Manufacturing

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U. S. Manufacturing: Still in the Driver’s Seat

31 Aug, 2008

By: John Engler

Mark Twain’s comment upon reading his own obituary applies perfectly to American manufacturing in 2008. “The reports of my death have been greatly exaggerated,” he said.

 
In fact, though a few sectors are struggling, overall American manufacturing is prospering. According to the Bureau of Economic Analysis, the output of American manufacturing has more than doubled in the past 25 years, to a total of $1.5 trillion. Not only do we now make more goods than any time in our history, the value of the U.S. manufacturing sector alone makes it the eighth-largest economy in the world. It is truly extraordinary that a country that accounts for only 5 percent of the world’s population produces almost 25 percent of its manufactured goods. Contrary to common wisdom, that share hasn’t changed in decades.
 
And we’re sending many of those goods abroad: U.S. manufacturers account for over 60 percent of our exports, or more than $50 billion a month. While it’s true that our manufactured imports are rising, our exports are rising even faster. Indeed, in this time of turmoil in the housing market and weak consumer demand, rising exports are helping keep our economy growing.
 
Underpinning this continued strength is the astonishing growth in productivity among American manufacturers. Between 1987 and 2005, it increased by 94 percent, compared to just 38 percent in the rest of business. That’s a critical contribution, for as Federal Reserve Chairman Ben Bernanke has observed, productivity growth is “perhaps the single most important determinant of average living standards.”
 
This huge productivity gain is one reason why manufacturing was able to lead the U.S. economy out of the most recent recession, by accounting for 15 percent of real Gross Domestic Product (GDP) growth between 2001 and 2005 – more than any other sector. Considering manufacturing’s multiplier effect on such dependent industries as finance, wholesaling, accounting and telecommunications, it shouldn’t be surprising that the sector continues to play its traditional role as the driver of the nation’s economy.
 
Change Brings Opportunity
Some traditions have changed, however. Manufacturing does occupy a smaller part of the GDP now – down from 25 percent in the 1950s to 12 percent today. That’s due in part to competition from imports and also the fact that, in light of productivity gains, manufacturing prices have dropped while the cost of such sectors as business services, health care and education have skyrocketed. It’s also a fact that today’s manufacturers need fewer workers. But manufacturing still directly employs over 14 million workers, and those jobs support millions more in other sectors.
 
Taken together, all these statistics paint a complex picture, one of transformation and adaptation. Yes, products that can be manufactured cheaply by workers with low skills are now made abroad, and that’s unlikely to change. However, that very fact opens massive opportunities for American manufacturers to focus on higher-value goods where our superior technology and know-how give us a distinct advantage.
 
Today, we’re entering what some call the second industrial revolution. While opportunities have declined in low-skill sectors such as leather goods, tobacco products, textiles and apparel, employment has grown healthily in industries that demand high skills, such as machinery, electronic equipment, aerospace, pharmaceuticals, instruments and plastics. Though fewer workers are needed due to the advanced state of automation in these sectors, those who do find jobs receive wages that are commensurately higher. Today, an average American manufacturing worker earns $69,000 per year, or 21 percent more than workers in other businesses. And one of the biggest challenges facing manufacturers in the U.S. is a shortage of workers with the skills needed to work in modern manufacturing.
 
The Political Situation
Regrettably, while the political campaigns reached a fever pitch this summer, very little of the debate was focused on strengthening U.S. manufacturing. In fact, what little we did hear from the candidates about U.S. manufacturing seemed contrived to win votes while undermining our competitiveness. Many of the candidates lament the loss of manufacturing jobs in the U.S. while espousing policies that can only serve to increase our cost disadvantage against our major trading partners, and hence accelerate the loss of jobs.
 
Winston Churchill described this anti-business attitude long ago: “Some see private enterprise as a predatory tiger to be shot, others as a cow to be milked, but few are those who see it as a sturdy horse pulling the wagon.” Our competitors in Asia and Europe most assuredly know a sturdy horse when they see one. They recognize that manufacturing is key to a vigorous economy. The manufacturing process, the transformation of raw materials into finished products, is among the most creative of human endeavors – which is why manufacturing accounts for a major portion of private sector research and development. Our competitors do everything in their power to strengthen their manufacturing sectors and make them more competitive. But that attitude is not to be found in Washington.
 
Curiously, many state government leaders do grasp the vital importance of manufacturing. They compete vigorously to attract new manufacturing facilities to their borders, reducing taxes, reforming their legal systems, improving schools and building modern transportation infrastructures. They know a modern manufacturing plant not only creates hundreds of good jobs and underpins a solid tax base, but also fosters job creation in other sectors. They recognize that manufacturing drives prosperity.
 
But something odd seems to happen to many politicians when they get to Washington. Once they cross the Potomac River, suddenly manufacturing looms in their crosshairs as they embrace ill-conceived laws and policies that make it harder and harder for us to compete.
 
For example, the surge of exports of manufactured goods is driven partly by a shift in currency values but mainly by our aggressive efforts to reduce trade barriers through free trade agreements. And yet, some presidential candidates are attacking the North American Free Trade Agreement and the proposed trade agreement with Colombia as if they were a hindrance, not an advantage. This calculated demagoguery is designed to take advantage of misconceptions about trade. Unfortunately, sound bites do not translate into sound policies.
 
Another example is soaring energy prices. U.S. manufacturing is highly-automated and dependent on energy. As prices soar, both consumers and businesses are under increasing pressure. And yet the response from many of the candidates is to bash energy companies, deny access to our bountiful domestic deposits of environment-friendly natural gas and obstruct efforts to revive our nuclear power industry - the most climate friendly source of power at our disposal.
 
And one of the most frustrating challenges facing manufacturers today is the scarcity of qualified job applicants seeking employment. The public schools of our country are quite simply in a disgraceful condition. It has been 25 years since the National Commission on Excellence in Education released A Nation at Risk, but we have made little progress. Dropout rates continue to rise and a disturbing number of those who do graduate from high school lack the science, math and computer skills they need to work in modern manufacturing.
           
Meeting the Challenge
Despite unprecedented foreign competition, inadequate schools and the lack of support in Washington, U.S. manufacturing remains vigorous and opportunities abound. Legions of creative minds are taking manufacturing in new directions creating the products and systems of the future. Our saving grace remains our creative genius that has kept the U.S. in the forefront of world manufacturing despite our difficulties.

 

Economists and executives alike agree that this is the path that will ensure America’s continuing dominance in manufacturing: The production of high-value goods that take advantage of our technological edge and long-proven tradition of innovation is where the future lies. I invite you to visit our web site at www.nam.org to learn more about what is going on in modern manufacturing and take advantage of the variety of helpful information we offer.

 

About the Author

John Engler

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