Recently Hale “Bonddad” Stewart, who normally writes informative posts about finance, let loose with a string of myths about manufacturing (both at Huffington Post and Daily Kos) that really got my blood boiling. Nothing like boiling blood to get those fingers moving, I always say! So I thought I would address various myths, most of which Bonddad managed to touch on. Also, I figure that some clarifications might be in order for those that read both my post on the necessity of manufacturing and Ryan Avent’s spirited challenge.
Bonddad’s myths: a strong U.S. manufacturing base will be bad for trade, is an artifact of World War II, is not necessary for high-tech industries or a thriving middle class, depends on low-cost labor, and ultimately, is not possible.
First, Bonddad puts forth the idea that a rebuilt manufacturing base would require an end to trade. In fact, without a renewed manufacturing base, U.S. trade could collapse. The best way to ensure a robust trading partner is to make sure that that partner has a vibrant manufacturing base — which is why China, Europe, and Japan have booming export economies. As I argued in my earlier post, we can’t trade services for all of our manufactured goods, and in fact 80 percent of interregional trade is goods trade, only 20 percent in services. We can import manufactured goods now because other countries are still accepting more than $700 billion dollars a year in return for goods.
Second, Bonddad seems to think that American post-WWII manufacturing dominance was a result of the destruction of our competitors during the war. Yes, right after World War II, the U.S. economy was 50 percent of the entire world’s GNP. But even before WWII and at the height of the Great Depression, the U.S. alone accounted for over 40 percent of the world’s industrial output. Much of the 20th century was, as Time‘s founder Henry Luce once put it, the “American Century,” at least for manufacturing.
Third, Bonddad perpetuates the idea that trying to revive manufacturing in the U.S. is like trying to turn the clock back. This is why I prefer not to use the phrase, “Let’s bring back manufacturing.” The technologies used to produce manufactured goods — let’s called them production machinery — have always been among the most advanced in the world. Bonddad does mention “the industries of tomorrow,” but that leads to another myth.
Fourth, the myth that a few high-tech industries can thrive without a base of manufacturing technology industries. These core industries include things like machine tools, semiconductor-making equipment, steel-making equipment, industrial handling equipment, and technologies even more unfamiliar. Most people are probably more familiar with the deep-ocean “smoker” vents than they are with the ecology of industry, a subject I will return to in a future post. High-tech windmills, solar panels, and light-rail will require these core industrial sectors just as much as the automobile and airline companies do today.
Fifth, and this is particularly damaging politically, is the myth that countries compete in manufacturing by offering the lowest-cost labor force. In the long run, nothing could be further from the truth. For most of the 20th century, the U.S. production workers were the highest paid in the world, even while the U.S. was the largest exporter of manufactured goods. About half of our trade deficit in manufactured goods is with countries that have similar or higher production wage rates than the U.S., not lower. The reason for this mechanism is highlighted by the sixth myth.
Middle classes can thrive without a manufacturing base. For most of the 20th century, wages and standards of living rose because American management returned part of the productivity increase resulting from innovations in production machinery back to manufacturing workers. As management lost competence, they took whatever gains were made from innovation, and stopped giving a now-disappearing surplus to the workers. Most of these productivity increases resulted from innovations in production machinery, which were made possible by the skill base (human capital) of scientists, engineers, and skilled production workers in the United States.
Since the middle classes are now contracting because of the decline of the manufacturing base, voices like Bonddad’s are starting to spread a very nefarious myth, which environmentalists will find quite ironic: Americans will have to get used to a lower standard of living. Here environmentalists are, hesitant to argue that preventing the worst of global warming will mean cutting back, and I am starting to hear mainstream economists and journalists inform TV audiences that Americans have been spending beyond their means and must now cut back!
All of these myths add up to one megamyth: There is nothing we can do about the decline of manufacturing and the decline of standards of living, and now is the time for “adaptation,” to use a global warming/peak oil phrase. But we know that there is an alternative.
We can create millions of “green” jobs, which include both service jobs like retrofitting homes, and jobs in factories that manufacture the solar panels and windmills that we need. The environment and the economy are in a win-win relationship, if we encourage “cradle-to-cradle”, nonpolluting manufacturing, in conjunction with regulatory, investment, and public reconstruction policies that transform our transportation, energy, and agricultural infrastructures.
A green economy with a strong manufacturing base will be a better trading partner, not a worse one. It will be one with an expanding middle class, not a shrinking one; an economy that is at the cutting edge of technology, not one that brings back something from yesteryear. Don’t believe the hype.