The conventional wisdom says that manufacturing employment in the United States is in decline because of outsourcing and increases in productivity. As a Feb. 17 Wall Street Journal editorial put it: “Real manufacturing output stood at about $35,000 per worker in 1947, in constant dollars…. Today this measure is an astonishing $150,000.”
Is the conventional wisdom correct? One person claiming that increasing productivity need not mean reduction in employment is Gene Sperling, director of the Obama Administration’s National Economic Council. In a March 27 speech, he commented on “…the very real benefits that manufacturing brings to our economy and that we ought to preserve.”
He explained, “…even if today only 12% of the U.S. private-sector workforce is employed in manufacturing, it is a sector that punches above its weight,” boosting innovation, exports, and local communities. “It becomes clear,” he said, “that manufacturing is worthy of a special emphasis in the Obama economic strategy.”
Regarding productivity, Sperling cited a 2005 study by economist William Nordhaus that showed that for specific industry segments “…increases in the rate of productivity growth were associated with increases in the rate of job growth…during the 1948-2003 time period.” Sperling quoted Nordhaus as saying that “productivity is not to be feared—at least not in manufacturing,” where higher productivity leads to lower prices, increased demand, and higher employment.
Manufacturing, Sperling said, offers benefits beyond the factory, creating approximately $1.40 of output for every $1 of manufacturing output. If an auto plant opens up, a Walmart can be expected to follow, but the converse is not true: A Walmart opening does not bring an auto plant with it.
Government’s role, Sperling said, centers on providing low tax rates for manufacturers, infrastructure improvements, permanent R&D tax credits, trade enforcement, and support for education. He also said he sees a role for government investment in innovation to support manufacturing.
The term “industrial policy” did not come up in Sperling’s speech, but according to a March 29 post by Reuters journalist Chrystia Freeland, “Sperling was careful to point out that the new approach did not amount to industrial policy or an attempt by the government to pick winners and losers.”
Freeland offered an observation: “…the Anglo-Saxon consensus was that state interference in the private-sector economy was a mistake…. The continental Europeans, most successfully the Germans, demurred…they used the full might of the state to try to hang on to their industrial base.”
Many observers believe there is nothing special about manufacturing. Writing Feb. 22 in The Corner, Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, noted, “The president thinks manufacturers deserve special treatment…. Besides the obvious unfairness of a system that rewards some…these policies don’t even make sense.” Manufacturing is doing well without taxpayer help, she wrote, adding that preferential treatment won’t bring back the low-skill jobs that have been lost.
Freeland concluded her Reuters post saying, “…from Berlin to Beijing, the debate about manufacturing and whether governments have a duty to support it is a live issue. That is one more reason this U.S. election campaign matters so much to the rest of the world.”
Sperling and de Rugy both offer valid points. Let’s hope both parties in the upcoming months can clearly articulate their positions on the importance of manufacturing and what they see is government’s role, if any, in supporting it so voters can make an informed decision in November.
