RALEIGH – Whenever you hear someone complain that “we” don’t “make” anything anymore, free feel to guffaw. Both in North Carolina and the nation as a whole, manufacturing continues to be a strong, productive component of a growing economy. We continue to produce all sorts of goods for sale – including, it seems, high-grade economic malarkey.
Many people believe that manufacturing is shrinking because employment in some manufacturing sectors is shrinking. That’s a telling misuse of the data. Businesses do not exist to create jobs. They exist to create goods and services to sell to consumers, generating a return on investment. Purchasing resources and labor is a means to the end. Just as you don’t evaluate the success or failure of a basketball team on the basis of the size of the payroll, but on wins and losses, it is similarly foolish to evaluate the manufacturing sector on the basis of employment.
When manufacturers learn to make more product per dollar invested or hour spent, the resulting productivity gain is good news. It is inevitably associated with some combination of lower prices for consumers, higher compensation for workers, and better returns for investors (who aren’t just coupon-clipping fat cats but include average families saving for education, housing, and retirement). Productivity gains do, indeed, sometimes lead to manufacturers reducing their payrolls, but basic economics tells us that the money saved will create job opportunities elsewhere. To worry that companies will start manufacturing more product than a newly unemployed proletariat can buy is to jump in a time machine and regress to the late 19th century, when Luddites, Marxists, Progressives, and other misguided souls failed to read their Jean-Baptiste Say and warned of capitalism’s impending implosion.
It was silly then, and it’s silly now. Daniel Ikenson, associate director of the Cato Institute’s Center for Trade Policy Studies, has just offered a needed corrective to the current hand-wringing about manufacturing. Examining data from the U.S. Bureau of Economic Analysis and other sources, Ikenson showed clearly that real U.S. manufacturing output is at an all-time high. American manufacturers remain among the most competitive in the world, and account for more than a fifth of the total value added in manufacturing worldwide each year.
Obviously, an aggregate can mask important sectoral or regional trends. It is true that some manufacturing sectors have experienced wrenching changes over the past couple of decades. Apparel and leather products manufacturing has had it particularly rough. In just the four-year period from 2002 to 2006, apparel revenues shrank 13 percent, output shrank 28 percent, and exports dropped 15 percent. Revenue from textiles and paper products also declined. But consider another sector with a strong North Carolina connection: furniture manufacturers. During the same four-year period, they posted growth in revenue, output, profits, worker compensation, and exports significantly above the average for U.S. manufacturing.
That doesn’t mean that furniture makers are necessarily adding jobs. Many are not. But they are making money, and making productivity gains that result in better compensation for the employees who run their increasingly high-tech operations. Again, to associate such gains in productivity with bad news is fundamentally to misunderstand the economic interest of the general public. It does not lie in stopping economic change or freezing industries in amber. Employing people unproductively, because of government regulations or trade restrictions, imposes a far greater cost than allowing industries to grow, change, and adapt to new technologies and competitive pressures.
Yes, former manufacturing workers often find themselves looking for new employment in the service sector. But we are not simply talking fast food and retail. The service sector includes a variety of high-skill, increasingly well-compensated positions in fields such as health care, personal services, and the financial sector. Many of these jobs do not require a four-year degree, contrary to popular myth (perpetuated, it may shock you to learn, by the institutions who market four-year degrees).
Economically speaking at least, we’re not going to hell in a hand-basket. Indeed, consumers have more real income with which to fill their shopping baskets when manufacturers learn to make more with less. That’s the way real economic progress occurs.
Hood is president of the John Locke Foundation.