A History of Wrecking U.S. Manufacturing

Feb. 16, 2011
Historian's "Pivotal Decade" charts policy decisions that weakened domestic manufacturing.

Many politicians and economists believe that the decline of American manufacturing - particularly manufacturing jobs - is simply an inevitable byproduct of global economic forces. Historian Judith Stein begs to differ. Instead, she cites an accumulation of policy decisions by both Republican and Democratic administrations that undermined manufacturing and promoted the idea that the United States would prosper as a knowledge economy. And she worries that current policy decisions could do further damage to manufacturing.

During the 1970s, Stein writes in "Pivotal Decade: How the United States Traded Factories for Finance in the Seventies," the U.S. economy was battered by high oil prices and increased competition from Europe and Japan. But instead of fighting unemployment, says Stein, a history professor at the City College of New York, the government focused on lowering inflation and pursuing a balanced budget. "When [President Jimmy] Carter came in, the argument was that imports were good because they helped us keep down inflation," she notes. But as countries developed industrial policies and aggressively pursued U.S. markets, sectors such as steel soon found themselves at a disadvantage.

Stein says the Reagan administration's policies that kept interest rates high attracted an inflow of money, which strengthened the dollar. The combination of a deep recession and an expensive dollar "really did in manufacturing." In her view, the damage continued during the Clinton presidency as an expensive dollar and free trade agreements encouraged outsourcing. Moreover, she charges, the Clinton administration was the first to adopt the belief that "manufacturing is unimportant." She adds: "You got the ideology that the United States is a high-tech economy. It's the progenitor of today's ideology that we are a knowledge society."

Stein criticizes President Obama's comments in the State of the Union address that the country needs more innovation. "What he should have said is we need more innovation and production. If he married those two ideas together, he would begin to change the thinking," she says, adding that "someone at the top has to start changing people's assumptions about what the future of the United States must be."

While Stein says the United States needs an industrial policy to promote its own self-interests, she says she understands why many manufacturers want the federal government to simply leave them alone. "All that reflects is that many of the [government's] mandates don't enhance their well-being. If you have no experience with the government helping you, why would you even think that it is possible?"

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