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In Defense of American Manufacturing

Dean M. Peters, Consulting Editor

America has the world’s largest and most dominant manufacturing economy. Every industry and every person depends on manufactured goods and yet, domestic manufacturing is in a state of transition. Between 1965 and 2000, net job creation in non-manufacturing sectors of the economy was more rapid than for manufacturing, giving rise to the notion that the United States was becoming a service-oriented economy. This is all true, but until 2000 the phenomenon was more about growth in the service sectors, and not about the decline in manufacturing, whose level of employment never slipped below 16.5 million workers during this period and whose share of GDP is currently about 14 percent.

In recent years, and particularly since the recession started in mid-2000, we have seen much in the media about job losses, job exports, and the growing concern that we are losing our edge in manufacturing. This concern is well founded. American manufacturing lost 3million jobs between 2000 and 2004, a 17 percent drop. During that same period, our trade deficit in manufactured goods rose by 42 percent, meaning that Americans’ appetite for manufactured goods is being satisfied increasingly by foreign rather than domestic producers. Unquestionably, American manufacturers have lost some battles in the recent past, but that doesn’t mean the war is lost, nor is it ended.

To understand where to go from here and how to fight back, a thumbnail history of manufacturing’s role in the fabric of American culture may be helpful. The manufacturing ability and capability of the United States have combined, even since colonial times, to form the underpinnings of the political, economic, and military platforms that have made this country the superpower it is today.

Since the Revolutionary War, when the colonies’ foundries, forges, and furnaces produced the arms necessary to fight the British, manufacturing has been central to the preservation of American society. In the Civil War, the manufacturing superiority of the North kept the Union from falling apart. At the turn to the 20th century, new inventions and new technologies were rapidly being converted into consumer products. People like Henry Ford were devising ways of mass production and using more interchangeable parts to make them affordable. Affordability and consumer spending, in turn, created more jobs, which created more incomes, and so on through the cycle. In World War II, the men were sent overseas to fight, so Rosey the Riveter took off her heels, put on her work boots and fought her war building airplanes and tanks. And without her heroic efforts the materiel that empowered the Allied forces would not have been available.

In the post war economy manufacturing, through the goods it produced and the jobs it created, made the “American dream” something almost everyone could achieve. But slowly along the way, America’s elevation to the pinnacle of world economic superiority has been allowed to diminish. This country has, collectively, pursued policies that have eaten their way into the cornerstone of our way of life. The legislators, the administrators, the regulators, the judges and juries, the labor unions, the tax men, the environmentalists, the importers, the exporters, the bankers, the lawyers, the accountants, and others have all taken a bite out of manufacturing’s hide in the past fifty years.

Unfortunately, those in the legislative and executive agencies of government understand little about manufacturing and its importance to our economy. They’re better informed than they used to be, but they have a long way to go. Even worse, the average consumer knows and cares even less about where the goods they consume come from or how they are made.

So how do manufacturers reverse the perception that theirs is a dieing industry or that American products have lost their competitive edge?

In a report submitted by the U.S. Department of Commerce in early 2004 called Manufacturing in America the following statement is made: “Manufacturing is crucial to the U.S. economy. Every individual and industry depends on manufactured goods. In addition, innovations and productivity gains in the manufacturing sector provide benefits far beyond the products themselves.”

Given this statement by the federal government, it is incumbent on manufacturers to make sure all those who have feasted at their expense are made aware that manufacturing in America must remain as a cornerstone, and perhaps even the keystone, to our economic future.

In doing so the following points need to be stressed:

  • Manufacturing creates wealth. The service sector in America is growing, but even it requires manufactured goods to do so. But the single most distinguishing feature between services and manufacturing is that only manufacturers participate in the formation of capital. A producer of machine tools, for example, makes a capital asset, which can then be used to manufacture other capital assets – like airplanes, trucks, cars, industrial machinery, rolling stock, and much more. It is capital formation that keeps wealth in this country and, by extension, keeps foreign powers from holding too much of our national debt.
  • Manufacturing and innovation are inseparable. Although innovation is not the exclusive domain of manufacturers, they are experienced and efficient in commercializing their innovations. Because manufacturers have direct links to other industries, backward toward the extractive industries and forward into the transportation, service and trade sectors, their innovations spread impact throughout the economy.
  • Manufacturing is the major driver of productivity growth, leading all other domestic economic sectors. Gains in productivity raise a country’s standard of living. In the last 15 years, which includes years of both recession and expansion, productivity in manufacturing grew at an impressive 1.9 percent annually. This was led by the productivity of labor, which grew at an even more impressive 3.1 percent annual rate. This acceleration in productivity increased manufacturers’ ability to compete in global markets. Although productivity gains have resulted in some manufacturing job losses, this is an economically benign phenomenon when compared with job loss associated with soaring trade deficits. The U.S. doesn’t need to fulfill all its domestic consumption by domestic production, but economic policy makers must become informed that a better balance between manufactured imports and exports is vital to manufacturing’s future.
  • Manufacturing provides steady, high paying jobs. In 2001, average salaries and benefits to workers in manufacturing totaled $54,000. Compare this with $45,600 for the private sector overall. Workers in durable goods industries fared better than their counterparts in non-durables, but both still exceeded the private sector average. Additionally, manufacturing offers the added benefit of employing workers across the educational spectrum, offering more opportunity to those with only a high school diploma than the economy as a whole.
  • A strong manufacturing base is vital to America’s national security interests. There are thousands of products, domestically produced, that are essential to keeping our armed forces and other national interests strong and ready to respond as required.
  • Consumers benefit from the variety and quality of manufactured goods. Given the sector’s innovation and productivity gains, especially since the mid-90s, consumers benefit from competitive pricing as well.

Keeping the preceding points in mind, proponents of a manufacturing economy need to educate stakeholders of the crisis that would exist if America lost its ability to make things. People in government, consumers, workers, and even young people need to understand what is at stake – nothing less than a way of life and a free society.

If asked, no single group would advocate the demise of manufacturing in this country. Yet as a society we speak of manufacturing as if it were a four-letter word. It is not. We have, at times even unwittingly, failed to strike an equitable balance between the economic needs of our socio-economic society and those of its special interests.

This needs to change for manufacturing to thrive in this country once again.

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