December 11th, 2006[转帖]American Manufacturing - Still a Giant
American Manufacturing - November 17, 2006
by Milton Ezrati, Partner, Senior Economic and Market Strategist
With media stories full of outsourcing, offshoring, and America’s huge foreign trade deficit, many investors and businesspeople have grown deeply concerned about the fate of American manufacturing. They worry that the orientation toward services will sap the economy’s vitality, undermine its security, and eventually render it incapable of sustaining the nation’s high standard of living. There is plenty of room in this situation for legitimate concern, but still, many of these fears are overdone. U.S. manufacturing is not as insecure as it seems, thanks largely to the impressive growth of labor productivity. What is more, America’s remarkable talent for innovation has enabled this economy to cope in other ways with the threat of foreign competition, re-employ workers displaced from traditional manufacturing jobs, and thereby protect the nation’s standard of living.
Still a Manufacturing Giant
To be sure, the U.S. economy has become more service-oriented over time. The U.S. Department of Commerce reports that manufacturing has declined from one-quarter of the country’s total economic output (gross domestic product [GDP]) in 1965 to one-fifth in 1980, to one-eighth, or about 12 percent, in 2005 (the most recent period for which complete data are available). Jobs in manufacturing have trailed off even more dramatically: Despite population growth, fewer Americans make their living in manufacturing today than in 1950—or just about any time in the intervening decades. Fifty years ago, one worker in three found his or her job in manufacturing. Today, the figure is barely one in 10. The present level of manufacturing employment, at 14.3 million, stands 5.3 million below the all-time high of 19.5 million set in 1979. And the pattern has, of course, continued. The U.S. Department of Labor reports that, during the past three years, the U.S. economy has created approximately 5.5 million net new jobs overall, but still has lost 160,000 jobs in manufacturing.
Such statistics are, actually, fairly typical of just about all maturing economies. Services have risen as a portion of the relative economic mix in Europe and Japan, too, and just about every other developed nation in this “post-industrial age,” as it is called in the economic literature. The United States is clearly no exception. But a relative drop in the significance of manufacturing is a very different thing from an absolute decline. When all is said and done, the United States remains a manufacturing giant.
Commerce Department data certainly speak to this critical distinction between relatives and absolutes. The data show that manufacturing in the United States has grown at a 3.2 percent annual rate in real terms during the 20 years ended in 2005 (the most recent period for which complete data are available). Furthermore, manufacturing has grown at a 3.4 percent annual rate in the 10 years ended in 2005 and at a 4.4 percent annual rate in the three years ended in 2005. Though the growth is not quite up to the pace of the overall U.S. economy, it is a respectable rate of expansion—even an impressive one for manufacturing, by any standard except, perhaps, that of the newest developing economies. And even at only 12 percent of the economy’s output, the United States (at last measure) manufactures almost $1.6 trillion worth of goods a year—on a fairly broad front, too, though led especially by technology; chemicals transportation equipment (including motor vehicles, though not necessarily traditional American brands); and machinery. Although detailed international statistical comparisons are always tricky, this overall output compares to an equivalent of about $600 billion for German manufacturing, $850 billion for Japanese, and $830 billion for Chinese. On these ba
The key to this continued American dominance is the growth of labor productivity. Labor-saving investments have made America’s manufacturing workers remarkably productive by just about any standard. That productivity has enabled American producers to compete in the global marketplace—despite this country’s relatively high wage scale—and it has allowed manufacturers to increase output, despite declining levels of employment. And the figures are impressive. The Labor Department notes that, during the past 10 years, output per hour in manufacturing has risen by 4.4 percent a year on average, considerably faster than the 2.8 percent productivity expansion in the general economy. Since these manufacturing productivity figures have outpaced output growth by about one-third, it is little wonder that jobs in the sector have declined, despite the continued rise in production. Indeed, contrary to media hype, substantial job losses have been less a reflection of import competition, outsourcing, offshoring, or shifting preferences, for that matter, than they have been a reflection of these important productivity advances.
Of course, productivity growth is not the whole story on the issue of job losses. Import penetration also has cost jobs. And there is also a statistical glitch: The Labor Department counts temporary help as service workers, even if they work on the shop floor; and since manufacturers increasingly use temporary help, the official figures understate the number of workers truly engaged in manufacturing. The rest of the job losses can be laid at the feet of foreign competition of all sorts. According to the Commerce Department, net imports of goods (imports less exports) have widened by a factor of $770 billion during the 10 years ended in 2005. Clearly, this reliance on foreign-made product has cost jobs. But it would be wrong simply to assume, as many do, that American manufacturing jobs have fallen in proportion to these imports. There is no way to know whether American manufacturers could have or would have met the demands filled by imports. There are also other manufacturing jobs that would have failed to develop, if it were not for the imports. Japanese auto production in the States stands as an ideal example of such an effect. At most, this import penetration could be described as lost opportunity. And most important, there also is the ongoing and pervasive effect of productivity growth that would have cost manufacturing jobs even in a closed American economy. Though foreign competition can account for some of the manufacturing job losses, the figure is much less in proportion to the growth of imports and far less significant than the effect of increased worker productivity.
For all the statistical comparisons, there is still no denying the hardship caused by job losses, whether from import competition or advances in productivity. Individuals, towns, regions, and states have suffered from these developments. There is no way to shrug off this pain, and the nation owes it to itself to help these people and places with the adjustment. But at the same time, these productivity advances, though they may have cost jobs, are the only way American manufacturing has been able to compete at all with the cheap labor available in Asia and elsewhere in the world. Without increases in output per worker hour, the nation could not have sustained its relatively high wage scale. It also would have lost any competitive edge in world markets, and even more manufacturers would have closed. The nation’s standard of living thus would have suffered still more.
And Innovation
While productivity growth has helped manufacturing cope, innovation—that is, the development of new industries and new approaches to existing industries—has taken up the job slack left by manufacturing, and in so doing has helped protect the nation’s standard of living. It is virtually impossible to overstate the significance of this innovation. It has, especially during the past 50 years, served as the main avenue for new employment to replace those closed by productivity growth in manufacturing and by foreign competition. The technology revolution, the growth of financial services, medical services, the communications revolution, a vast array of new industries and applications have all created previously undreamed of employment opportunities at all levels of skill and pay, so that even in the face of globalization and intense foreign competition, America’s standard of living has held its own and has, on average, actually risen.
Certainly, Labor Department data speak to the effectiveness of this innovation. Job growth in this country has proceeded, even as manufacturing positions have waned. A greater proportion of working-age Americans are employed today, for instance, than in just about any time in the long history for which data are available. According to the Labor Department, 66.2 percent of working-age Americans currently are engaged in full-time employment. By comparison, during the mid 1950s, which many see as a golden age for manufacturing, that proportion stood at only 59.7 percent. To be sure, much of this shift reflects changing social attitudes, but nonetheless, the growth in jobs, despite foreign competition and despite productivity growth, speaks loudly to the economy’s ability to adjust.
Of course, some of the new jobs may have paid less well than the lost manufacturing jobs or were less satisfying. But while pay scales may have slipped for some workers, initially and maybe even ultimately, in aggregate this nation’s innovating economy has provided more pay for more workers over time. By just about any measure, the country is economically better off, despite the job losses in manufacturing. Per-capita income certainly has continued to rise, in both real and nominal terms. Stripping away the distorting effects of inflation, this critical measure of per-capita income has risen more than 175 percent since 1960, 58 percent since 1980, and 20 percent since 1996—even as the nation has lost manufacturing jobs. These gross changes average out to an annual rate of expansion of 2–2.5 percent. That kind of growth doubtless is less than many would like to see, but the situation still is little different than when manufacturing was strong, and it is a far cry from the devastation so glibly forecast.
On the issue of job satisfaction, measurement becomes difficult, if not impossible. Surveys are unreliable. Few people express full satisfaction with their employment situation, whether they are on the shop floor, in a mine, or seated at a desk. And memory plays tricks. Long-lost manufacturing jobs get associated more with lost youth and hope than actual satisfaction at the time. Making matters even more complicated, Hollywood, some in the media, and occasional academics manage, inexplicably, wax poetic about the steel mills and the assembly lines of the past. Anyone who has ever worked in a mill or factory—and has a clear memory—might find it hard to believe that anyone would ever miss such work or call it satisfying; but the images persist nonetheless. Meanwhile, the admittedly spotty data tell a different story, indicating that the past 20-plus years have seen an 80 percent increase in management positions in this economy—from 23.6 million in the early 1980s, to 42.5 million today. This growth far exceeds the overall employment growth, so that now nearly 31.1 percent of Americans work in management, compared with 23.4 percent 25 years ago. These statistics surely do not apply to all those who lost manufacturing jobs along the way. Neither do they necessarily ensure that elusive quality of satisfaction. But they do suggest that, on balance, a greater proportion of the American workforce enjoys challenging, high-paying jobs than in the past.
Of course, people have at every step along the way, despite this record of success, found it hard, if not impossible, to see the coming innovation, much less trust its ability to absorb displaced labor or protect the nation’s standard of living. Their doubts are entirely understandable. Innovation by nature is difficult to anticipate, specifically or in general. Its seemingly elusive quality has always seemed inadequate to meet the challenge of foreign competition, as the United States, with its relatively high wage scale and huge domestic consumer market, has all but been besieged by foreign competitors, especially those with the competitive edge of relatively low wages and underdeveloped domestic markets. So, it is little wonder that throughout this time a steady stream of warnings has issued from Wall Street, politicians, and the media, as each has despaired of the favorable effects of productivity growth and innovation. For more than half a century of relative success, forecasts of defeat have reappeared frequently, full of worries about the country’s standard of living, its stature in the world, and, by implication, its ability to sustain asset values. But the contrast between the rhetoric and reality has also always been stark.
During the 1950s and 1960s, this fear of defeat centered on Europe. Politicians, economists, and the newspapers of the time were full of dire warnings of how low-wage German labor would steal away American manufacturing. Of course, it is hard today to think of German labor as cheap, but it was then. Capturing the palpable fear Americans felt at the time for their relatively high standard of living, John Kennedy, during the 1960 presidential campaign, spoke about how foreign competition and the jobs lost to productivity growth, especially in manufacturing, would create enough unemployment to threaten the country with a “dark menace of industrial dislocation, increasing unemployment, and deepening poverty.” But, as we all know, that did not happen. Neither Kennedy nor many others could have envisioned, for example, the telecommunications and technological revolutions of the last 40 years that during this period have employed millions in what for the 1960s were undreamed of jobs.
By the 1970s, the concern with Europe began to dissipate in favor of a new threat: that Japan would come to dominate global manufacturing and in the process gut the American economy. Giving voice to this new fear—or rather a new version of an old fear—then Senator Lloyd Bentsen of Texas worried that “American workers will end up like the people in the Biblical village who were condemned to be hewers of wood and drawers of water.” Felix Rohatyn, a prominent Wall Street financier at the time, worried about American “de-industrializatio n” and that the country would become “a nation of short-order cooks and sales women.” He did not quite say “hamburger flippers” (the modern version of the same anxiety), but he came mighty close. None of these concerned people could imagine the positive employment effects of the financial services revolution and the development of new industries, such as cable television, that today employ millions of people at all skill and salary levels.
By the early 1990s, Japan faced economic problems of its own—and yet for Americans, this common fear still remained potent, and the anxiety shifted to Mexico. There the concern found a voice through Ross Perot, the independent candidate during the 1992 presidential campaign, who alluded to potential job losses as a “giant sucking sound.” In that same spirit, the Pulitzer Prize during that time went to two journalists, Donald L. Barlett and James B. Steele, for their book on the country’s economic demise, America: What Went Wrong. Ironically, the book’s forecast of economic decline appeared just as the technological revolution of the 1990s took off. Now that the Mexican competition has failed to destroy the economy as predicted, this time-honored anxiety has shifted to China and India. No one now can envision the next phase of innovation, and so skeptics, understandably, doubt it.
Conclusion
It remains an open question whether today’s doubts are valid—whether this country can sustain the record of productivity growth and innovation with which it has protected its standard of living during these past decades. The prospectuses tell all and sundry that “past performance is no guarantee of future results.” And, indeed, it is no guarantee. There are never any guarantees. But at the same time, these past trends are the only indicators available to mortals. The success that the United States has shown decade after decade suggests that a prudent investment strategy would do better to assume a continuation of the pattern rather than expect, as many do, that somehow it will suddenly stop on a dime anytime soon. On that basis, wisdom argues against the popular tendency to exaggerate the risks of globalization and foreign competition. Instead, it directs businesspeople and investors to look for the opportunities embedded in the ways business can continue to adjust going forward.
