Made in the USA

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Vacliv Smil. 2013. Made in the USA: The Rise and Retreat of American Manufacturing. Cambridge, MA: The MIT Press.

In 1950, manufacturing’s share of US GDP was 27%. By 2010, that had declined to 13.5%. After peaking in 1979, US manufacturing jobs declined from 19.5 million to 11.5 million by 2010, enough jobs for only 8.2% of workers. In the first decade of this century alone, “Michigan lost nearly 47% of its manufacturing jobs (mostly in the auto industry) and North Carolina lost almost 44% (mostly in textiles).”

Vacliv Smil is an interdisciplinary scientist on the Environment faculty at the University of Manitoba. He does not believe that the United States should give up its manufacturing industries without a struggle. He say he is “convinced that no advanced modern economy can truly prosper without a strong, diverse, and innovating manufacturing sector whose aim is not only affordable, high-quality output but also to provide jobs for more than a minuscule share of the working population….”

Many observers accept or even welcome the decline of American manufacturing. One line of reasoning is that manufacturing growth is unsustainable because of its impact on environmental resources. A quite different argument is that manufacturing should go the way of farming, becoming so productive that it needn’t employ a very large segment of the labor force. The future of the economy lies in the growth of service industries.

With regard to the environmental argument, Smil seems a little ambivalent. On the one hand, he acknowledges that “the notion of a successful modern life has become overly defined by the possession of manufactures.” On the other hand, he is skeptical about scaling back consumption of manufactured goods very much, especially since so much of the world has yet to participate in mass consumption. He is even more critical of the second argument, rejecting the notion that services alone can create a strong domestic economy and generate enough exports to pay for imported manufacturing goods.

Smil’s belief in the continuing importance of manufacturing rests on three main points:

  1. “Manufacturing has been the principal driver of technical innovation, and technical innovation in turn has been the most important source of economic growth in modern societies.”
  2. Although job losses in manufacturing have been very large, the sector’s absolute output continues to be large and growing. Reversing that trend would damage overall economic growth and make it even harder to address domestic problems such as poverty.
  3. The United States needs to increase its manufacturing exports to reduce its trade deficit and stop accumulating unsustainable debt, since it probably cannot export enough services to do so.

Dominance and decline

The book goes into some detail on the rise in American manufacturing to a position of world dominance in the mid-twentieth century. I will pass over the details, since that story has so often been told. Smil summarizes:

During the quarter century of postwar economic expansion between 1948 and 1973, America’s manufacturing progress made it possible to create, for better or for worse, the world’s first true mass consumption society, to reach new peaks of industrial production, and to start diffusing the powers of electronic computing. These accomplishments were made easier by abundant and inexpensive supplies of natural resources, the absence of any foreign economic competition that could seriously weaken US primacy, and, as has become clear in retrospect, a relative strategic stability of the bipolar superpower contest during the decades of the Cold War.

In 1970, the US had less than 6% of the world population, but 30% of the world’s economic activity.

The very strength of the US economy sowed the seeds of its later decline. Smil writes of two great advantages that eventually became disadvantages–the producer’s market in manufactured goods and the availability of cheap energy:

The first reality was created by rising disposable incomes, a relatively high rate of saving, a population shift to the suburbs, and the high fertility of the baby boom era. This combination generated an enormous demand for durable goods, and US manufacturers could sell almost anything they made. Product durability, functionality, and design quality were of secondary (and sometimes, it seems, of hardly any) importance compared to the quest for quantity, a quick profit, and built-in obsolescence. Some designs were completely devoid of any functionality or any design sensibility: we need only think of those massive chrome ornaments and risible fins of large automobiles of the day.

The ready availability of inexpensive energy and other resources meant that “durable goods could be, and were, designed as if material and energy did not matter.” In particular, automobile manufacturers made cars that were “progressively larger, heavier, and more powerful.” As other countries recovered from World War II and began competing for resources, and as developing nations drove a harder bargain in selling their resources, manufacturers faced growing pressures for increased quality and energy efficiency.

Some of the decline in the US share of global manufacturing was inevitable, as a result of developments in other countries. But Smil does not believe that the decline had to be as bad as it has been, or that it had to be accompanied by large trade deficits, indebtedness to other countries, a low savings rate, government budget deficits, poor educational performance, deteriorating infrastructure, and rising economic inequality.

What went wrong?

US manufacturing has not adapted very well to the new global environment. Smil says that American manufacturers had been able to prosper for a long time by focusing on the domestic market. “For more than a century the world’s largest manufacturing economy was an efficient mass-maker of industrial products for its huge domestic market, but in relative terms, the United States has been always a rather inferior exporter.” That was okay as long as imports were modest, but as American consumers were increasingly drawn to foreign goods because of their low cost or high quality, US exports didn’t increase enough to compensate. Americans wanted foreign cars much more than foreign consumers wanted American cars.

Relatively high wages and health benefits made it hard for American manufacturing to compete with a country like China. “China’s ruling party…attracts foreign companies and enormous direct investment by guaranteeing the stability of a police state and by supplying a docile workforce that labors with minimum rights, commonly for extended hours under severe discipline, and is housed in substandard conditions.” Walmart went from importing 5% of its products in the mid-1980s to importing over 80% from China alone more recently. But what is especially disturbing is that the US became a net importer even of advanced technology products that American companies had originally developed. Smil is very critical of high-tech companies like Apple that could have done very well competing on the basis of quality, but chose to make additional profits by outsourcing much of their operations to China.

Smil concludes that most of the manufacturing decline “has not been an inevitable outcome of either unstoppable economic forces or an equally unstoppable mechanization and robotization of modern manufacturing but a matter of deliberate choices, the self-inflicted weakening of America’s productive capacities resulting from companies’ dubious quest to maximize profits and individuals’ and households’ desire to maximize the consumption of cheap goods.”

Smil’s suggestions for trying to remedy the situation are relatively familiar. Among them:

  • Improve the educational system to provide more students with the skills most relevant to advanced manufacturing, especially science and engineering skills
  • Control the health care costs that have become a burden on US employers and workers
  • Increase spending on infrastructure
  • Reduce taxes on corporate income and increase them on consumption
  • Encourage countries with trade surpluses to increase domestic consumption

Smil is not at all sure that the United States can recover from the deterioration of its manufacturing base and the advantages that other countries have gained over us in key industries, such as aerospace. He concludes:

I believe that in the affairs of large nations, no situation is ever completely hopeless— and as a lifelong critical observer of American society I am well aware how it has repeatedly demonstrated its impressive capacity for renewal. And yet I am not sure whether it can demonstrate it again as I have not seen, so far, enough commitment and resolve even to acknowledge fully the severity of the accumulated challenges . Even odds of success are thus the best bet I can offer— hoping that I will be wrong, fearing that I am expecting too much.

 

 

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