 10 years would yield
4 million to 5 million new manufacturing jobs. More importantly,
increased manufacturing output radiates demand into the
tangential industries that service the manufacturing industry
and creates additional jobs at the rate of five to one.
Of course, having goals is not enough. Now is the time to
make the policy, investment and focus changes that facilitate
achieving the goals. Some of these changes can be traditional
while some will be very untraditional. But they must be
serious, and they must be substantial. First and foremost,
some attitudes have to change. The animosity between
manufacturers and national government has to give way
to a mutually beneficial partnership. Naturally, both have to
recognize their responsibilities to the public as well as their
own constituencies. If the mutual suspicion can be overcome,
some untraditional approaches can be tried.
The policy and investment initiatives needed to grow the
U.S. manufacturing base will best be facilitated by focus; and
focus comes from people and organization. To get that focus,
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