“Going, going, gone” is an expression used by announcers
describing a home run ball. Recently it has also come to define
manufacturing job losses in the United States. For over 37
consecutive months, manufacturing jobs have hemorrhaged. The total
number of jobs lost in the U.S. exceeds 2.7 million and this trend
will continue into the foreseeable future.
Most of these jobs have gone to China where low “slave” wages
have provided manufacturers with a windfall. As the president of a
major Midwestern firm put it, “If I intend to compete, I must take
advantage of the low wage rates in China.” The differential in
wages between the U.S. and China is a factor of 50. Moreover, the
added costs of doing business in China — i.e. health insurance,
legal expenses — are minimal.
Nor are white collar workers immune from this drain. The Gartner
Group, a market research firm, estimates that 10 percent of the
jobs at U.S. information technology vendors will move offshore by
2004. Andy Grove, chairman of Intel, said recently that he is torn
between his responsibility to shareholders, to cut costs and
improve profits, and to U.S. workers, who helped build the nation’s
technology industry but are now being replaced by cheap foreign
labor. China and India could surpass the United States in software
and technical service jobs by 2010.
For most analysts this is the standard snapshot of
globalization, a world in which competition among nations has grown
fierce, with high social costs. Union officials and those forced
onto unemployment insurance greet the news with anger and calls for
tariff protection. Columnist Paul Craig Roberts has been an
impassioned voice for protectionism. He notes with alarm that the
nation has gone from more than 17 million manufacturing workers in
2000 to under 14.5 million in 2003.
Some practitioners of the dismal science greet this news
philosophically. The U.S., these economists say, has merely entered
the information age with manufacturing an increasingly peripheral
part of the economy. After all, consumers derive the benefits of
cheap products. Wal-Mart is the nation’s largest retailer in large
part because it passes along to the consumer the benefits of low
wage manufacturing in China. This company alone accounts for about
10 percent of the U.S. current account imbalance with China.
Pessimists argue that the loss of manufacturing will have
national security implications, forcing the U.S. to rely on foreign
suppliers during a time of war. Others maintain that low wage rates
in China and elsewhere will have a dampening effect on earnings,
putting the economy of the U.S. and other advanced nations into a
deflationary tailspin not unlike what has been experienced in Japan
since the 1990s.
A new book, U.S. Manufacturing: The Engine for Growth in a
Global Economy (Praeger Books, 264 pages, $69.95), edited
by Thomas J. Duesterberg and Ernest H. Preeg, presents a nuanced,
somewhat brighter picture of manufacturing. As the editors note,
manufacturing has been on a roller coaster ride, expanding in the
1990s and then declining in the last three years in the worst
recession since the oil crisis of the 1970s. They ask whether U.S.
manufacturing is doomed to long term decline in the face of foreign
competition. And whether this long-term decline would foreshadow
the loss of U.S. technological leadership?
Their analysis is both crisp and commonsensical. In historical
terms the “hollowing out” of manufacturing is not new. It has
happened before. What distinguishes recent developments from the
past is the acceleration of change. And the lousy economy hasn’t
helped matters.
In their breakdown of the data with suggestions for policy
reform, Duesterberg and Preeg emerge as counter-intuitive guarded
optimists. Since 1991, they write, manufacturing in the so-called
“new economy” has actually grown faster than the overall economy
when measured in real, chain-weighted dollars. Moreover,
productivity gains in manufacturing have been staggering mainly
because of new technologies and the U.S. edge in research
development.
So, the decline in the relative proportion of employment in
manufacturing is likely to continue, but manufacturing on the whole
is not likely to decrease. Their most notable conclusion is that
since technology drives economic growth and the U.S. has a
commanding technology lead, the success of manufacturing is bound
to technological innovation.
It’s worth noting that capital investment in the U.S. is
generally more productive than elsewhere because American managers
are more flexible and open to change than their peer competitors.
Even with the wage disadvantage and structural barriers to
innovation (e.g., litigation madness, escalating health care costs,
a poor education system), the United States is still the most open
and resourceful market on the globe.
Some evidence: In a 20-year period starting with 1980, the
National Science Foundation reports, the high technology share of
U.S. manufacturing output increased from 9.6 to 16.6 percent.
During the same period, the U.S. share of worldwide technology
production expanded from 30 to 36 percent.
With the onset of an era of customized production, the editors
forecast new opportunities and challenges for U.S. manufacturers.
Markets will expand and companies that once only produced goods
will now be obliged to offer a host of services, including
maintenance, insurance, logistics, and finance. A seamless web of
supply, production, marketing, and service operations will have to
be put in place, indeed are already being put in place.
If U.S. capital firms continue to invest, innovate, adapt and
integrate into global markets, I suspect the optimistic
speculations in this book are warranted. But it’s going to be a
bumpy ride. The loss of low end manufacturing, along with the
exportation of white collar jobs, will put enormous pressure on
politicians to enact tariff barriers, which would have a chilling
effect on the innovations needed for the U.S. to maintain its
technological edge.
