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US
INDUSTRY TODAY
April 4, 2008
Vol: 3 | Issue: 13 -
Wake Up Call
Clash of the Titans
Candidates’ wrestling over job loss versus productivity stagnation
scratches the surface of manufacturing’s woes
One of these years, a group of major party candidates will run for
president who actually possesses some rudimentary understanding of how
and why businesses and industries rise and fall and how and why wealth
is created – in other words, who possess some rudimentary understanding
of manufacturing. Clearly, however, this year isn’t the year.
We know this in part because the Republicans have chosen a
standard-bearer who keeps trumpeting his support for decisions that have
kept domestic manufacturers practically defenseless against penny-wage,
highly subsidized foreign competition. But we especially know this
because of the ruckus raised over trade policy in the critical
Democratic primary battle over manufacturing-heavy, economically wounded
Ohio.
The problem is not that this sudden NAFTA-bashing competition waged by
two supporters of NAFTA-like trade policies has all the authenticity of
a professional wrestling match. The problem is that the exclusive focus
on manufacturing jobs, which naturally has extended to the media, is
obscuring the much more fundamental problems afflicting domestic
industry, as well as diverting attention from the tough policy moves
needed to solve them.
Of course, manufacturing jobs attract attention during election years
because manufacturing employees are voters – as are ex-manufacturing
employees who are either out of work altogether or who are toiling at
lower-paying service sector jobs. At the same time, manufacturing jobs
don’t magically appear out of nowhere, and they don’t vanish in a
vacuum. They are created by companies and the industries and larger webs
of industries they are part of, and when these industries weaken and
die, jobs vanish big-time.
And that’s the real problem facing domestic manufacturing. Contrary to
the conventional wisdom pushed tirelessly by offshoring interests and
other globalization cheerleaders, domestic manufacturing is not
vigorously expanding production even as it jettisons workers wholesale
in a burst of labor-saving productivity. Domestic manufacturing has been
stagnating and in many cases shriveling in inflation-adjusted terms for
nearly a decade, and won’t start creating jobs again until it returns to
genuine growth mode.
Moreover, the news gets even worse for champions of current trade
policy. In the United States as a whole, and in nearly every individual
state, the sectors of the economy growing the slowest – and often
contracting in real terms – are the sectors most heavily exposed to the
global economy. The sectors of the economy only partly exposed to
international economic challenges and opportunities typically fare much
better. And the best performers of all are those parts of the economy
that have virtually nothing to do with the global economy.
In other words, the U.S. economy and the economies of most individual
states have kept growing since Washington began signing offshoring-focused
trade deals like NAFTA in 1993. But they have been growing despite
America’s strategy toward international trade and globalization, not
because of it. In fact, U.S. trade policies have undermined growth, not
supported it – chiefly because they have failed domestic manufacturing.
This classification scheme makes no claim to pinpoint accuracy. But can
there be any reasonable doubt that the segments of the U.S. economy most
significantly affected by international economic flows and policies are
manufacturing, agriculture, and mining? If not, their performance is a
damning indictment of America’s approach to international trade. Their
total output growth from 1997 to 2006 was 33.46 percent – greater than
the 22.17 percent inflation of the period, but not whoppingly so.
Manufacturing itself grew even less impressively – by 25.11 percent. In
other words, it has generated almost no real growth for nearly a decade.
The second category – those industries partly affected by an
international economy – is a larger group that is more difficult to
define precisely. Yet certainly sectors like retail and wholesale trade,
finance and insurance, information, and professional and technical
services, are deeply involved in global markets and face foreign
competition all over the world but still earn much of their revenue at
home. Their collective growth rate from 1997 to 2006 was 64.52 percent –
nearly three times the rate of inflation.
Parts of the economy scarcely affected at all by globalization are
easier to identify. They include not only industries like construction
and administrative and waste services, but sectors that are scarcely
affected by free markets themselves anymore – like government, the
heavily regulated utilities sector, and the heavily subsidized health
care sector. Taken together, these parts of the economy expanded by
68.31 percent from 1997 to 2006, with government growing by 55.54
percent, and health care and social services output jumping by 78.46
percent.
Further, consistent with the idea that jobs come from companies and
industries, and not the ether, the stagnating and shrinking sectors of
the economy own the worst job creation records while the expanding
sectors have excelled at employment generation. In particular,
manufacturing payrolls plummeted by18.74 percent from 1997 to 2006,
whereas the biggest employment increases came in high growth sectors
like construction (where job numbers surged by 32.31 percent from 1997
to 2006), health care and social services (up 25.08 percent), and real
estate (up 20.52 percent).
Does all this mean that America should simply abandon its slow-growing
manufacturing sector? Or agriculture, another laggard? Even if ensuring
that the nation can continue to arm and feed itself without much help
from abroad didn’t matter at all, dumping manufacturing would be
disastrous economically. After all, manufacturing remains the nation’s
leader in productivity growth and technological innovation, and still
generates the economy’s best paying jobs on average.
Moreover, many of America’s recent economic growth winners are looking
pretty over the hill – notably construction (which expanded output by
91.93 percent before adjusting for inflation between 1997 and 2006),
real estate (up 73.54 percent), and finance and insurance (71.55
percent). Obviously too much of the boom they’ve enjoyed lately was
really bubble-ization.
Accurate campaign portrayals of manufacturing are hardly a mere academic
matter. They are vitally important to the entire domestic manufacturing
community – companies and workers alike. For candidates like Sens.
Clinton and Obama that focus exclusively on manufacturing job loss
rather than manufacturing output loss will unwittingly keep reinforcing
the myth that domestic manufacturing is going great guns except for its
poor workers. They will undoubtedly keep peddling the precious fantasy
that trade agreements simply should be tweaked with labor rights and
environmental protection provisions. Perhaps most important, they will
just as undoubtedly recoil from the more sweeping policy changes needed
to eliminate pervasive foreign subsidies and invisible trade barriers
(ranging from currency manipulation to discriminatory value-added tax
systems). And these are the measures that hold the real keys to securing
domestic manufacturing’s future.
Alan Tonelson is a Research Fellow at the U.S. Business and Industry
Council Educational Foundation in Washington, D.C. A contributor to the
Council’s AmericanEconomicAlert.org Web site, he is also a consultant to
CNN anchor Lou Dobbs and the author of The Race to the Bottom (Westview
Press, 2000). The views expressed here are his own.
Megan Chidester of the U.S. Business and Industry Council provided
research assistance for this article.
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