Manufacturing Won’t Save Us

At the gut level, allowing our industrial base to shrink seems incredibly unwise. But it’s maddeningly difficult to make an evidence-based case for rescuing it. 

Donald Trump was elected president in part because he promised to bring manufacturing jobs back to the United States. But is that possible, or even desirable, given that manufacturing wages are falling? Nine out of ten Americans believe that a strong manufacturing base is critical to maintaining a decent standard of living, according to the National Employment Law Project (NELP), an advocacy organization for lower-wage workers. But manufacturing wages aren’t even keeping up with inflation. Once well above the national median, manufacturing wages were, in 2013, nearly 8 percent lower than average.

Making It: Why Manufacturing Still Matters
by Louis Uchitelle
The New Press, 192 pp.

Louis Uchitelle, who spent three decades covering manufacturing for the New York Times, makes the case for a manufacturing renaissance in his new book, Making It: Why Manufacturing Still Matters. But it’s a fairly weak case, and that’s distressing, because few people know more about this vexing topic, or can write about it more engagingly, than Uchitelle.

Much of Uchitelle’s argument rests on the indisputable but not necessarily relevant fact that manufacturing mattered quite a lot during the twentieth century. America’s unionized industrial sector played an outsized role in reducing and then stabilizing income inequality from the 1920s through most of the 1970s. The growth in manufacturing drove American prosperity from V-J Day in 1945 until the Arab oil embargo in 1973.

Starting in the 1970s, however, the U.S. economy began to deindustrialize. America’s share of global manufacturing fell from about 30 percent in the early ’80s to about 19 percent today. Manufacturing employment dropped from nineteen million jobs in 1980 to fewer than seventeen million during the brutal recession of 1982–83. It stabilized at seventeen to eighteen million jobs through the end of the ’90s, only to plummet again during the aughts, falling below twelve million—about where it is now.

It seems hardly coincidental that real median income—for all U.S. households, not just manufacturing ones—grew at a pokey pace most years after the 1970s. Only now, nearly a decade into the economic recovery from the Great Recession, is the household median (about $59,000) finally catching up, after inflation, to where it stood when the twenty-first century began.

A big part of this story is the rise of foreign competition. American manufacturing took a beating from Japan in the ’80s and from China during the past two decades. In 2010, China displaced the United States as the world’s biggest manufacturer. In both eras the problem was exacerbated by these Asian nations’ mercantilist trade policies. But even granting that a more aggressive U.S. trade policy might have limited Japan’s and China’s successive conquests of the global consumer market, it isn’t clear that getting tough now, as Trump proposes, would accomplish much, given that only about 18 percent of China’s exports go to the U.S.

As the world’s second biggest manufacturer, the United States remains a robust producer of refined petroleum, chemicals, pharmaceuticals, automobiles, and airplanes. But many component parts of these products, Uchitelle notes, are made (or, in the case of petroleum, extracted) abroad, and most U.S. output growth these days is confined to computers and electronics. Meanwhile, America’s world leadership in the machine tool and steel industries—the building blocks of global manufacturing—has vanished in little more than a generation.

Cheap labor costs are, of course, the main reason U.S. jobs go abroad. American workers in manufacturing make about ten times more than their Chinese counterparts, and about six times more than Mexican workers. Economic theory tells us that as a country becomes a major exporter, its standard of living rises rapidly, bringing its manufacturing wage roughly in line with that of other advanced industrial nations and reducing the role that labor costs play in the location of factories. But that process is proceeding at a much slower pace than usual in China because 1.4 billion people live there.

If U.S. manufacturing has failed in some ways to compete effectively during the past four decades, in other ways it’s competed all too well. Thanks to automation, U.S. factories today produce twice as many goods as they did in the early 1980s even as they employ one-third fewer people. All industries strive to increase productivity (that is, output per worker), so this development must be judged an economic advance. But for factory workers, the result was a shrinking pool of jobs and (thanks to the resultant surplus in available labor) shrinking wages. Indeed, according to a 2015 study by economists at Ball State University, nearly 88 percent of all manufacturing job losses since 2000 were caused not by foreign trade but by automation.

In sum, American manufacturing workers have it bad because robots are stealing their jobs and because 20 percent of the planet that previously sat on the sidelines is now competing for the few manufacturing jobs that are left. We live in what investment banker Daniel Alpert has dubbed “the age of oversupply.” The world has too much labor, too much capital, too much productive capacity, and not enough global consumption to absorb it all.

Many people have suggested that the best solution to the U.S.’s industrial crisis would be to focus job growth on high-skilled manufacturing of the type that Germany excels at. Uchitelle bristles at this suggestion, smelling prejudice against African Americans and Latinos, who perform a disproportionate amount of labor in the manufacturing sector. He isn’t wrong about this cultural bias (which also extends to blue-collar whites), but it’s a stark economic reality that the jobs that pay the most are those that the fewest number of people can perform. Perhaps we should stop referring to labor as “skilled or unskilled” and substitute “scarce or not scarce.”

All right, then. Why not embrace the German manufacturing model?

Because American manufacturers don’t want to. They can’t, they say, because the U.S. suffers from a “skills gap.” Nobody has ever been able to demonstrate that this skills gap exists. If it were real, Uchitelle argues persuasively, then factories would be cutting back on production or canceling shifts. “I have visited numerous manufacturers over the past decade,” Uchitelle writes, “and have yet to find that happening.” If anything, Uchitelle argues, the shrinking of manufacturing has created a “skills surplus.”

What American manufacturers really want is lower labor costs. That’s why they relocate factories to places where workers have fewer skills than Americans do. “The phrase skills shortage,” Uchitelle observes astutely, “is code for sidestepping unions.” If the U.S. had strong unions, as Germany does, it might perhaps persuade manufacturers that skilled labor is better than cheap labor. But U.S. unions are weak. And even German manufacturers don’t exactly hate cheap labor. Volkswagen and BMW have lately built factories in the American South, where wages are relatively low and unions are scarce. Germany looks at Tennessee and South Carolina and sees what the U.S. sees when it looks at China and Mexico. German unions have noticed this, and lately they’ve been pressuring management—thus far with little success—to unionize in the U.S., lest they lose jobs to their American cousins.

Uchitelle thinks the best way to reverse these trends in the U.S. is to leverage more intelligently the considerable subsidies we extend to manufacturers—mostly from the Defense Department and from cities and states that compete to locate factories. “Added together,” Uchitelle writes, “subsidies pay for 20 percent of what the nation’s factories produce, or $780 billion of the $4 trillion in output.” But American manufacturers are already more than happy to forgo these subsidies and locate factories abroad.

If somehow we could save U.S. manufacturing, what would we gain? “Manufacturing benefits cities, which tax away a share of the sector’s value added,” Uchitelle argues. Also, “it benefits workers, particularly unionized workers, who use their leverage to collect a sizeable share of the value added, through collective bargaining.” But these are historic arguments, not logical ones. U.S. manufacturing firms aren’t the economic powerhouses they once were, and a shrinking percentage of them are unionized.

At the gut level, it does seem as though allowing our industrial base to shrink further would be unwise. But Uchitelle’s book illustrates how maddeningly difficult it is to make an evidence-based case. I’ve sometimes fallen back on G. K. Chesterton’s century-old aphorism, “We cannot all live by taking in each other’s washing.” But Chesterton, I recently learned, wasn’t writing about the shortcomings of a service economy. He was arguing, at a time when women were clamoring for equal rights, that it would be better for them to stay home and take care of their children. Even the platitudes that justify manufacturing, it turns out, slip through your fingers like sand.

Timothy Noah

Timothy Noah is the labor policy editor at Politico, a contributing editor of the Washington Monthly, and the author of The Great Divergence: America’s Growing Inequality Crisis and What We Can Do About It.