Friday, March 18, 2011

Manufacturing Fetishists and the Worrying Class

Don Boudreaux highlights an excellent BBC article about the manufacturing fetish of the "Worrying Class":

"The Worrying Class in developed countries laments: "We don't make anything any more." They fear that, as more people find employment in services, their nation loses the ability to provide for itself and gives up the "good jobs" which sustain the middle class. 

They obsess about exports and trade imbalances while making a fetish of manufacturing and the blessings it brings to their country. But a quick look at the data shows that the developed world actually makes a great deal of stuff. The United States alone produces roughly 20% of all the world's manufactured goods. We may not make many toys or cell phones any more, but we do make most of the world's artificial knees and hips, medical scanners and jet aircraft. Those sound like good jobs to me.

Manufacturing fetishists also ignore the fact that many factory jobs were actually not very good jobs at all. Those jobs may have offered a fairly good wage for a low-skilled position, but they were dull, dirty, sometimes dangerous and had very little chance for advancement. The service jobs the worriers dismiss as "hamburger flipping" actually offer better wages, better working conditions and much greater opportunity than assembly line work.

I wonder how many of the worriers want their children to grow up to tighten bolts in a factory instead of going to university and getting a job in the service sector? The worrier's core error is the idea that manufacturing makes "real wealth" while service jobs only move things around. This is simply wrong. There's nothing less real about service jobs. Doctors, accountants and personal trainers create value for their customers just like auto workers do."

MP: We also need to update our outdated views about manufacturing jobs in an Information Age.  When many people think of manufacturing jobs, they think of Rust-belt factory jobs in the steel or auto industry that were common in the Machine Age.  But when the Information Age started in 1971 with the commercial introduction of the microchip, that all changed.  For example, here are some of the largest U.S. manufacturers, based on sales in 2010: Hewlett-Packard, IBM, Microsoft, Dell, Apple, Intel, Sun, Texas Instruments, and ADM.  Manufacturing today has gone high-tech. 


27 Comments:

At 3/18/2011 9:27 AM, Blogger Sean said...

The moniker "the worrying class" is perhaps justified. But is this so hard to understand? Aside from concerns about internation pride, leverage, and dependence, I do think the 'worrying class" is concerned that there are not enough viable low-education employment opportunities to keep the masses in full employment. This not only leads to increased crime and so forth, but does mean their little darlings' BS degrees are no longer a ticket to security due to the increased competition.
Manufacturing at one time meant not only oodles of unskilled employment, but lots of managers and researchers further up the chain with relatively stable employment. Instead, we have many leaner and less visible players in a more dynamic and competitive environment that is creating fewer and less stable jobs. Most people aren't built to love that.

 
At 3/18/2011 9:30 AM, Blogger Hydra said...

I believe Sean is right on target. A lot of "service jobs" are actually overhead in the supply train to manufacturing something, somewhere.

 
At 3/18/2011 10:19 AM, Blogger morganovich said...

"Manufacturing at one time meant not only oodles of unskilled employment, but lots of managers and researchers further up the chain with relatively stable employment."

i think this was true only for 1 brief period from the 40's through the 70's.

ww2 destroyed the world manufacturing base and left the US in an unusual position.

once the rest of the world caught up again, manufacturing jobs went back to being as they had been before.

in 1900, such jobs were not a ticket to middle class stability.

only during the transitory "golden age" could you be a single wage earner with your own suburban house and a new car every few years and your kids in private school.

i'm convinced that was the aberration, not what is happening now.

 
At 3/18/2011 10:30 AM, Blogger Sean said...

i'm convinced that was the aberration, not what is happening now.
Maybe so, but MP's point was that the American people are missing something that is worse than what they have now. But people are missing a low-education and high-stability jobs market that lasted not just through the 1970's but for many into the 1990's with retail filling in for manufacturing displacement.
But people are concerned about the sustainability of retail as a source of jobs bcause they see that you can't simply have a bunch of retailers selling to each other without something to sustain that. People want to know what will sustain that, but the answers are not visible and obvious.

And now that job growth is missing, people naturally look backwards: what supported jobs in the past and could provide more base support for retail jobs now? Manufacturing is an obvious tihng anyone can point to.
If that's not the answer, people want something they can understand well enough to have confidence that the jobs will be there. I can't belittle that when all economics has to offer is that something has always showed up in the past.

 
At 3/18/2011 11:14 AM, Blogger Buddy R Pacifico said...

What is the Manufacturing sector of the U.S. economy?

"The Manufacturing sector comprises establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products."(BLS)

Manufacturing can range from transforming bauxite into aluminum to meat patties and buns into hamburgers. Most manufacturing is assembling components (inputs) into finished goods. Obvilously this is a vast universe.

What happens when the vast universe shrinks because the transformation is taken out of the economy? Everything associated with the transformation shrinks including a huge services component. This is productivty leaving.

Yes, I worry because manufacturing is transforming other economies, at the expense of the U.S.

Yes, I worry that U.S. tax and regulatory policies are transforming the formerly productive, into entitlement oblivion.

 
At 3/18/2011 11:37 AM, Blogger morganovich said...

sean-

i think you are missing my point.

manufacturing cannot fill the gap you suggest because manufacturing jobs are not, in fact, good jobs.

the guy who makes your iphone makes far less that the guy who flipped your mcburger.

that's not going to change.

the "low skill stable jobs" market you discuss has never existed in any sustainable form.

what evidence do you have of a low skill stable job market in the late 70's and early 80's?

it was nasty again in the early/mid 90's as well.

your augment about retailers seems like an oversimplification.

we did not all starve or even eat less when 90% of all farming jobs disappeared. farmers were 80% + of the US workforce. no they are 2-3%. this has had no effect on the availability of food. we just produce more with fewer people. not everyone went into food retail. if i sell weather reports to farmers in exchange for food, we are both better off from the specialization.

services can be every bit as valuable as manufacturing.

distribution has become a bigger deal too, and that also counts as a service. surely you must admit the value of taking corn from the farm to the store?

in many ways, services are more stable than manufacturing.

why do you believe that a factory job is more stable than a job driving the truck that takes the goods from the factory to the store or in the store itself?

i think you are making some very significant assumptions about that. what data do you have to back that up?

 
At 3/18/2011 12:03 PM, Blogger Benjamin said...

Still, the success of China, booming ahead on a platform of exported manufactured goods, suggests that manufacturing can increase a nation's prosperity.

Also, it is true the manufacturing jobs pay more than service jobs, on average.

C+I+G+(X=M) suggests that trade balances, or even surpluses, rather than deficits, is desirable.

 
At 3/18/2011 12:25 PM, Blogger Sean said...

morganovich,

what evidence do you have of a low skill stable job market in the late 70's and early 80's?
That was a recessionary period, so unemployment was high by US historical standards. But college education rates were still lower than today and the vast majority of people still got jobs, and hte "you need to change jobs every 3 years" mantra hadn't yet arisen.

we did not all starve or even eat less when 90% of all farming jobs disappeared.
No, people moved to manufacturing for employment as is happening in the developing world. Then most people worked in retail, distribution, constuction, and food preparation, which works fine as long as a minimal percentage of people in the geographical area are rich enough to support the jobs. Many retail and service jobs really do represent a trickle-down economy.

The question is what services will people be employed in America in the 21st century? What will people provide and to whom? I suppose the answer could still be a trickle down economy of financial and intellectual content creation supporting a distribution, construction, and preparation economy. And it's true you don't necessarily need a lot of people at the high end as long as they are spending enough money, but calling into question whether there's sufficient competitiveness and spending at the high end to support that makes sense to me.

 
At 3/18/2011 12:39 PM, Blogger Mike said...

MP posted a couple weeks ago that we were still the world's manufacturing leader by a pretty good margin.

I do find it odd that the 'left' is usually the 'worry class'. Maybe it's because old fashioned manufacturing jobs were done by unskilled, immobile, easy-to-unionize people. Those unions have turned their own into a non-competitive bunch on a global scale....and the left are the ones who will fight you tooth-and-nail if you wanted to *gasp* open a new factory with a giant carbon footprint.

I suppose if worrying out loud is your hobby/job, it makes things easier when you can create and sustain your own vexation.

And, I'd agree with you, Benjamin, that China's manufacturing jobs are better than the nothing they had before. As they prosper, they'll buy more of our stuff...until they price themselves out of those manufacturing jobs and they move to another country.

 
At 3/18/2011 12:39 PM, OpenID Sprewell said...

Man, these manufacturing hand-wringers are grating. These are the same idiots who a hundred years ago were wailing that all the great farm jobs were disappearing, and all that was replacing it was dirty factory work. A century later, the factory has become hallowed ground and the ritual repeats itself. The common thread is that these are small minds who are used to the status quo and cannot brook change, leading to ridiculous statements about how China and other developing countries are now "gaining" from manufacturing. Of course, they're gaining: they were so fucking poor that they gain simply by doing the manufacturing work at $2/hour. They could gain like that for another couple decades and still be far behind the US burger flipper or hair cutter.

 
At 3/18/2011 12:40 PM, OpenID Sprewell said...

Hmm, looks like Google has put in crazily short word limits on non-Blogger accounts for some reason, probably their idiotic way of fighting spam. As a result, I have to chop this comment in two:

People following prices in the market is the best way to figure all this stuff out, which btw didn't happen in housing, for a variety of reasons. Now, people have to pay the price for the excesses of that boom, just like after the excesses of the dot.com boom, but some new sector will take off soon enough. Mobile is taking off right now, there will be plenty more.

 
At 3/18/2011 12:59 PM, Blogger Sean said...

Sprewell,

Man, these manufacturing hand-wringers are grating. These are the same idiots who a hundred years ago were wailing that all the great farm jobs were disappearing, and all that was replacing it was dirty factory work
That involved a huge social and economic dislocation that crushed a lot of people in the short run. We ended up better off, but don't discount the costs.

 
At 3/18/2011 1:12 PM, Blogger Robert said...

We're going to get more of these stories as the tsunami causes disruption in the supply chain. As an off-set, it will keep Don Boudreaux going for months.

 
At 3/18/2011 2:40 PM, Blogger Rand said...

The leftists are not worried about the loss of manufacturing jobs as much as the loss of unionized jobs.

 
At 3/18/2011 2:44 PM, Blogger morganovich said...

sean-

it seems to me that this is just a productivity issue. fewer people can make the goods or food that we need. this increases the money that can be spent upon services.

you only need so many cars or toasters.

this is why services have been increasing as a % of GDP.

services are roughly 80% of GDP.

there is no shortage of goods. this is a function of wealth, not of "trickle down".

i'm also not so sure about your characterization about "most people got jobs"

u3 was 11% in 1982 and 8% in 1992. it dropped to under 4% in 2000. that was not driven by manufacturing.

it also generally rose from 1948 to 1982, the period of our greatest manufacturing prowess then generally dropped from 1982 to 2005, a period in which our growth was driven by services.

http://www.tradingeconomics.com/Economics/Unemployment-Rate.aspx?Symbol=USD

i think you may be caught up in a popular myth about employment that is not borne out by the data.

additionally, why is a manufacturing job safer and more stable than a services job? the guys who made CRT TV's loses his job as technology changes, but the guy who drove the truck delivering them just picks up a load of flat panel TV's instead and goes on as before.

i'm not convinced that more frequent job changes today have anything to do with a shift to services.

 
At 3/18/2011 2:57 PM, Blogger morganovich said...

another way to look at it is this:

80% of US GDP is services.

most people work in that sector.

there is a reason for that: services are more lucrative than manufactures.

people choose to work there because they get paid more.

if manufacturing jobs were better paying or more stable than service jobs, more people would want them.

companies would get founded and more people would manufacture more goods if the returns to doing so were high.

the fact returns are low (relative to other US opportunities) is precisely why we are shifting to a services and information economy and why platform companies like apple are doing so well.

naturally, this trend will be disruptive to some, but that is no reason to try to hold back the tide. trying to do so raises the prices for everyone. the 20% of the economy in manufactures benefits, but the 80% that is not loses out in real terms by paying more for the same goods.

 
At 3/18/2011 3:23 PM, Blogger PeakTrader said...

"The Information Age started in 1971."

Perhaps, around 1982 is more accurate.

"In 1982 "The Computer" was named Machine of the Year by Time Magazine."

Also, the 80 million Baby-Boomers (born between 1946-64) began entering "prime-age" (35-54) in 1981.

Moreover, globalization began to accelerate around 1982 (turning the U.S. from a net creditor to a net debtor nation).

Furthermore, of course, there was the "Reagan Revolution" (and the first conservative president since Hoover).

 
At 3/18/2011 3:46 PM, Blogger PeakTrader said...

Buddy says "I worry because manufacturing is transforming other economies, at the expense of the U.S."

Are you suggesting the government should've stopped jobs in older industries from moving offshore?

If the U.S. textile industry was still booming, do you believe resources would've been shifted into new industries faster?

 
At 3/18/2011 4:01 PM, Blogger PeakTrader said...

Sean, retail and food service jobs represent a higher level of consumption or higher U.S. living standards.

U.S. household net wealth is about $60 trillion and 20% of U.S. households earn over $100,000 a year. Many Americans work in Information Age and Biotech Revolution jobs, or in many other skilled jobs.

 
At 3/18/2011 4:19 PM, Blogger Buddy R Pacifico said...

Peak Trader writes:

"If the U.S. textile industry was still booming, do you believe resources would've been shifted into new industries faster?"

Is a vibrant economy a zero-sum economy? If one industry is booming then a new industry can't rise and boom also? If oil and gas drilling equipment is a booming industry then telecommunications won't boom because a shift needs to happen?

No, no, and no.

 
At 3/18/2011 4:24 PM, Blogger PeakTrader said...

Buddy, resources are limited. How will resources shift into new industries when they're employed in older industries?

 
At 3/18/2011 5:41 PM, Blogger Rich B said...

Herbert Hoover wasn't a conservative president. Try Coolidge.

 
At 3/18/2011 9:38 PM, Blogger Buddy R Pacifico said...

Peak Trader states:

"Buddy, resources are limited. How will resources shift into new industries when they're employed in older industries?"

It is not zero-sum. Capital markets allocate to the new and growing as well as the cash generating. Berkshire Hathaway may have given up its looms but it still owns shoe, candy and underwear makers. The wealth received by Berkshire Hathaway stockholders, in the form of capital gains, can be used to invest in Apple or First Solar.

 
At 3/19/2011 3:03 AM, Blogger Ron H. said...

"I believe Sean is right on target. A lot of "service jobs" are actually overhead in the supply train to manufacturing something, somewhere.

ALL jobs are actually overhead in the supply chain of turning something found in nature into something I can use.

 
At 3/19/2011 3:17 AM, Blogger PeakTrader said...

Buddy, you're talking about efficiency rather than scarcity.

Offshoring jobs for higher profits and lower prices to free-up limited resources for emerging industries is a form of efficiency.

 
At 3/19/2011 8:59 AM, Blogger juandos said...

"I wonder how many of the worriers want their children to grow up to tighten bolts in a factory instead of going to university and getting a job in the service sector? The worrier's core error is the idea that manufacturing makes "real wealth" while service jobs only move things around"...

Hmmm, I find it a bit odd that Boudreaux would consider any jobs manufactoring sector of a lesser value 'TODAY' than a service sector job where advancement is not anymore of a sure thing than it is in the manufacturing sector...

Right now it seems that any job is reason enough to celebrate...

From USA Today: Unemployment rises in nearly all metro areas

 
At 3/30/2011 6:00 PM, Blogger Dave McMahan said...

What about the TRADE DEFICIT (along with the federal deficit) putting more $$$ into foreign hands than American hands? As Warren Buffett pointed out, "our Net International Investment Position began running NEGATIVE soon after we began incurring trade deficits- to the tune of $3 trillion by 2007".

Imbalanced trade where a nation consumes more than it makes will leave a nation POORER (particularly its lower and middle classes) with much of its ASSETS owned by foreigners- hence, "A WEAKER NATION" (!).

In America, we have surrendered some of our industrial infrastructure, so our investors can focus on the booming fields (largely) of "finance" (from plain ol' "credit cards" to shaky things such as "Credit Default Swaps" and "Collatarelized Debt Obligations") and "the medical field" (much of which- waaay before "Obamacare" was paid for by our grand-children thanks to "Uncle Sugar").

Surprise, surprise- "We're neck deep in debt, the dollar is crashing, and many of our assets our becoming foreign-owned". But, hey, we can buy cheaper flat screens that are "Made in China"- so "everthing's good" as the "invisible hand" of "borderless, free market economics" "works everything out"- RIGHT?

 

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