MANUFACTURING THE PAST. WHY IT CAN’T BE 1953 AGAIN

You cannot step twice into the same river. ~ Heraclitus

Rumors of the demise of the US manufacturing industry are greatly exaggerated. ~ Elon Musk

In every political season, including this one, much talk from political candidates centers on making our nation “great again,” “ending inequality” and “getting everyone back to work.” Such discourse always serves as a useful foundation for party platforms and voter expectations. It also involves a substantial amount of fantasy. Bringing back what politicians imagine as the US’s golden age of manufacturing is impossible, despite what they say. More importantly, the US has never produced as much manufactured output as it does now. 

First, it’s by no means certain that elected federal officials – like the president or members of Congress – actually have that much direct short-term influence on our $18.2 trillion economy. Sure, the economy eventually responds to changes in various policies, but although politicians are always happy to take full credit for recoveries (and utterly dismiss any responsibilities for declines) our macroeconomy is simply too large and multifaceted for any single change to have much overall effect. Second, every such proposed policy will have unintended consequences, even some that may countervail the policy’s stated goal.

Despite having the lowest unemployment rate in 8 years (5.0% in March 2016), Republican presidential candidates have inaccurately obsessed about falling employment – Donald Trump stated in February that the “real” unemployment rate likely was 42% [the BLS published rate was 4.9%]. Continuing with such fictional facts, he stated, “I am going to be the greatest jobs president that God ever created. Remember that.” Hopefully, voters in November will allow us to not remember that even though he somehow has apparently captured the Republican nomination.

Nevertheless, such wild claims include his and other candidates’ worthy-sounding goal to bring back manufacturing to America. Starting in the late 19th century and the Industrial Revolution, manufacturing has been a key ingredient in the US’s and many other nations’ long-term economic growth. Industrial production thus holds a special place in the hearts of workers, businesses and politicians.  

The post-WWII Golden Age of US manufacturing spans a 5-decade period starting in 1950. It is important to distinguish between the nation’s manufacturing output and manufacturing employment, something no politician ever does. To politicians, manufacturing only refers to workers who make stuff. Manufacturing employment, as a percent of total employment, has been declining for a very long time. The US reached its peak in manufacturing employment in 1953, during the Eisenhower administration. This decline has been especially steep after 2000, during the Bush I administration.

Despite fewer workers, manufacturing output has steadily increased throughout the past 6 decades. In fact, American manufacturing output is now at the highest level in history; something you might not realize if you listen only to politicians’ wailings. From an output perspective, we’ve already brought back manufacturing; it never left, it’s just changed. US manufacturers like General Motors, Del Monte Foods, Caterpillar, Boeing and thousands of smaller manufacturers, produce and export more world-class products than ever before using new technologies with fewer but more highly-trained and -skilled workers. Exceptional states like Indiana have persevered in sustaining fairly large, diverse manufacturing output that accounts for about 17% of total state employment and 28% of state GDP.

These 2 very divergent trends in manufacturing output and employment are illustrated in the following chart.

US Manufacturing Jobs and Output, 1950-2008

 The chart shows manufacturing jobs’ steadily declining since 1953 and manufacturing output steadily growing. This result follows from impressive gains in manufacturing efficiency and productivity, estimated to be 218% higher since 1987. The root causes of this divergence include not only productivity advances that have substituted capital machinery (e.g., advanced, additive automation) for lower-skilled labor, but also international trade and the continual rise of services. I’ve written before about consequences of services growth that have displaced industrial production as the dominant share of our macroeconomy. Domestic production of services now accounts for 86% of our labor force. Jobs in manufacturing now account for only 9% of the US workforce. 

Here’s an illuminating example provided by New York Times’ columnist Eduardo Porter of the increase in US manufacturing productivity, albeit in a sector that probably wouldn’t first come to mind as manufacturing. Half a century ago, harvesting California’s 2.2 million tons of tomatoes for ketchup required as many as 45,000 workers or barely 49 tons per worker. In the 1960s, scientists and engineers at the University of California – Davis, developed an oblong tomato that lent itself to being machine-picked and an efficient mechanical harvester to do the job in one pass through a field. By 2000, only 5,000 harvest workers were employed in California to pick and sort what was by then a 12-million-ton crop of tomatoes. That’s roughly 2,400 tons per worker, a 49 times increase in productivity over 5 decades.

No one, not even the president, Christopher Lloyd or Captain America, can turn the clock back to the economic environment of 1953 when manufacturing employment reached its maximum of 32% of total non-farm employment. Tariffs won’t stop manufacturing employment from dropping; neither can imaginary walls, nor unneeded tax cuts for multi-millionaires. But proper policies, including systematic training of displaced workers and vocational training in high schools and community colleges, may allow manufacturers using skilled workers to continue increasing high-value output.