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.