Loss of the manufacturing sector in the U.S.

This may be GD territory, but I’d like to keep it as factual as possible.

I often read articles wherein the author tangentially laments the loss of the U.S. manufacturing sector. There seems to me to be an air of pro-labor bias in some of these statements, but I would like to know if more and more manufacturing being done overseas really hurts America. I would think that it makes the economy more efficient, but I defer to anyone who really knows what they are talking about. Is this an unqualified bad thing or does it depend on your politics? If so, why?

Thanks for your help,

It isn’t necessarily a bad thing from an economic standpoint. We get our goods made cheaply in China and elsewhere and get to focus on other things ourselves like the service industries.

It is rather risky to lose almost all manufacturing capability if the world changes however. One concern that could make itself known quickly would be if the U.S. got involved in some truly unpopular world issues. Souring of relations with China would also be a potential problem they represent so much of our manufacturing capability.

Loss of manufacturing capacity can be dangerous in the long-run as well. It takes decades to build up such capability and by losing it, we lose control over something that we have to have.

It’s difficult to answer this question because we seem to be at the end of the Industrial Revolution, which was primarily driven by manufacturing, and at the beginning of what can be called many things, but the Information Revolution is a common epithet.

Manufacturing was a major source of wealth creation. It took raw materials, of no use in themselves, and turned them into valuable products. Every aspect of that transformation required large amounts of physical labor, enormous industrial plants, and excellent transportation. A very good book on that period is The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supereconomy,
by Charles R. Morris

This created a country of great wealth and also created an infrastructure of factories and transportation that were deeply integrated into communities. You couldn’t pick up and move a railroad very easily.

Over time, the stability of infrastructure and the costs of moving gave labor power to contest for greater wages. A change in governmental attitudes toward collective bargaining and the need for unprecedented production for WWII allowed labor to make better and better deals, including benefits as well as sheer wages.

After WWII, the U.S. faced virtually no competition from the world. It held the only undamaged infrastructure and it had built up enormous wealth that the workers could share in. This was an age of labor unlike anything seen before on earth.

People should have known at the time that this could never last, but it’s always easier to see in hindsight.

Some of the problems that success engendered were:

*the rebuilding of industry in every other country gave them the newest and latest techniques and infrastructure, while the U.S. was aging with little incentive to put money into their plants

*the lower standards of living elsewhere allowed for much cheaper wages for similar jobs

*the advances in worldwide transportation sparked by the war made shipping products much cheaper

*the continued mining left easily accessible local raw materials harder and more expensive to find

*the pollution created by industry made living conditions near factories less desirable

In short, it became easier and cheaper with each passing year to allow for the movement of manufacturing elsewhere. This undermined the permanence of the workforce and led to the huge downsizings of workforces and the mass closings of factories that have decimated the industrial northeast.

So this all hurts America, right?

Yes and no.

It hurts many individuals in America. It hurts many communities in America. We don’t know yet whether it hurts America.

For one thing, history does repeat itself. Japan took manufacturing away from the U.S., but has since lost factories and jobs to other, even cheaper countries. Even China has lost factory jobs to other countries. Once people know that manufacturing is fungible (freely exchangeable or replaceable) there is no end to the process and no stability for workforces. They don’t get the same gains out of manufacturing that the U.S. got, because the useful lifetime of the gains is much smaller.

The costs are also higher. China’s cities are so drowning in pollution that they are already talking about how much the 2008 Olympics will be affected. The need to build up infrastructure quickly to compete has led to great dislocations in many countries, huge expenditures, and internal disorder.

In short, if we are at the tail end of manufacturing supremacy, the countries that take in the most manufacturing get severely limited returns out of it. It is, in essence, fighting the last war and history shows that never works.

What we don’t really know yet is whether the gains from the next Information Revolution are enough to offset the loses of manufacturing. We do know that the south and the west, made livable by air conditioning, have boomed nearly constantly for 50 years. Much of this has been at the expense of the northeast and midwest, but not all of it. California is by itself one of the top ten economies in the world. It has enormous pluses in any number of information technologies, from software to popular culture. These are better wealth generators than manufacturing, because the raw material costs are less and the multiplier effect of gains is more.

On the other hand, brains are inherently movable, and brainpower is inherently fungible. India could be a software power in a few years.

We’re probably in the position that Britain was pre-1850. It led the new revolution and had most of the wealth in the world. What we can’t know is if a challenger will take it all away, as the U.S. did to them, or if we can keep the current lead we have. It’s just too early and to quote the Guru Rumsfeld, there are too many unknown unknowns.

Wow, Exapno Mapcase, that’s one of the most clear, concise explanations of the new global economy that I’ve ever had the pleasure of reading. As someone intimately involved in US manufacturing but cognizantly aware of what’s “right” (or how things are), I’ve gotta say you’ve got it spot on.

Is there any hard evidence that the manufacturing sector as a whole in the US is declining? I can believe it for low skill content, labour intensive manufacturing, but not for manufacturing as a whole. Electronics, for example, are mostly assembled in China, physical assembly being the most labour intensive part of the process, but there’s no advantage to moving capital intensive industries, like chip fabrication or automobile manufacturing, to low wage nations.

Balthisar, thank you very much.

Throatwarbler Mangrove, that’s a difficult question to answer but it’s definitely not just low-skilled manufacturing that’s been lost. If you think about it, it becomes obvious that the first industries to be hit were the highest-paying ones, because those had the most incentive to go to lower wager rate countries.

The old industrial northeast has lost tens of millions of manufacturing jobs, most in high-paying, skilled work. The steel industry, the chemical industry, the machine tool industry, the textile industry, yes, even the car industry, have been gutted.


That’s in addition to hundreds of thousands of previous cuts. Car makers can’t afford to use so many bodies to build cars, bodies which require benefits. So besides the job losses due to declining market share, the industry has turned to robots to replace bodies. More will be in the future, in many industries. Those jobs will never return, or be offset by foreign-owned car plants, all of which use fewer bodies per car than U.S. plants.

Before the new LCD and plasma screens took over you couldn’t buy an American-made TV set, or non-super-high-end piece of stereo equipment. Our dolls and toys and office supplies and shoes and hundreds of other goods are made almost entirely outside the U.S. We ship fruit from all over the world fresh to our supermarkets.

Some industries have grown, mostly those which prosper from the growth of the Information Revolution, like chip factories. I’d bet that the vast majority of the world’s chip factories are in Asia, however, and not in the U.S. We have to hope that continued investment in optics, bioengineering, nanotech, genetics, and other high-tech industries will help replace those losses. None of them will ever be as labor-intensive as the old heavy industries, nor as conducive to semi-skilled and non-college-educated employees, though. Therefore, many more manufacturers will be needed to match the employment generated by old-fashioned industry. That’s hard to hope for.

See Balthisar’s post #10 in this thread for a good explanation of why high-skilled jobs are following industry out of the country.

The movement from the US is not an accident. It has been going on for a while. When textile industries went abroad to raise profits by lowering wages and it worked, other businesses saw it as a template. Manufacturing includes line workers, Engineers. designers, programmers, white collar workers , shipping and many satellite companies that provide components. Businesses hurt include restaurants ,bars, golf courses or nearly anything that their wages supported. Every manufacturing job has a multiplier effect which harms the whole community.The impact of labor on the price of autos has been on a severe decline for years. Automation alone removed 500.000 jobs from the industry in the last 20 years.
A few years ago I worked in a company that designed and built test equipment . When we sold one to a Korean Company .,we charged a lot more. We knew they would reverse engineer it and start making their own. They had no respect for patents and any other developments we claimed as our providence. When we serviced the machine we saw all the safety equipment had been removed. It was clearly a race to the bottom and we could not compete on that level.
Japanese companies had been doing the same for years.

I should clarify. I wasn’t thinking just in terms of jobs, but in overall output. I can believe that high paying jobs are also being shed, but I don’t believe that the industrial output of the US in dollar terms is declining. In other words, I believe that the US manufacturing sector is employing fewer people, but producing MORE in dollar terms due to higher productivity and automation. I also think that the US car industry is a little unique, due to years of mismanagement and market changes. Certainly, Toyota and Honda don’t seem to have any problems producing cars in N. America profitably.

But actually this has already happened. Compare the number of Japanese and Korean cars on the road today to the 1960s. There has been a big shift away from the US auto industry. Also some US cars are now made outside the US.

Most computer chips are already
made in Asia.

That isn’t generally due to the Japanese auto workers being paid a fraction of US workers. In fact it’s a pretty good example of exactly the opposite. Chinese cars, despite being already built with a much more labour intensive process, are nowhere near the level of quality and technology of Japanese or European cars, simply because most cars worth anything are built by robots, and it doesn’t matter where you put the robot, modern, high tech manufacturing facilities don’t cost any less to build in China or India. Chinese made cars are still crap, because the real labour content in cars is negligible. The US auto industry is experiencing precisely this problem: Too many redundent, highly paid unionized workers.

In Japan, S. Korea and Taiwan, yes. Not in China or India.

Most of which are built in plants in the US and Canada.

Exapno Mapcase, I would have sent this in an email, but you don’t have it on.

Thank you so much - I now understand a lot of things I didn’t before. I truly learned something today!