Thursday, January 20, 2011

We Should Take More Pride in Our Manufacturing Dominance; We Still Make LOTS of Stuff Here


There are frequent claims that “nothing is made in America anymore,” because all of the manufacturing jobs and production have been outsourced to places like China, Mexico, and Korea (for example, Donald Trump makes that claim, as Don Boudreaux points out here). Such claims about U.S. manufacturing have been circulating so persistently and for so long, that most people now blindly accept these myths, even though the empirical evidence provides a completely different story—a thriving and growing U.S. manufacturing sector. (For example, see yesterday's front page WSJ article about manufacturing being the "shining star of this recovery.")

The chart above is featured today on The Enterprise Blog, and helps to illustrate America's "manufacturing might" as the world's largest manufacturing nation, by FAR. 

In my post, I conclude that:

"The decline, demise, and death of America’s manufacturing sector has been greatly exaggerated. America still makes a ton of stuff, and we make more of it now than ever before in history, but we’re able to do it with a fraction of the workers that would have been required in the past. We’re still the world’s leading manufacturing economy by far, thanks to the world-class productivity of American manufacturing workers, the most productive in the world. Instead of bashing China, Korea, and Mexico for competing against our manufacturing sector and exaggerating the decline of our manufacturing sector, Americans should take more pride and celebrate our status as the world’s leading manufacturer."

40 Comments:

At 1/20/2011 4:26 PM, Blogger Benjamin said...

Wise words; on the other hand, looks like China will eclipse us in five years.

 
At 1/20/2011 5:14 PM, OpenID Sprewell said...

Interesting that the US more than doubled manufacturing output during that 40-year span, widening the gap with former no. 2 Japan. Frankly, most manufacturing today is like agriculture a century ago, low-value manual labor that we should be glad to outsource. In fact, I think China is making a mistake by going after mnfg alone so aggressively, look for India to pass them up once they graduate from BPO to high-tech and other high-level service work. India is the real sleeping giant this century, but it's funny that nobody talks about them because most are stupidly obsessed with China and their mnfg rise. All for the best I guess, as the ones that are hyped inevitably underperform, allowing the Indians to surpass them while avoiding the spotlight.

 
At 1/20/2011 5:27 PM, Blogger Jet Beagle said...

Benjamin: "on the other hand, looks like China will eclipse us in five years."

So what does than mean to you, Benjamin?

If China's per capita GDP ever rose to the level of the U.S. - or even to the much lower level of France or Germany - the entire world will be better for it. With a higher per capita GDP, the Chinese people will be able to devote more resources to research and will be able to provide more capital for investment. The entire world will benefit from their discoveries and investment, just as the entire world has benefitted from the discoveries and investment of Americans.

Economic achievement is not a zero-sum game. Americans do not lose when China grows. We all gain.

Is that what you meant when you referred to China eclipsing "us"? Were you anticipating the continued rise of global living standards?

 
At 1/20/2011 6:22 PM, Blogger AIG said...

Interesting:
http://coursesa.matrix.msu.edu/~fisher/HST150H/HST150H/chart2.jpg

Looks like the US overtook China in % of world manufacturing output only in 1880, 130 years ago. Current projections standing, it will be another 20 years before China reaches US manufacturing levels in absolute terms. Of course thats what they said 20 years ago too.

What does this matter? Were we worse off in 1870 because China produced more goods than we did? Before politicians made it their business to formulate strategic plans for the rest of us, were we concerned in 1860 that the Chinese were taking American jobs?

Whats the difference between the productivity of a US worker vs a Chinese worker...both on average and in specific industries? The differences are probably orders of magnitude apart.

PS: I agree with you Sprewell. India is the real interesting giant to look at. China isn't particularly impressive.

 
At 1/20/2011 7:10 PM, Blogger Benjamin said...

Well, in a world of true free trade, with a single currency, an all-powerful WTO and no barriers to goods, services, labor and capital maybe it would not matter.

Kinda of like the USA paradigm, but applied to the globe. You could just move wherever you lied, and where the jobs and high incomes are.

In a world shot through with institutional imperfections, trade barriers, and structural impediments, maybe it does matter.

Usually, the talent follows the action. Manufacturing centers start to pull in tech talent, and regional talent centers start to grow.

That said, there is a chance this will self-correct in another 15-20 years. I think the China manufacturing platform will become expensive, just like Japan.

India? I confess I do not know a lot about India--except that due to horrible administration, they seem to suffocate business. I hope that gets better, but certain cultural traits seem buried deep.
Also, everyone smells bad in india.

 
At 1/20/2011 7:21 PM, Blogger Jason said...

Jet, I am not so sure economic gain is zero sum in that we all gain. On a balance sheet, I agree. Obviously there are flows back and forth that have to sum up. But you have to have winners and losers in the game. Right now, it looks like China is on the winning end, just as America was on the winning end after WWII.

But all this can flip quickly if China cannot diversify itself away from dependence on inflows of foreign currency.

 
At 1/20/2011 7:25 PM, Blogger AIG said...

I'm not naive to think it really doesn't matter. But the issue at hand is, how much does it really matter? The US is far ahead of China in manufacturing output. Even more so on a per worker basis. Our economy is far more dynamic and conductive to innovation. It is much more based on intellectual capital. Manufacturing overall accounts for ~10% of our economy, while China's accounts for ~40%.

How much does it really matter then, that some cheap min-wage jobs move to China? Figuring in the benefits we get from China's growth in any number of ways, this turns out to be far more positive than anything else.

Talent flows were talent is paid, not where the action is. Action pays minimum wage. The flow of talent is overwhelmingly in US's favor.

PS: I think India is interesting because they are pushing on intellectual capital, and doing a good job at it. China is not.

 
At 1/20/2011 8:02 PM, Blogger David said...

Agree that there is far more manufacturing done in the US than most people realize. But again I ask you: does the term "output" as used here reflect as value-added measurement: if final assembly is done here, does "output" include or exclude the value of parts and subassemblies made elsewhere?

IIRC: Mike Mandel, former BusinessWeek chief economist, has stated that productivity statistics are being biased upwards due to failure to correct properly for foreign-sourced inputs.

 
At 1/20/2011 10:51 PM, Blogger Ron H. said...

"Wise words; on the other hand, looks like China will eclipse us in five years."

Benji, didn't you say recently that you had studied economics? Just askin'.

 
At 1/20/2011 10:53 PM, Blogger Ron H. said...

Sprewell said:

"Frankly, most manufacturing today is like agriculture a century ago, low-value manual labor that we should be glad to outsource."

I believe, sir, you have nailed it.

 
At 1/20/2011 11:04 PM, Blogger Ron H. said...

"But you have to have winners and losers in the game."

Jason, this isn't true. In global trade there are mostly winners. Who do you see losing after WWII when the US, as the only viable major economy left standing, helped rebuild the rest of the developed world that had been devastated by war? Who do you see losing now?

 
At 1/20/2011 11:29 PM, Blogger Buddy R Pacifico said...

Biggest surprise on the graph is Germany declining the last couple of years. Maybe those South Carolinan produced BMWs are have cut into the Bavarian action more then assumed.

 
At 1/21/2011 7:17 AM, Blogger geoih said...

Quote from Benjamin: "Well, in a world of true free trade, with a single currency, an all-powerful WTO and no barriers to goods, services, labor and capital maybe it would not matter."

In a world that truly has free trade there would be no WTO or single currency. You continue to make this claim that somehow free trade requires some sort of government or bureaucracy to function. You need to think outside your statist paradigm.

 
At 1/21/2011 8:28 AM, Blogger Sean said...

Ron H., Sprewell,

"Frankly, most manufacturing today is like agriculture a century ago, low-value manual labor that we should be glad to outsource."

There's a lot of that, but there's also a lot of high-value manufacturing or even low margin product with a lot of high-tech automation required to make it cost-competitive. I've seen it, and we shouldn't sell that stuff short.

 
At 1/21/2011 8:29 AM, Blogger sykes.1 said...

China's rise to being the largest economy is very problematic. In 20 years, they will have an elderly population that is actually declining in numbers. China moment is now. The future will be ours.

 
At 1/21/2011 8:57 AM, Blogger Jet Beagle said...

sykes.1: "China moment is now. The future will be ours."

What does that mean, sykes? Are you meaning there is some competition going on between nations?

 
At 1/21/2011 11:25 AM, Blogger Ron H. said...

"There's a lot of that, but there's also a lot of high-value manufacturing or even low margin product with a lot of high-tech automation required to make it cost-competitive. I've seen it, and we shouldn't sell that stuff short."

Sean,

I agree. That too is comparable in many ways to advances in agricultural technology and automation. As with agriculture, over time fewer people are needed to produce more output.

Some who lament the loss of manufacturing jobs could have, in the past, said the same about the loss of jobs for farm workers.

 
At 1/21/2011 11:56 AM, Blogger Jason said...

Ron H: Clearly we were winners after the war. Germany and Japan may have needed us. But they were not willing to be beholden to anyone for long. I suppose you could say they won as well, in a perverted sense.

There are individual losers in a global economy. Come to Michigan and I'll show you. Now, there are absolute winners in this, for instance American consumers have access to cheaper better made products. The Chinese are pulling themselves out of poverty. Both clear winners. So you can argue that as a whole we are winning. But I argue that some eggs were broken in making this global trade omelette.

 
At 1/21/2011 1:05 PM, Blogger Sean said...

Jet Beagle,

Are you meaning there is some competition going on between nations?
Can you imagine that there isn't? In life and especially economics, there is cooperation in many things, but competition in almost everything.

 
At 1/21/2011 1:09 PM, Blogger Sean said...

Ron H.,

Some who lament the loss of manufacturing jobs could have, in the past, said the same about the loss of jobs for farm workers.

Absolutely. The problem is that as we keep "moving up the chain", finding sufficient jobs to replace the old ones does get harder, requires more creativity.

 
At 1/21/2011 1:46 PM, Blogger Ron H. said...

"But they were not willing to be beholden to anyone for long."

Why would you expect them to be "beholden"? I'm not sure what you mean here. By helping Germany and Japan rebuild after WWII the US prospered. By having help rebuilding their infrastructure Germany and Japan more quickly reached prosperity also. They have both become important US trading partners, and all of us, in all three countries are way better off. Who do you see losing in this case?

"There are individual losers in a global economy. Come to Michigan and I'll show you."

I agree, but I wouldn't attribute problems in Michigan entirely to global economic activity. Do you think we would be better off, including those in Michigan, if there were no global trade?

"American consumers have access to cheaper better made products. The Chinese are pulling themselves out of poverty. Both clear winners."

This is a good thing, right?

"But I argue that some eggs were broken in making this global trade omelette."

I'm not sure how it can be any other way. There's no need for those eggs to remain broken forever. They can also benefit from the success of the omelet.

 
At 1/21/2011 2:19 PM, Blogger Ron H. said...

Sean,

"Absolutely. The problem is that as we keep "moving up the chain", finding sufficient jobs to replace the old ones does get harder, requires more creativity."

I don't agree, I think the chain gets bigger and longer. We are almost certainly better off than we were 100 years ago. Here are some jobs that have disappeared. Good riddance.

There is now more employment in services. Search for some of JetBeagle's past comments for good discussions of this, and the many jobs that are better than mind numbing, repetitive, low skilled labor in manufacturing.

Without providing references, I'll just say that in the last 50 years, other than during recessions, unemployment has remained in a narrow range between 4-6%, per capita real income has increased, we live longer, have better health, more leisure time, and in general are just way better off. The "poor" are also much better off than they were. What don't you like about this?

By the way, you might be interested in perusing that Shorpy site. There are some fascinating pictures of the past there, and when I spend time there, I'm reminded of how much better off I am than most of the people in the pictures.

 
At 1/21/2011 2:57 PM, Blogger Jet Beagle said...

Sesn,

I specifically asked if Sykes thinks there is competition going on between the U.S. and China. And I should have been more specific and asked if Sykes believe there is economic competition between the two nations as a whole. Because that's what seems to be implied in Sykes' statement:

"China moment is now. The future will be ours."


As I see it, there is competition between some Chinese firms and some American firms. But there is also cooperation between some. In some cases, Chinese firms are the customers of American firms. In other cases, American firms are the customers of Chinese firms.

For many millions of Americans, low-cost Chinese factories are enabling them a much better standard of living. And the strong American economy - largest in the world - is, through its purchases, enabling millions of Chinese workers to enjoy a better standard of living than what they previously had.

So, in contrast to Sykes opinion, I think the current "moment", or decade, is both the American moment and the Chinese moment.

 
At 1/21/2011 3:59 PM, Blogger Jason said...

Ron H, I can say, with certainty, that I have benefitted from global trade. I'm pointing out that a number of people haven't. They won't until they step up their game.

And you are correct that the problems in Michigan are not solely due to global trade. But global trade accelerated the results of the massive inefficiencies of the automotive companies there (here). Also, I would see a number of poor decisions made as the OEMs would push their costs onto the supply base.

 
At 1/21/2011 5:15 PM, OpenID Sprewell said...

Sean, finding more work for people to do isn't harder nor does it require a bunch of creativity: it just requires being willing to move on to different things. How many of the currently unemployed would be working today if they were just willing to move to a different sector or take a pay cut? Instead, you have a lot of construction workers or real estate agents or auto workers fantasizing that their old jobs are going to come back, with the same inflated pay. Further, we already know what's going to be big, fields like mobile and entertainment. Apple is riding mobile to finally surpass Microsoft in trailing year revenues this quarter, something nobody would have predicted 10 years ago. Apple's just announced holiday quarter results had them making more than they did in all of 2007, a stunning growth trend (though unsustainable over the medium-term, I believe).

As online entertainment keeps taking off, we'll see one Charlie Sheen, making $2 million an episode on a mediocre sitcom, be replaced by thousands of actors making $30k/year on hundreds of online shows. My cousin is an actor and I told him a year ago to just bide his time and keep working on his craft, because the rise of online video would soon lead to a lot of opportunities for him. He may not have to wait as he just booked supporting roles in a handful of movies late last year. The problem is that there are bottlenecks for these transitions occasionally, which we call recessions: I've made clear before that the big bottleneck for much of online activity right now is that we don't have a micropayments system yet. But market forces eventually prevail and it will all come through, just don't panic and give power to a bunch of political ideologues like Obama in the meantime, as they just make things far worse.

 
At 1/21/2011 5:30 PM, Blogger william said...

I believe that a part of the confusion is the result of not distinguishing between manufacturing output and manufacturing employment. The last time I examined the numbers, manufacturing output as a percent of GDP was not declining (long-term). Here the comparisons to agriculture are useful. As an aside, I am not convinced that the yuan is necessarily undervalued.

 
At 1/21/2011 5:30 PM, Blogger william said...

I believe that a part of the confusion is the result of not distinguishing between manufacturing output and manufacturing employment. The last time I examined the numbers, manufacturing output as a percent of GDP was not declining (long-term). Here the comparisons to agriculture are useful. As an aside, I am not convinced that the yuan is necessarily undervalued.

 
At 1/21/2011 8:38 PM, Blogger John said...

Question:

Regardless of how much we produce -
Do we produce more wealth than we consume?

If consumption exceeds production, living standards will eventually decline.

 
At 1/22/2011 10:12 AM, Blogger David Gallion said...

No one can assert the American manufacturing sector is anything but busy. It is, after all, being "paid" by the Federal Reserve to produce, produce, produce. The downfall to these positive manufacturing numbers, and where the rubber really meets the road, is the absence of consumers.

On January 20, 2011 the New York Federal Reserve released a November 2010 report on the credit conditions of American consumers.

http://data.newyorkfed.org/newsevents/news/regional_outreach/2010/an101108.html

The report states, in the face of undergoing the largest de-leveraging credit purge since the Great Depression, US consumers continue to avoid increasing their debt burdens per household.

Perhaps this is why our local Walmart is selling much of its consumer discretionary products at 40 - 80% off.

The Federal Reserve can flood the economy with money, jobs and products but it cannot force over-leveraged consumers to consume. We are witnessing demand destruction in symphonic harmony. http://davidgallionforexblog.blogspot.com/

 
At 1/22/2011 1:24 PM, Blogger Ron H. said...

David Gallion said...

"...the American manufacturing sector is...being "paid" by the Federal Reserve to produce, produce, produce. The downfall...is the absence of consumers."

I don't understand. are you suggesting that huge inventories of US manufactured goods are piling up somewhere?

"US consumers continue to avoid increasing their debt burdens per household."

This is a GOOD thing, right?

"The Federal Reserve can flood the economy with money, jobs and products but it cannot force over-leveraged consumers to consume."

Money, yes; but where are those jobs the economy is being flooded with?

 
At 1/22/2011 1:56 PM, Blogger Sean said...

Ron H.,

The "poor" are also much better off than they were. What don't you like about this?
Nothing. :) I'm just a worry-wart.

But I don think that low-value jobs will be automated, and high-value jobs are harder to find or do than low value jobs. That's why they are "high value".

 
At 1/22/2011 2:01 PM, Blogger Sean said...

Sprewell,


How many of the currently unemployed would be working today if they were just willing to move to a different sector or take a pay cut?
I don't know, but I suspect you don't, either. :) And "taking a pay cut" is really tough if you followed the herd and have any sort of debt.


s online entertainment keeps taking off, we'll see one Charlie Sheen, making $2 million an episode on a mediocre sitcom, be replaced by thousands of actors making $30k/year on hundreds of online shows.
I don't think so. The issue isn't quality, it's the selection process. It isn't worth my time to watch a bunch of bad movies in order to discover good ones, so I wait to see what gets backed by which producers and actors: I'm more likely to know what I'm getting (even if it's still not great). That's why some actors make the big bucks, and I don't think internet TV will fundamentally change that.

 
At 1/22/2011 2:02 PM, Blogger Sean said...

Jet Beagle,

That sounds slightly naive, but not altogether wrong.

in contrast to Sykes opinion, I think the current "moment", or decade, is both the American moment and the Chinese moment.
I hope so.

 
At 1/22/2011 2:39 PM, Blogger Ron H. said...

"But I don think that low-value jobs will be automated..."

Many won't. I will probably always get my Big Mac from a person. Most of those jobs, however, are just first steps on the ladder, a way to learn some skills that prepare one for something better. Few stay very long at this level. Notice the people who serve you fast food, and you will see that they are mostly very young or perhaps second wage earners. Non appear to be heads of households. Of course that's just been my observation.

As I read somewhere recently, perhaps here, entry level jobs are just the first rung on the ladder to success, and raising minimum wage just moves that rung higher off the ground.

 
At 1/23/2011 6:36 AM, Blogger Jet Beagle said...

sean: "Jet Beagle,

That sounds slightly naive, but not altogether wrong."

What sounds slightly naive? What is naive about anything I have posted?

Are you saying that my argument:

"For many millions of Americans, low-cost Chinese factories are enabling them a much better standard of living."

sounds naive?

Are you saying that my argument:

"And the strong American economy is, through its purchases, enabling millions of Chinese workers to enjoy a better standard of living than what they previously had."

sounds naive?

If you are going to condescendingly accuse me of naivete, be decent enough to explain what it is you find to be naive.

FYI, I have worked as a strategic planner for a large international company. I have not only been exposed to "real world" international trade, I helped design it.

 
At 1/23/2011 9:56 AM, Blogger Sean said...

Jet Beagle,

If you are going to condescendingly accuse me of naivete, be decent enough to explain what it is you find to be naive.
My apologies. I didn't mean to be condescending.

My reaction was to this paragraph:
As I see it, there is competition between some Chinese firms and some American firms. But there is also cooperation between some. In some cases, Chinese firms are the customers of American firms. In other cases, American firms are the customers of Chinese firms.

This ignores the nationalistic drive of the Chinese people and the "indigenous innovation" drive of the Chinese government. It ignores forced technology transfers, strategically planned intellectual property theft, and outright piracy. The Chinese are in it to win it, and a lot of their strategy doesn't have "win-win" written on it. I've heard on NPR that at least some firms that were gung-ho about selling to China 10 years ago are drying up and blowing away due the Chinese copycat competitors that sprung up next door after the forced technology transfer occurred.

Now I know that doesn't capture the whole picture. Caterpillar, Coke, and GE seem to have figured out how to do business in China without having their lunch eaten, and there are probably a lot of other examples. But there's a lot of nastiness that isn't captured in the globalist perspective of the China story.

 
At 1/23/2011 8:39 PM, Blogger Jet Beagle said...

sean: "The Chinese are in it to win it"

To win what, sean?

Chinese firms and American firms are in business to earn profits. Some American firms compete with Chinese firms. Some American firms compete with other American firms. Some American firms compete with firms from all over the globe. So what?

sean: "This ignores the nationalistic drive of the Chinese people"

Do you know what drives are possessed by each one of the 1.3 billion persons living in China? I do not deny that there are Chinese citizens who are "driven" to see their nation be number one at ... something. I also know there are American citizens who wish the same thing for their nation. So what? Those are the fools, IMO. The demagogues and rent-seekers use the misguided "patriotism" of such fools to gain political power and to obtain economic advantage to the detriment of their fellow citizens.

 
At 1/24/2011 1:15 AM, Blogger Bill said...

Where is the consumption spike for China's production spike? How much is China based vs. U.S. based? If a large percentage is U.S. based, what are China's prospects relative to an increase in U.S. savings rate? [as gov't spending decreases to reduce borrowing, consumer consumption will drop by a related amount. How much of that reduction will flow upstream and end up as a reduction in Chinese exports?]

 
At 1/24/2011 10:08 AM, Blogger Sean said...

Jet Beagle,

I also know there are American citizens who wish the same thing for their nation. So what? Those are the fools, IMO
To some extent, yes. But think of how much of China's amazing infrastructure is built by that drive. The pride that motivates people is not something to sneeze at.
If a huge amount of people can sacrifice for the success of the next generation... and still be happy, who am I to critize? If they're miserable, that's something else, but I'm not getting that sense.
There is also something healthy about taking joy in planning for the future, and having confidence in having your plans come to fruition.

 
At 1/24/2011 10:38 AM, Blogger Sean said...

Jet Beagle,

Quick update - it appears Paul Kurgman agrees with you :)

http://www.pkarchive.org/global/pop.html

 

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