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.
