Creative Destruction in U.S. Manufacturing

Both Justin and I have recently posted about the RI employment market, with a particular focus on manufacturing jobs. In the February 23 edition of National Review, Jim Manzi has an interesting piece on the decline of manufacturing in the U.S.

Except, as Manzi explains, it hasn't. Manufacturing jobs have declined, but output is the same as it ever was.

At the end of World War II, manufacturing accounted for about one-third of the U.S. workforce. Today it is about one-tenth. In terms of employment, we are no longer transitioning to a services economy; we are there. Over that same period, manufacturing has consistently represented about 15 percent of rapidly growing U.S. economic output. Manufacturing has become ever more productive; as any industry matures, this becomes increasingly necessary for survival. While continuous improvement is essential for any relatively mature business, the process of improvement itself is fairly routinized, and almost inexorably eliminates labor. Productivity gains are beneficial to consumers, but not so much to employees who have trouble moving or learning new skills.

That was news to me too. Manzi spent the 1980's "as one small part of a self-conscious movement to rescue American manufacturing from its projected obsolescence." He compares the decline in 20th Century manufacturing jobs to the earlier decline in agricultural jobs. In both cases, we have fewer workers making more. Manzi has several other interesting insights.

First, we have to be careful about letting sentiment guide economic policy.

The days of getting out of high school, working in a factory, and having a middle-class life are pretty much gone, because the economic world of 1955 is gone. The jobs that provided this opportunity have been automated out of existence, and our international position no longer allows us to protect them at feasible cost. I take no joy in the need for restructuring the auto industry. I wish that old world still existed, but it does not.

I realize now that my attempts to resist this change were like William Jennings Bryan’s attempts to resist the coming of the economic order that I was trying to preserve. I slowly came to understand through experience that my original vision of saving manufacturing would have destroyed it. Theories for how to revive American manufacturing abounded in the 1980s, and it’s hard to exaggerate how difficult it is to understand which alternatives are feasible and which are not in the face of an economic transformation. It is almost impossible not to be guided by our sentiments in such a situation, and this happened to me. I fought the direction in which market price signals were pushing manufacturing, but in the end, they were the only reliable guide to what might work....Almost all industrial policy ends up protecting existing institutions: This is a function of human nature and is not fixable with clever program design....Ironically, these attempts to protect ourselves end up creating a sclerotic economy that in the long run puts everyone at greater risk. The painful reality of economic growth is creative destruction, and in a globalized economy, to lose out in this race is ultimately to put ourselves at the mercy of those who may or may not share our interests....So while I remain emotionally a factory guy, I recognize that it is counterproductive to use the political process to prevent factories from becoming something almost unrecognizable to me.

There is, however, one thing that seems to be predictable about these changes. Historically, each new growth sector, from agriculture to manufacturing to services, has tended to be more abstract than its predecessor. This often leads them to be labeled as “not real work,” and they seem to be a flimsy basis for an economy — just as, I assume, the first farmers who started to scratch out little garden plots were mocked by the hunters on one side and the gatherers on the other, those who did the “real work” in their clan.