14 February 2012

The Politics and Economics of Manufacturing

The video above is of course the much discussed Super Bowl commercial from Chrysler featuring Clint Eastwood titled "Halftime in America" which celebrates manufacturing. The video does not note that Chrysler is now part of Fiat, an Italian company. The tension between the globalization of modern business and the symbolism of American manufacturing reflects the difference between viewing manufacturing from an economic perspective (i.e., as a NAICS categorization) and through a political lens (i.e., as a powerful image of American ideals). Many analysts conflate the two.

The aggregate number of people in the United States employed in manufacturing today is lower than at any time since before World War II, as shown in the graph below.
This means that the only people who (as adults) have previously experienced a labor market of less than 12 million manufacturing workers are today 90 years old. Consider also that in 1948 there were only about 60 million people in the labor force, meaning that about 1 in 4 US jobs was in manufacturing and today that ratio is closer to 1 in 13. The US of course is not alone in seeing a decline in manufacturing jobs -- for instance, Germany's decline has been more pronounced.

Since about 1950 US manufacturing output has increased by more than 300% (in real terms) even as the sector has seen its role in the overall economy decrease from 27% to less than 12% (data from BEA, price deflators from OMB). By any economic measure, manufacturing occupies a less significant role in the US economy than it did several decades ago, and far less significant than what might today be deemed the 20th century golden age of manufacturing in the decades following World War II.

But it seems that politicians still see that golden age as having political benefits. Here is an excerpt from President Obama's FY 2012 budget (PDF):
Our challenge is not building a new satellite, but to rebuild our economy. If the recession has taught us anything, it is that we cannot go back to an economy driven by too much spending, too much borrowing, and the paper profits of financial speculation. We must rebuild on a new, stronger foundation for economic growth. We need to do what America has always been known for: building, innovating, and educating. We don’t want to be a nation that simply buys and consumes products from other countries. We want to create and sell products all over the world that are stamped with three simple words: “Made in America.”
The invocation of manufacturing's golden age is bipartisan, with Mitt Romney recently making a speech on a factory floor and promising to bring back manufacturing jobs.

The political appeal of manufacturing is largely symbolic. Consider that organized labor has declined dramatically, falling from 35% in the private sector in the 1950s to less than 7% last year.  The symbolic importance of manufacturing is reflected in an opinion poll taken by Deloitte in 2011 which found (here in PDF):
When asked which industries are most important to the national economy, manufacturing is near the top of the list, topped only by energy. Eighty-six percent indicate that America’s manufacturing base is “important” or “very important” to our standard of living. And when asked if they could create 1000 new jobs in their community with any new facility, manufacturing comes in at the top of the list – ahead of energy production facilities, technology development centers, retail centers, banks or financial institutions and a host of others. . . Seventy-nine percent of Americans believe a strong manufacturing base should be a national priority.
The poll also provided some evidence that the world has changed:
While the U.S. public registers a strong belief in the importance of manufacturing for the country’s economy, when it comes to choosing manufacturing as a career choice, they place it near the bottom of the list. Out of 7 key industries, manufacturing ranks second to last as a career choice. While the reasons for this are complex, one interesting finding suggests that Americans (77%) fear the loss of domestic manufacturing jobs to other nations, contributing to a sense that manufacturing is an unstable long-term career choice. Of equal concern is the fact that the future talent pool is least excited about the prospect of a career in manufacturing. Among 18-24 year-olds, manufacturing ranks dead last among industries in which they would choose to start their careers.
Over the past century, the US fought a losing battle against productivity gains in agriculture. The 1920s and 1930s were characterized by political debates on the plight of the American farmer, which are not so different than those of today focused on manufacturing. Price supports, tariffs, supply destroying policies, demand increasing policies, Food for War, crop subsidies, crop insurance and many other policies were unable to stop the inexorable march of innovation on agriculture. Today agriculture represents about 1% of the US economy and about 1 million jobs. Despite these declines -- far larger than those experienced by manufacturing -- no one is talking about revitalizing American farming.

Make no mistake -- both manufacturing and agriculture are essential parts of the US economy. However, if it is indeed "Halftime in America" we'd better be ready to come out of the locker room prepared to play a different game.


  1. The factories I worked in were full of African American and Latino men - and Cambodian ladies on the paint line. Those jobs are all gone now, and those people ain't writing apps.

    Manufacturing, retail and office jobs replaced farm work a century ago. What, exactly, is replacing manufacturing? Please don't tell me the machine operators and assemblers can code their way into retirement. That the factories aren't coming back is obvious. The question is, what are you going to do with the left-over workers?

  2. .

    "No one is talking about revitalizing agriculture."

    Not true. John Deere and company is doing that every day. So are scads of other vendors to Americas farmers. As a result of this vital industry real food prices are far lower than in decades past.


  3. Political and social elites have long thought poorly of the underclasses, this has always been the way. Keynes, H.G Wells, G.B Shaw among countless others were social darwinists and advocates for eugenics. The progressive movement of the early 20th century was littered with this type of thought.

    I submit that it hasn't completely gone away. I believe for a certain swath of intelligentsia the romanticization of manufacturing comes from the unconscious disdain of lower classes and the belief that much of the 'ordinary folk' are too dumb to do anything other than repeatedly pull a lever on the floor of some factory.

    Manufacturing and its future has been a topic of particular interest here in Canada with the recent closure of a Caterpillar plant and the surrounding controversy.


  4. I would just like someone to answer Mark B.'s question posted in comment 1. Just where are the former manufacturing workers going to find work? if robots are now cheaper than people and if recent reports are true that that includes all workers including those in China then how are these displaced workers to find income?

    More importantly just where are these displaced workers going to find the independence and autonomy that is required to maintain human dignity? The analysis provided by economics provides not answers to these questions

  5. @4.

    While I'm sure many would find it pollyanaish, Walter Russell Mead has a recent essay on this very subject matter:

    "An inevitable question as we look at the demise of the 20th century economy is how shall we live? As the manufacturing that remains to us becomes more automated, reducing employment even as output climbs; as agriculture continues to need fewer hands; as outsourcing and technological change sweep through the knowledge guilds and the learned professions; and as government downsizing decimates the serried ranks of the bureaucrats and postal workers — what jobs will be left? What will we eat and what will we wear when few if any of us make stuff anymore?"


  6. @4

    There are very many more service jobs. Eating out in the 50's was a bit of a rarity. Today employment in restaurants ans related service industries is vastly higher. We now have more health care workers. Lawn care by professionals was only purchased by the very rich, but it is now far more common. The number of jobs in air transportation has grown since deregulation. Jobs that depend on tourism have grown. Etc, etc.

  7. http://www.thestar.com/opinion/editorialopinion/article/1129721--heather-mallick-s-rage-against-the-machine

    The column is a polemic but it does describe how automation is not just replacing workers and jobs in manufacturing industries. Company's are outsourcing the jobs to customers.

    I have read of similar things in supply chains in which the production lines of customers and suppliers in the supply chain are integrated. Goods are provided "just in time". Test and QC are done only at the suppler to eliminate that cost at the customer. Goods are delivered not to a warehouse or a receiving department but to the beginning of the production line. Jobs are outsourced across the supply chain and are now being outsourced to the end customer.

  8. re 6

    There are very many more service jobs. Eating out in the 50's was a bit of a rarity. Today employment in restaurants ans related service industries is vastly higher.

    Jobs are moving from value added in manufacturing that could sustain a middle class wage to service industries which cannot. People could get jobs in factories. Now they assemble hamburgers and get the wages that are compatible with the value in putting a hamburger patty between two bus.

    Is this an accurate picture? Is the middle class being squeezed out of existence? There are many more jobs fro skilled technicians to maintain the robots and robot-based production. But what happens to the displaced workers?

    I don't know the answer to that question. When ( read answers provided by economists I see references to agriculture and the 19th century with assurances that everything will turn out right However, can low value added service jobs offer the same wages as high value added manufacturing jobs?.

    Romer has suggested that the government encourage construction to take up the slack. Construction was artificially high during the bubbles of the last twenty years which masked the real issue with the economy. How is inflating construction going to provide a long term solution. What vale will these new constructions bring to fund the jobs they are supposed to create. Why wouldn't funny money from the government be as futile as funny money from the investment bankers in building a sustainable economy?

    As an aside, a recent op ed was published in the Globe and Mail which is the major establishment newspaper in Canada. It was written by an economist from a think tank with close ties to the current Conservative government. He wrote that we should not be concerned because people with high qualification could not get jobs. If they turned to pizza delivery then they would have the initiative to find ways to revolutionize the pizza delivery business and reap their fortune. Can you see why I despair of ever getting a sensible answer to these questions from economists?

  9. "Despite these declines -- far larger than those experienced by manufacturing -- no one is talking about revitalizing American farming."

    Attention to some of the champions of "sustainability" may change your opinion. Maryland Planners as an example found (incorrectly) that State farmers were "challenged by a food distribution system that operates with “efficiency”. Maryland in its new planning document champions the growth of locally produced food and seeks to triple "productive agriculture" by 2020. No consideration is given to the efficiency of instate production versus out of state production. And a tripling in State agriculture certainly seems to be a "revitalization" effort.
    The National campaigns against fertilizer, pesticides, herbicides, genetic engineering and irradiation- whether one agrees or disagrees- are all examples of choosing some ranking based on something other than agriculture efficiency.

  10. I can't imagine expecting a reasonable answer from economists. They can't even agree about the past, and I have pretty low expectations about their ability to predict the future.

    I don't think that it's anything new that the people interested in working hard and interested in learning and improving their skills and knowledge will do better than those who just want to get by. But I agree that it's a lot harder for those people to get by without a lot of effort.

    On the other hand, my feeling is that there are a lot more people now who are less interested in working hard, either at a job or in pursuit of rewarding skills or knowledge. And trying to help (i.e., social safety nets) often just creates a vicious cycle of dependency that spirals downward.