What is in this article?:
- The Real Reason Why Washington Should Care About Manufacturing
- Manufacturing is Economic Engine
The anemic overall performance of the U.S. economy over the last decade can be tied directly to the loss of U.S. traded sector, and particularly, manufacturing competitiveness.
Manufacturing has been the focus of much attention lately -- a key theme of President Barack Obama’s Inauguration and State of the Union addresses and the subject of numerous recent books and articles. But why does manufacturing matter? Why should Washington in particular care? Most commentators miss the real reason.
And getting the answer right is imperative because many economists, like Nobel Laureate Gary Beckerand Columbia’s Jadish Bhagwati, persist in trying to convince policy makers that America can thrive without manufacturing, and in fact would be better off without it.
Here are some reasons that don’t really matter.
Manufacturing is inherently better than services.
The notion that making a widget is better and more ennobling than selling it or marketing it is simply wrong. Both produce income and output.
Manufacturing jobs pay more.
Sure, but manufacturing jobs pay just $2.50 more per hour than the average of $30.44 for all U.S. jobs. And despite the much-ballyhooed creation of some 500,000 manufacturing jobs over the past two years, many of the new jobs are on tiered wage scales and pay around $15 per hour. If we tie the importance of manufacturing to higher wages, does this mean that if manufacturing wages fall to average that we should no longer care about manufacturing?
Manufacturing is a key source of technology and innovation.
It is, but as long as we can purchase technology from other nations we should be just fine. The problem is that we can’t, as noted next.
So here’s the real reason. Manufacturing matters because it’s simply impossible to have a vibrant national economy without a healthy globally traded sector, and manufacturing is America’s most important traded sector. Traded sector enterprises, which comprise about one-third of the U.S. economy, are those that compete in international marketplaces and whose output is sold, at least in part, to non-residents of the nation. But because these industries face intense global competition in a way that non-traded, local-serving industries do not their success is by no means assured.
For example, while we may not know whether Safeway, Giant, or Walmart will gain market share in the U.S. grocery store industry, we do know the industry produces as much output as U.S. consumers demand.
In contrast, while we may not know whether Boeing or Airbus is going to gain market share in the global aircraft industry, we also don’t know whether we will be producing jets in America, as this depends on Boeing’s global competitiveness and America’s attractiveness as a place to build high value-added, complex products.
In other words, if a local grocer goes out of business, another will emerge to take its place to serve local demand, but if a traded sector enterprise such as a semiconductor, automobile, or aerospace manufacturer closes due to global competition, the business and jobs that take its place may well be located in another country.