Manufacturing a new economy
If we eat food from local sources, we can decrease our ecological footprint, reduce carbon emissions, and eat better food. In addition, any society that cannot produce its own food is vulnerable, as it cannot create one of society’s main sources of wealth. It just makes sense to grow food locally.
The same principles apply to manufacturing. Grow locally, eat locally; more generally, consume locally, produce locally. In the case of manufacturing, "producing locally" would mean consuming goods that were mostly manufactured within your major metropolitan area, with most of the rest coming from around the country, but certainly not from around the world.
In fact, rebuilding our nationally based manufacturing system may be the single most important way to prepare ourselves to mitigate global warming, prevent ecosystem destruction, and improve the standard of living for the vast majority of Americans. A sustainable, jobs-creating manufacturing economy could pump out millions of solar panels, wind turbines, geoexchange heat systems, and light-rail, high-speed rail, and subway cars, expanding the middle class and bringing millions out of poverty. Millions of people could have high-quality jobs in a clean, high-tech manufacturing sector — and millions more would have the green-collar jobs installing all of this equipment.
Rebuilding the manufacturing sector would not only provide millions of direct jobs, it would transform the entire economy, because manufacturing is the foundation of an economy. And if the path to a carbon-emission-free society means that we would "have to" have a vibrant manufacturing economy, well then, the vast majority of Americans would just "have to" think of environmentalists as hard-headed advocates of long-term, sustainable, economic well-being, wouldn’t they?
No large nation, not even the U.S., can survive by only producing services. The vast majority of services consist of the economic activity that surrounds manufactured goods. In order to see why this is so, we need to take a stroll through the main sectors of the service economy; consider this an exercise in economic natural history.
According to the WTO’s “World trade in review, 2005” (p.21), 81 percent of trade among regions of the world is trade in goods, while only 19 percent is trade in services. So if you don’t have any goods to trade, well, what are you going to exchange for other peoples’ goods? In other words, you can’t trade services for all of your goods, at a national level. (All of the following figures are for 2003, U.S. Department of Commerce, Bureau of Economic Analysis, value-added as a percentage of Gross Domestic Product; the figures come from a paper at my website, “Why manufacturing and the infrastructure are central to the economy” [pp. 8-10].)
The services sector is diverse, and involved in the manufacturing economy. The wholesale and retail sector (12.9 percent of the economy) is responsible for distributing the goods that the manufacturing sector creates. Transportation services (2.9 percent) use planes, trains, trucks, ships, and taxis to move people and things, and use transportation infrastructure such as airports, roads, rail, and ports.
Hotels and restaurants (2.6 percent) use hotel buildings and food preparation equipment, respectively, and janitors(0.4 percent) take care of those buildings. Health care (6.3 percent) is an enormous repair process on the machinery known as the human body. Repair of machinery, including cars, (1 percent) is really a form of manufacturing.
Software, computer and data services (1.9 percent) are the activity of people using computing machinery. Telecommunications (1.8 percent) are completely dependent on very complex equipment, as are miscellaneous services such as travel (0.5 percent). Engineering services (1 percent) are directly related to manufacturing, as is, indirectly, scientific R&D (0.5 percent). Education (0.9 percent) is also part of the service sector that is necessary for manufacturing, as education and training are vital aspects of producing goods. Engineers, skilled production workers, scientists and operational managers must all be educated and trained.
And what about that part of the economy that so dominates our culture, the sectors of TV, radio, print, sports, entertainment, recreation, gambling, movies and music? A big fat 3 percent of the economy is all. And they all use machinery, telecommunications equipment, and other manufactured goods in profusion.
The other large part of the service economy is finance(5.7 percent), insurance (2.3 percent), and real estate (12.4 percent), but maybe that will go down), or FIRE, for short. Real estate is the retail equivalent for buildings. Almost all financing and insuring is ultimately for manufactured or constructed things. So one way or another, virtually every corner of the services sector is centered around the use of manufactured goods.
According to my calculations, of the nearly $2 trillion worth of manufactured goods consumed in the U.S. in 2003, about 54 percent was imported. Private services, however, only totaled $294 billion in exports for 2003, but we imported $228 billion in private services that same year. The resulting $66 billion surplus in services can do little to pay for $1,079 billion of imported manufactured goods.
So in order to manufacture all of those solar panels and wind turbines and retrofitting material that all those green-collar people will be installing, the U.S. will have to rebuild its manufacturing sector, or face a future in which it won’t be able to afford the necessary imports. In order to transform our economy, we need manufacturing. Next post: why the economy is an ecosystem.