|
Manufacturing the new protectionismIn Praise of Hard Industries: Why Manufacturing, Not
the
|
from NewsLink, Vol. 4, No. 1, Fall 1999
s
The U.S. economy will soon enter its ninth year of expansion. Unemployment is the lowest in 30 years. Productivity growth is up. Inflation has almost vanished. Personal income is up (the median household income is an all-time high $38,885.) Housing construction is strong. And the economy continues to create jobs.
All this American prosperity worries financial journalist Eamonn Fingleton, who delights in the role of contrarian and frets about manufacturing. In his new book, In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, is the Key to Future Prosperity, Fingleton thinks the American model is a sand castle, already hollow and ready to collapse. He believes that the United States is dangerously abandoning its manufacturing sector. The “postindustrial” pitchmen for the new economy — information technology, the Internet and content industries such as Hollywood — are, in essence, selling the nation a bill of goods.
A closer look, declares Fingleton, reveals that the nations that nurture, subsidize and protect their manufacturing base are building a better bridge to the future than those that rely primarily on high technology or services alone. Fingleton thinks Japan (despite its stubborn recession) and Germany (whose real progress is obscured by unification with the East) are better role models. Their manufacturing industries attract more foreign capital, enabling their higher paid workers to be more productive.
Writes Fingleton, “Whereas the American economy, faithful to the dictates of laissez-faire economics, is generally run to boost the short-term welfare of the American consumer, the Japanese economy is run to boost Japan's long-term ability to project economic power abroad.”
If, however, Fingleton thinks manufacturing faces new risks, the old cure he proposes is nothing new at all: tariffs, targeted tax incentives and Singaporean-like “forced savings” plans. Tariffs, while serving the profits of some manufacturers, hurt consumers. Moreover, they do little to improve trade balances. Tax incentives distort sound business decisions. And the low U.S. personal saving rate, another of Fingleton's concerns, is more correctly seen as the mirror image of growing government surpluses. (See NewsLink, Summer 1999, “When government saves more, we save less.”)
On the surface, Fingleton marshals enough evidence to start a sound debate about whether the United States should adopt an industrial policy guided by manufacturing-sector-friendly policymakers somewhere in Washington. But we heard this back in the 1980s when political liberals spoke of “de-industrialization.” Their views were largely ignored and after a mild recession the American economy roared back.
Still the opportunity for the debate to re-emerge is there. A climate of confusion about what exactly constitutes manufacturing and services as well as other classification issues perplexes even the best government economists. Manufacturing can always be “measured” by tangibles – automobiles, shoes, textiles, computers, tractors – as can traditional services such as haircuts, landscaping, housecleaning and tax preparation.
But the growing software and financial services industry, two sectors Fingleton disparages, are exceptionally difficult to measure. Even the expanding universe of high-tech manufacturing, such as transistors, computers, copiers and lasers, derives most of its added value from the application of knowledge, namely the work of highly-skilled programmers rather than highly-skilled assembly workers.
Certainly there is much hype out there about the new economy. But no one is suggesting the nation abandon all manufacturing. History shows that over time, thanks to innovation, manufacturing does more with less.
The U.S. as a laggard?
Fingleton thinks the United States is an underperformer. From 1980 through 1996, he says, “The U.S. boosted its per capita income at current prices — that is, before adjustment for inflation — by a total of 134%. Although at first sight this growth seems impressive, it was bested by no less than 12 other OECD nations ... all these nations boasted a greater commitment to manufacturing employment than the U.S."
But there is a price to be paid for thus artificially shoring up manufacturing. Europe has failed to produce any new jobs for a generation. And Japan has predicated its economic strategy on a policy of keeping low-priced goods out of the hands of its consumers.
Fingleton levels three strikes against the new economy; none of them particularly convincing. He argues that the new economy creates an unbalanced mix of jobs. But so what? The transition from agriculture to manufacturing had the same effect. Does he really want to freeze the U.S. economy in a century-old vision of the status quo? Indeed, if the first industrial revolution offers any lesson, it is that a rising tide of technology lifts all boats. Thanks to technology, U.S. agriculture is more productive than ever.
He also maintains that the American drift into postindustrialism has produced poor income growth. However, that poor income growth began long before the Internet revolution. Since 1974 the world has experienced an increase in the demand for skilled labor and a decrease in the demand for unskilled labor. In the United States, this has led to falling relative wages for the unskilled. In Europe, it has led to unemployment.
Lastly, he says the information economy does not do much for the U.S. trade deficit. But the trade deficit could, like the low U.S. saving rate, reflect an indicator of underlying strength in the economy. Perhaps the trade deficit is high mainly because foreign investors want to place their capital in the technology-rich American economy.
Though Fingleton may not want to listen, there is an industrial revolution afoot that offers more than “at best a marginal improvement in productivity.” New productivity figures are arriving and they are impressive.
Which proves that when it comes to the new economy, it's probably better to listen to a “cautious new-economy optimist” like Alan Greenspan than to a Chicken Little like Eamonn Fingleton.
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2002. All rights reserved.
HTML format revised on 9/27/02 9:57
