October 19, 2005

THEY CAN MAKE THE KNICK-KNACKS:

The Fate of 'Made in the USA' (Robert J. Samuelson, October 19, 2005, Washington Post)

The question posed by the bankruptcy filing of Delphi Corp. -- the largest U.S. auto parts company -- is whether manufacturing in America has a future. Or is it sliding toward extinction? Viewed historically, the question is misleading. It's true that manufacturing employment now accounts for only one in nine jobs, down from one in three in 1950. But the decline mostly reflects higher efficiency. Americans make more things with fewer people. From 1990 to 2000, for example, manufacturing output rose 61 percent while employment fell 2 percent, reports economist David Huether of the National Association of Manufacturers (NAM). This is generally a good thing. It frees more workers to produce services (software, education, health care) that Americans want.

Of late, however, the news about manufacturing has seemed particularly dismal. Since mid-2000, 3 million jobs have vanished. Though overall corporate profitability has been strong, manufacturing has until recently been a conspicuous exception. From 2000 to 2004, the sector's profits averaged only 60 percent of their 1999 peak. It's retailing, finance (banks, stockbrokers) and real estate that account for big profit gains. Finally, imports represent a growing share of Americans' consumption of manufactured goods. In a recent report, the NAM cites these figures for 2003: 35 percent for motor vehicles and parts; 45 percent for computers and parts; 22 percent for chemicals. [...]

The fate of American manufacturing lies largely in American hands. Of course, some labor-intensive production will go abroad. But in many industries, job losses and cost-cutting -- though devastating to individuals -- can sustain production and restore profitability. The U.S. steel industry now produces more than in the 1980s, though it has lost two-thirds of its jobs. Elsewhere, innovation and high-value manufacturing should create jobs. Consider United Technologies. It makes jet engines, elevators, air conditioners and helicopters. Despite extensive foreign factories, much skilled manufacturing remains here. On one popular helicopter, air frames are assembled in the Czech Republic; the high-value electronic systems and blades are mainly American.

But one giant unknown clouds everything: China. Until now, its booming U.S. exports have mostly displaced exports from other countries. As China modernizes -- moves into more advanced industries -- this could change dramatically. The combination of low wages, a huge market and an artificially low currency confers staggering competitive advantages. They constitute a powerful magnet for foreign investment in many sectors, whose output could subsequently be exported. Unless the currency rises substantially, the United States could lose many industries that, by all other economic logic, it shouldn't. Therein lies the real threat of extinction or something close to it.


The Chinese aren't going to be innovators nor be trusted with high-value manufacturing.

Posted by Orrin Judd at October 19, 2005 11:56 AM
Comments

Mr. Samuelson should be castigated for noticing the elephant in the living room. We manufacture more with less factory workers than in 1950. And agriculturally we grow more with fewer farm laborers than in 1950. This will continue in every sphere.

Posted by: Mikey at October 19, 2005 12:38 PM

So let's figure out which path to take. We can use government as a tool to circulate wealth so as to generate demand for services, or we can take the Ayn Rand path--"To the gas chamber--go!"

The art is to do this in such a way as to preserve the incentive to keep progressing. This is accomplished by maintaining enough of a connection between effort and reward, having a sufficiently high Gini coefficient, if you will, to preserve individual motivation to excel.

Call it the third way, call it solidarity, call it whatever you wish; it is not an easy task, and it may not even be possible, but there are no other choices.

Posted by: Lou Gots at October 19, 2005 1:09 PM

"The Chinese aren't going to be innovators"
Tell that to Microsoft.

Posted by: Ralph Phelan at October 19, 2005 3:53 PM

Ralph:

MicroSoft doesn't innovate either, they steal stuff like the Chinese do.

Posted by: oj at October 19, 2005 4:01 PM

Even back when I worked for Apple in the late '80s, we joked about being Microsoft's R&D department. Putting a research lab in China is just part of the Evil Software Empire's way to "launder" the Open Source projects so they can be included in future releases of GatesOS.

Posted by: Raoul Ortega at October 19, 2005 6:44 PM
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