Manufacturing Myths

Good friend Dave McCarthy wrote that his brother-in-law (retired engineer for Boeing; one of the brightest people I know) made the comment that America has very little manufacturing jobs left, and is losing more each year and soon this country will be all service and will produce nothing, thereby ceasing to be a world power. It seems that many people have that concern.

Good friend Vic Quirarte asks how I can say that the U.S. economy is just fine and on the rise when Ford is going out of the country for most of its manufacturing, GM already builds Chevy's in Mexico.

So what about it? Last May I wrote a piece called “Economic Myth and Nonsense” (5/23/05) that included this one: As we outsource our high paying manufacturing jobs, Americans are left with inferior service jobs.

Now is the time to put a stake into the heart of that economic myth. My primary reference is an article in The Economist magazine, not noted for right wing economic or political views.

In “Manufacturing Employment” (9/29/05) The Economist claimed that the fall in manufacturing employment in developed economies is a sign of economic progress, not decline. Whoa, how can that be true? Well -- look at these factoids.

1. Employment in manufacturing, once the engine of growth, is in a long, slow decline in America (and in the rest of the developed world) with American manufacturing now accounting for less than 10% of total jobs.

2. Manufacturing output in America has been growing by almost 4% a year on average since 1991.

How can these facts be consistent? Productivity is the key to the benefits program. In “Dow Eleven Thousand” (1/9/06) I noted that GDP per capita is determined almost entirely by productivity, that has been growing at a remarkable rate of 3.4% per year for the last 5 years. Thus we are able to produce more goods with fewer workers, as Ford, GM and others are showing.

So manufacturing in America is not in trouble. We still produce twice as much manufactured goods (measured by value) as China. Due to our technological advantages we are able to do it with automation while China relies more on human labor.

Furthermore, advanced technology has allowed us to shift production from labor-intensive products such as textiles to higher-tech, higher value-added, sectors such as pharmaceuticals. While low-skilled jobs have moved offshore, higher-value R&D, design and marketing have stayed at home.

And jobs in these higher paying areas are growing faster than the lower paying jobs in manufacturing are declining. That is also true in the services sector where average wages in the fastest-growing areas such as finance, professional and business services, education and health, are much higher than in manufacturing. That’s right -- the services sector is a great place to work, not at all like the popular Mcjobs myth.

What is happening in America is happening also in all other highly developed countries. Manufacturing jobs disappear because economies are healthy, not sick. Countries that fight this trend through protectionism may be able to retain some lower paying manufacturing jobs but do so at the expense of higher paying high-tech jobs, and their economies flounder. (See “Mythical Protectionism,” 6/26/05). In the last 30 months the American economy has created 4.5 million new jobs while the unemployment rate decreased below 5% and GDP growth averaged 4%. Check out the German economy if you want to see the effects of a little anti-American economic policy.

Finally, what about those workers who lose their manufacturing jobs? Government needs to ameliorate the pains which change inflicts by retraining or temporarily helping those workers who lose their jobs. Unions can help by joining with management to transition workers to higher skill jobs before their manufacturing jobs are lost and schools can help by educating students for the jobs of the future. But those are subjects for another post.