There’s a piece in Quartz telling us that we’re all wrong about what has caused the decline in American manufacturing. It really is imports. This causes some head scratching, to be sure (Scott Sumner here for example), for it doesn’t really accord with what else we know about the world.
Between 2000 and 2016, imports edged up from 14.3% of GDP to 14.7% of GDP. But exports rose even faster, from 10.7% of GDP to 11.9% of GDP. As a result, the current account deficit actually got smaller, falling from about 4% of GDP to roughly 2.5% of GDP
As Scott says, that’s not really evidence of import driven shrinking of a sector of the American economy.
There is actually a very simple answer to this breathless piece about how we’ve all been getting it wrong.
It’s this:
That’s it, that’s all there is. Manufacturing is becoming a smaller part of the world economy. That manufacturing is becoming a smaller part of the US economy at the same time just isn’t that much of a surprise, is it?
No, really, even as China transformed itself. From a billion people looking at the south end of a north moving water buffalo into the workshop of the world making everything and then a bit, the total portion of the world economy that was manufacturing went down!
It’s also true that the portion of the world’s labour engaged in manufacturing is going down. Even – and these three don’t move in lockstep because of productivity, total numbers and portions aren’t the same things – the global number of manufacturing jobs is falling.
Sure, we can have little ups and down here and there, local reasons for particular blips can be both particular and local. Germany still has a greater portion of people in manufacturing than Britain does, than the US. Sure, all these little things are true. But the big one is that manufacturing is just becoming less important as a portion of the global economy.
In fact, manufacturing is going the way of agriculture. Sure, we all need to eat so someone, somewhere’s, got to be growing the food. But what happens in rich countries – those that aren’t stupid enough to subsidise people to stay peasants that is – is that 1 to 2% of all the people end up doing this. And they produce some 1 to 2% of the value created in that economy too. Manufacturing might have been 50% of some economies at some point. But it’s on the path to being like agriculture. 10 to 12% of the economy and workforce in places like Britain and France these days – from memory but roughly those sorts of numbers. And in time it will get to 1 and 2% just like agriculture.
Near all of us will be off pouring coffee for each other. To any reasonable approximation or rounding the entire economy will be services. This won’t be a problem in the slightest. The only even vaguest problem we’ve got at present is that people aren’t liking the change very much. But so what? There are people who mourn the disappearance of bell bottoms and tank tops too.
Beware economic journalism, not all of it is as entirely informed as you might wish it were.
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Ironic that 40 - 50 years ago people used to talk about what mind numbing drudgery factory work was and how you didn't want your kid growing up to do that.
Ironic that 40 - 50 years ago people used to talk about what mind numbing drudgery factory work was and how you didn't want your kid growing up to do that.
I think this fallacy (that manufacturing is special) arises because of the mystery of value generation. It's just easier to get your head around value generation for manufactured goods. Get some stuff out of the ground and turn it into kitchen blenders that people can use to make soup. It's simple to understand that value is generated in the process and hence where wealth comes from.
But a lot struggle with the: get a person, teach them to help this other person get something they want done and bingo value is also generated. There's a feeling that yeah this happens but if you follow the trail you'll find the original value was generated by turning physical stuff from the ground into physical things we can use. Its like manufacturing are the plants that capture the sun's energy, and the various services the herbivores and canivores that depend on them.
Excellent analogy. I'm sure I'll find myself using it at some point.
I think this fallacy (that manufacturing is special) arises because of the mystery of value generation. It's just easier to get your head around value generation for manufactured goods. Get some stuff out of the ground and turn it into kitchen blenders that people can use to make soup. It's simple to understand that value is generated in the process and hence where wealth comes from.
But a lot struggle with the: get a person, teach them to help this other person get something they want done and bingo value is also generated. There's a feeling that yeah this happens but if you follow the trail you'll find the original value was generated by turning physical stuff from the ground into physical things we can use. Its like manufacturing are the plants that capture the sun's energy, and the various services the herbivores and canivores that depend on them.
Manufacturing is not in decline. Even American manufacturing is producing more goods than ever. Manufacturing jobs are in decline, but as Tim always says, jobs are a cost and not a benefit of industry (unless you are a politician wanting slots in which to put your sign-carriers between elections). And as Tim noted here, the same thing has happened to agriculture in any nation willing to embrace innovation.
Hallowed, the emphasis put on this sector is not a result of misunderstanding but of lobbying. Agriculture has its own federal Department, with subsidies and restraint-of-trade at every turn. Manufacturing wants its own racket. Paul Ryan was catering to this when he tried to reinvent the entire American tax system, catering to that one sector, and thereby prevented legislative results in Trump's first 100 days when the mandate was fresh.
yes, but the false belief is out there, in the wild. Of course lobbyists and politicians maneuver to turn it into protections, votes and thereby dosh. If they succeed and institutionalise it in government its even more likely to be treated as a special case in perpetuity. The link has to be broken in the publics mind rather than expect there to be no lobbying.