The manufacturing paradox

An article the explains the real reasons behind declining manufacturing jobs, and why it is not the problem many fear.

http://www.economist.com/displaystory.cfm?story_id=770861

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IN THE closing years of the 20th century, the world price of the steel industry's biggest single product—hot rolled coil, the steel for car bodies—plunged from $460 to $260 a ton. Yet these were boom years in America and prosperous times in most of continental Europe, with automobile production setting records. The steel industry's experience is typical of manufacturing as a whole. Between 1960 and 1999, both manufacturing's share in America's GDP and its share of total employment roughly halved, to around the 15% mark. Yet in the same 40 years manufacturing's physical output doubled or tripled. In 1960, manufacturing was the centre of the American economy, and of the economies of all other developed countries. By 2000, as a contributor to GDP it was easily outranked by the financial sector.

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Manufacturing is following exactly the same path that farming trod earlier. Beginning in 1920, and accelerating after the second world war, farm production shot up in all developed countries. Before the first world war, many Western European countries had to import farm products. Now there is only one net farm importer left: Japan. Every single European country now has large and increasingly unsaleable farm surpluses. In quantitative terms, farm production in most developed countries today is probably at least four times what it was in 1920 and three times what it was in 1950 (except in Japan). But whereas at the beginning of the 20th century farmers made up the largest single group in the working population in most developed countries, now they account for no more than 3% in any developed country. And whereas at the beginning of the 20th century agriculture was the largest single contributor to national income in most developed countries, in 2000 in America it contributed less than 2% to GDP.

The decline in manufacturing as a creator of wealth and jobs will inevitably bring about a new protectionism, once again echoing what happened earlier in agriculture. For every 1% by which agricultural prices and employment have fallen in the 20th century, agricultural subsidies and protection in every single developed country, including America, have gone up by at least 1%, often more. And the fewer farm voters there are, the more important the “farm vote” has become. As numbers have shrunk, farmers have become a unified special-interest group that carries disproportionate clout in all rich countries.

The new protectionism is driven as much by nostalgia and deep-seated emotion as by economic self-interest and political power. Yet it will achieve nothing, because “protecting” ageing industries does not work. That is the clear lesson of 70 years of farm subsidies. The old crops—corn (maize), wheat, cotton—into which America has pumped countless billions since the 1930s—have all done poorly, whereas unprotected and unsubsidised new crops—such as soya beans—have flourished. The lesson is clear: policies that pay old industries to hold on to redundant people can only do harm. Whatever money is being spent should instead go on subsidising older laid-off workers, and retraining and redeploying younger ones.

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is to offshore manufacturing for low-wage, low-tech items and keep complex, high-end manufacturing in Japan. With something like plasma screen TVs, the increased quality and low percentage of rejects makes it hard for low-wage companies to compete. Seems to work for them -- even with no economic growth and high prices, most Japanese are pretty comfortable.

I guess you'd consider the computer software industry aging. We've lost 378,000 jobs in that area since March of 2001.




It's certainly interesting how you quote such a Right-Wing, corporatist publication such as the "Economist." It says a lot about your political leanings.

Let's get to the heart of it, what situation do you believe is better:

A) An industry that employs 2000 people and produces $2 billion dollars in goods, or

B) An industry that employs 500 people and produces $20 billion dollars in goods?


Please answer just so I can be sure that this is not a confusion over terminology.

then your doing well if you produce 20 bill and only 500 people can afford to buy it your doing bad. It's not the number of dollars you produce it's the jobs and livings you produce. Products are useless if they don't produce livings for a significant number of people. Remember you can make billions swapping futures and still produce nothing and provide no benefit for anyone.

What situation do you believe is better:

A) An economy where the average person makes 20k a year and the richest makes 100k a year, or

B) An economy where the average person makes 40k a year and the richest makes 10 million a year?

unflawed - the economist is principally an economic libertarian magazine, far from the 'right wing' as we know it now in the US. But your point is made.

In the US, as well as most countries, we, through our taxes, favor returns to capital rather than labor. We also have the ability to substitute stored fossil fuel energy for labor, in many cases.

As technology progresses, capital improves. Labor becomes more productive. For a given output, fewer labor inputs are required.

If capital and labor competed on equal tax terms, more people would be employed, and at higher wages.

If natural resources & land are not treated as capital, but as gifts of the commonwealth, and their returns were shared, more people would be employed, and at higher wages. Furthermore, land would be more efficiently used, and housing costs would be cheaper.

Competition for investment lowers profits
Competition for jobs lowers wages
Competition for land raises rents
This is why we must treat land differently than capital, and tax it fairly heavily. If we do so, we could lower taxes on jobs and investment, and achieve full, noninflationary employment.

Peoples' needs and wants are virtually unlimited. There is always potential demand for more production. What is needed is access to the means of production, as well as credit-based money to facilitate the exchanges. The means of production: land, labor, and capital have different rules of behavior. For both land and capital, the higher the returns (wages and interest) the more of each we get. Not so with land.

Are you proposing higher property taxes, and at the federal level?