Manufacturing is dying. Manufacturing is dead. We don’t manufacture anything anymore in the United States.
That’s what they were saying 10 years during the past recession, 20 years ago during the more-severe recession of the early 1980s, and even to some degree in the 1960s and 1970s. Up north, the manufacturing-is-dead story was told 50 years ago, or longer, as many plants moved to Southern states where taxes were lowers, unions were scarce, and customers were also flocking.
It’s a safe bet that much of the talk about the end of manufacturing in the U.S. and even in North Carolina today is similarly overheated. It is critically important to distinguish between manufacturing as a broad economic sector and specific types of manufacturing, such as textiles and apparel. It is also important to distinguish between manufacturing output and manufacturing employment. One can rise while the other is falling – and, indeed, this is usually considered to be good news for the economy as a whole.
First a few numbers. Contrary to popular belief, manufacturing constitutes about the same share of the domestic economy – about 17 percent – that it did a decade ago. Indeed, manufacturing was about 18 percent of the economy in the 1950s. As economist Alan Reynolds observes, even the small downtick over the past few decades we’ve seen in manufacturing as a share of the economy can be explained primarily by the growth of government as a share of GDP, which went from 20 percent in the early 1950s to an average of about 30 percent since 1980. By definition, if the government’s slice of the pie is growing, the non-government slice of the pie must be shrinking.
It is silly to argue that the share of an economy devoted to manufacturing is a meaningful number economically or strategically. Plenty of desperately poor countries have much-higher shares of their economy in manufacturing, including Cuba (37 percent). From the standpoint of consumers, foreign-made manufactures are just as valuable, at a given level of quality, as domestic-made manufactures. So if imports of manufactures increase, due to lower prices or some other reason, American consumers are made better off. Indeed, they save money on these goods that they can either save or spend on other goods or services, in any case creating new (albeit different) jobs in the domestic economy. That’s called a gain in productivity, which is the primary means by which economic progress is made (without productivity gains, which bake bigger economic pies, what you are left with is simply slicing up existing pies in different ways).
Many of the specific allegations about foreign trade and manufacturing today also dissipate upon closer inspection. For example, China is supposedly keeping its yuan undervalued against the dollar, thus giving their exports an advantage in the American market. The truth appears to be much murkier. The Chinese actually used a dollar target for their currency. And while the yuan is weak, that appear to be many reasons for that, including problems with Chinese banks that could be pushed into a crisis by a sudden increase in the yuan’s value. Most economists agree that Chinese products are selling better in the U.S. because their quality has improved in recent years while their price has remained low. A change in the currency’s value, said one recent Morgan Stanley report, would have only small effects on Chinese exports to the U.S.
Everything that has been said recently about manufacturing used to be said about agriculture. It was alleged that the decline of the number of farms, or of farm employment, in the United States during the latter half of the 19th century and the early 20th century represented a great threat to the republic. We were supposed to outgrow our ability to grow food. Or we were supposed to become dangerously dependent on foreign sources. Or our former farmers were supposed to remain chronically unemployed. The reality was completely different. The rural workforce moved to cities or retrained themselves to do other things (this trend largely predated government training and assistance programs, so one wonders how people could possibly have taken care of their own needs). Agricultural productivity soared. A much smaller number of highly productive American farms grew so much food that the government had to prop up the price with all sorts of dubious and costly schemes, some of which still remain in place today.
Sure, there are plenty of countries where farmers still make up a large share of the workforce. They are places like Zimbabwe and North Korea. They are basketcases. If you want to perpetuate poverty, then you should try to stop productivity from increasing and try to keep people in the same jobs their parents and grandparents used to hold. But if you want to create a more prosperous society, then you should focus on things that make productivity gains larger and more frequent – things that would, in fact, help the profitability of North Carolina manufacturers, such as lower taxes and regulations and better education – and avoid erect barriers to trade and commerce.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.