6 ms·

US Manufacturing Is Not Dead

mch929 17y ago
Worthless without context. What I'd really like to see is the change in US manufacturing as a percent of world manufacturing over time, and the trajectory of US manufacturing in comparison to the level of manufacturing in China.
- hga 17y ago
  Why are either of them so interesting in the context of US manufacturing? The single biggest thing to happen in the last few decades is a couple of billion people (re-)joining the world economy (the PRC, India, the former Soviet Union, etc.). To the extent a lot of recent manufacturing is satisfying basic needs we take for granted, e.g. refrigerators, isn't that likely to be all to the better? What I'm saying here is that this gets complicated. Economies of scale are likely to give the manufacturers in the PRC the edge in supplying the world's demand for refrigerators, but on the other hand their increased demand for say aircraft and especially jet and turboprop engines is directly to our advantage. Or perhaps I should say, this isn't a simple matter of winners or losers at this gross a level (PRC vs. US, US vs. the world). I expect the share of US manufacturing vs. the world's to go down during this period and I expect the trajectory of PRC manufacturing to be wild compared to ours.
- MikeCapone 17y ago
  Krugman: "He was driven mad by Lester Thurow and Robert Reich in particular, both of whom had written books touting a theory that he believed to be nonsense: that America was competing in a global marketplace with other countries in much the same way that corporations competed with one another. In fact, Krugman argued, in a series of contemptuous articles in Foreign Affairs and elsewhere, countries were not at all like corporations. While another country’s success might injure our pride, it would not likely injure our wallets. Quite the opposite: it would be more likely to provide us with a bigger market for our products and send our consumers cheaper, better-made goods to buy. A trade surplus might be a sign of weakness, a trade deficit a sign of strength. And, anyway, a nation’s standard of living was determined almost entirely by its productivity—trade was just not that important." http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_macfarquhar?currentPage=all http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_...
  - bokonist 17y ago
    Krugman is wrong. In many circumstances, countries are competing with each other. For instance, imagine Kuwait produces oil, and Japan produces automobiles. Kuwait trades oil to country America for automobiles. Now imagine Japan enters the market and makes automobiles that are much better and cheaper than America's. Kuwait will now start buying automobiles from Kuwait instead of America. America will find the price of oil skyrocketing and it's standard of living collapsing, unless it can produce automobiles that match the quality and price of Japan's automobiles.
    - Darmani 17y ago
      No, America just winds up also buying much better and cheaper automobiles.
      - bokonist 17y ago
        No, because in my example America has no source of foreign exchange it cannot buy autos from Japan, it has nothing to offer Japan in return (it's a simplified example, but it shows an underlying dynamic that can and does exist). EDIT: to clarify, there are also examples where increased foreign industry will benefit America. For instance, if Kuwait doubles its productivity, oil imports to the U.S. will be much cheaper. But my point still stands that this is not also the case. Increased productivity from other countries can be positive or negative to America, depending on the specific situation.
        chipsy 17y ago
        Right. To be a participant in a global marketplace means having specialties you can trade on. This is why a common strategy of the emerging economies of the world, past and present, is to heavily protect and subsidize infant industries so that they aren't crushed by foreign competitors. As they establish themselves, the barriers can be gradually lowered until the industry is competitive on the open market. Free-trade policies tend to be most beneficial to the market incumbents; but I would note that even when a foreign company simply comes in and exploits cheap labor, the workers will get better wages, and even if that doesn't directly benefit their own lives, it can give their children a better lifestyle and education.
- gscott 17y ago
  I believe much of manufacturing is building things from parts from elsewhere. I did work for a pottery wheel company and the wheels major components were from Mexico (the metal frame) and motor from China. I didn't really take a look at the other parts but likely those were from overseas as well.
hga 17y ago
In a nutshell, manufacturing != manufacturing employment and the trade deficit just doesn't seem to be linked to the latter.
jerf 17y ago
Secondary conclusion: As long as manufacturing productivity continues to improve, increasing our manufacturing may lead to American prosperity, but it won't save the economy, in that it won't produce jobs. Long-term, I've actually not been concerned about American manufacturing for a while now. Why is overseas manufacturing cheap? Primarily, cheap labor. When does that cease to be an advantage? When labor is no longer a significant cost in manufacturing. We're getting there pretty quickly, and IMHO robotics has only recently (i.e., last two or three years) taken off, which should be able to continue the increased-productivity-per-human trend for a while yet. Bad time to become an assembly line worker. Good time to get into robotics for manufacturing, probably. I had a contract job in a tool & die facility a couple of years ago. It wasn't a factory, it was a "build-to-order" facility that had a wide variety of equipment in various places and they needed better tracking of their jobs and such. I didn't mention this to anyone, but I was struck by how much work was being done that could be automated in the near future. Tens of jobs dedicated solely to moving things around, which robots are going to be able to take over in the 5 year timeframe. Another tens of jobs that involve placing a metal part just so in a press and pushing two buttons (two so you have to use both hands). QA can't be replaced with robots entirely, but it could be helped. The bulk of the people on the floor were not doing things that required human judgment, even for human-class vision or human-class pathfinding. The future is basically now.
- nradov 17y ago
  Besides cheap labor, the secondary reason for overseas manufacturing is lack of (enforced) environmental laws. That advantage could last quite a while.
  - jbert 17y ago
    And could be (partially) negated by requiring western suppliers to demonstrate some kind of parity in their supply chain.
- go37pi 17y ago
  I echo that sentiment. To share another testimonial, I work in a vaccine manufacturing facility with control systems and robotics. The only reason biologics manufacturing facilities haven't been built overseas with the same zeal as other factories is the stringent requirements by the FDA, MHRA, etc. on manufacturing facilities that use live cultures. Many of the technician jobs are similarly dedicated to pushing carts and transferring components to the robots for processing. Because of the reduced efficiency of old drug discovery methods, many of these jobs are taken by college educated science majors who are finding that jobs in drug discovery research are quickly dwindling. However, I disagree with the idea that robots are going to be able to take over in a five year timeframe. I agree with you that the capabilities for robotics to do these tasks exist. "The future is already here - it is just unevenly distributed." I doubt however whether large manufacturing companies would be willing to shoulder the huge investments needed to develop robotics for these applications even in a healthy financial climate. Maybe this type of development could come from a company that proposes to do consulting work for manufacturing facilities, for example, Honeywell. Additionally, I've seen that while companies see automation as an asset in pharmaceutical manufacturing, they also view it as a huge liability, as a single automation error can lead to enormous problems that take time to detect and can have huge costs, while human error generally leads to small mistakes that can be corrected and detected easily. Not sure how it is in other manufacturing subindustries.
richcollins 17y ago
Secondly, there have been calls for a US industrial policy -- that is, for Washington to essentially "pick winners and losers" by promoting some industries that they feel have a high probability of success. Asian countries have been doing this for years with remarkable success and it is a policy which we clearly need to copy. The market is pretty good at picking winners. Washington likes to take money away from the winners and give it to the incumbent losers that bribe lawmakers.
- xanados 17y ago
  Yeah, that part seems like it needs more support. The situation for the largest and most diverse economy on the planet is a little bit different than the situation for those Asian countries. Our economy is far too complex for this sort of central planning to be effective. Also, politicians are idiots, and need to secure votes from the workers in industries currently existing, not the industries of the future.
- teeja 17y ago
  Winners like Goldman and Enron? The government can help by protecting productive concerns from the thieves and pirates. Those "winners" can go to hell.
  - jdminhbg 17y ago
    I'm not sure how you saw this sentence: "Washington likes to take money away from the winners and give it to the incumbent losers that bribe lawmakers." and thought that Goldman was an example of the former rather than the latter.
    - aaronwall 17y ago
      "and thought that Goldman was an example of the former" Clearly you didn't see where the AIG bailout money went to at the time, courtesy of then U.S. Treasury secretary Hank Paulson, former CEO of Goldman Sachs.
  - richcollins 17y ago
robak 17y ago
I love it how they show a few charts not adjusted for inflation or anything else to claim that the US still has huge manufacturing base and then you can't find a SINGLE "made in the USA" product in a mall. Give me a break with your megalomania.
scotty79 17y ago
Is no Chinese! Is dang robots tha took'ar'jobs!
rw 17y ago
Where are the corrections for population growth? I think the OP's claim might be true, but their case is not watertight. A quote: "The real issue is manufacturing employment, which is dropping like a stone. And the reason for the drop is an increase in productivity." ...Really? Maybe it's only part of the reason? Macroeconomic phenomena are complex. 538 should be better than this! Give me nuanced analysis, with intellectually-honest qualifiers.
bokonist 17y ago
The methodology used by the Industrial Production Index is extremely problematic. Any index that uses Fisher price indexes introduces huge amounts of subjectivity. For instance, the decision to use an "overlap method" rather than a "direct comparison method" is subjective ( http://en.wikipedia.org/wiki/Fisher_index http://en.wikipedia.org/wiki/Fisher_index ). Choosing one method rather than the other can dramatically alter the resulting index. The result is that the index ends up replicating the assumptions and opinions of the index creators.
_delirium 17y ago
I'm not sure this actually refutes a relationship between offshoring and manufacturing employment. It's possible it's purely a result of automation getting better, and would have happened identically with no major shifts of trade. But given that the increase in offshoring makes labor-intensive industries much cheaper to locate elsewhere, it's also possible that market forces have accelerated the U.S.'s shift to less-labor-intensive industries. That is, we haven't just automated existing industries as technology has gotten better, but have actively stopped manufacturing certain things that are hard to automate, even though there's still demand for them, because we can't compete with cheap labor. We then put our resources into manufacturing easier-to-automate things instead, which keeps total output high. If you break down the total manufacturing data and look at labor-intensive sub-sectors, you don't see the same upward trend in output. US textile manufacturing, for example, has totally collapsed, not just in employment but also in output.
ww520 17y ago
We need more engineers to be politician instead of lawyers. Engineers build and lawyers redistribute.
patrickgzill 17y ago
Ever notice it is the guys with indoors, non-science desk jobs who are always pushing science, engineering, and manufacturing on your kids, but not theirs?
techsansar 17y ago
It reminds of the 1980's economy when everything was US and now. What would happen after 10 years if the cycle continues.
randombit 17y ago
It's worth considering that industrial index he cites includes some things that most people might not consider manufacturing per-se, including construction, mining, and utilities. According to http://www.federalreserve.gov/releases/g17/Current/default.htm http://www.federalreserve.gov/releases/g17/Current/default.h... the only sectors in the index that have seen growth over 2% compared to 2002 levels are utilities (electric and gas) and business equipment (which seems to consist of "industrial and other", "transit", and "information processing"). Unfortunately there is no breakdown among them.

Worthless without context. What I'd really like to see is the change in US manufacturing as a percent of world manufacturing over time, and the trajectory of US manufacturing in comparison to the level of manufacturing in China.

hga 17y ago
Why are either of them so interesting in the context of US manufacturing? The single biggest thing to happen in the last few decades is a couple of billion people (re-)joining the world economy (the PRC, India, the former Soviet Union, etc.). To the extent a lot of recent manufacturing is satisfying basic needs we take for granted, e.g. refrigerators, isn't that likely to be all to the better? What I'm saying here is that this gets complicated. Economies of scale are likely to give the manufacturers in the PRC the edge in supplying the world's demand for refrigerators, but on the other hand their increased demand for say aircraft and especially jet and turboprop engines is directly to our advantage. Or perhaps I should say, this isn't a simple matter of winners or losers at this gross a level (PRC vs. US, US vs. the world). I expect the share of US manufacturing vs. the world's to go down during this period and I expect the trajectory of PRC manufacturing to be wild compared to ours.
MikeCapone 17y ago
Krugman: "He was driven mad by Lester Thurow and Robert Reich in particular, both of whom had written books touting a theory that he believed to be nonsense: that America was competing in a global marketplace with other countries in much the same way that corporations competed with one another. In fact, Krugman argued, in a series of contemptuous articles in Foreign Affairs and elsewhere, countries were not at all like corporations. While another country’s success might injure our pride, it would not likely injure our wallets. Quite the opposite: it would be more likely to provide us with a bigger market for our products and send our consumers cheaper, better-made goods to buy. A trade surplus might be a sign of weakness, a trade deficit a sign of strength. And, anyway, a nation’s standard of living was determined almost entirely by its productivity—trade was just not that important." http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_macfarquhar?currentPage=all http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_...
- bokonist 17y ago
  Krugman is wrong. In many circumstances, countries are competing with each other. For instance, imagine Kuwait produces oil, and Japan produces automobiles. Kuwait trades oil to country America for automobiles. Now imagine Japan enters the market and makes automobiles that are much better and cheaper than America's. Kuwait will now start buying automobiles from Kuwait instead of America. America will find the price of oil skyrocketing and it's standard of living collapsing, unless it can produce automobiles that match the quality and price of Japan's automobiles.
  - Darmani 17y ago
    No, America just winds up also buying much better and cheaper automobiles.
    - bokonist 17y ago
      No, because in my example America has no source of foreign exchange it cannot buy autos from Japan, it has nothing to offer Japan in return (it's a simplified example, but it shows an underlying dynamic that can and does exist). EDIT: to clarify, there are also examples where increased foreign industry will benefit America. For instance, if Kuwait doubles its productivity, oil imports to the U.S. will be much cheaper. But my point still stands that this is not also the case. Increased productivity from other countries can be positive or negative to America, depending on the specific situation.
      - chipsy 17y ago
        Right. To be a participant in a global marketplace means having specialties you can trade on. This is why a common strategy of the emerging economies of the world, past and present, is to heavily protect and subsidize infant industries so that they aren't crushed by foreign competitors. As they establish themselves, the barriers can be gradually lowered until the industry is competitive on the open market. Free-trade policies tend to be most beneficial to the market incumbents; but I would note that even when a foreign company simply comes in and exploits cheap labor, the workers will get better wages, and even if that doesn't directly benefit their own lives, it can give their children a better lifestyle and education.
gscott 17y ago
I believe much of manufacturing is building things from parts from elsewhere. I did work for a pottery wheel company and the wheels major components were from Mexico (the metal frame) and motor from China. I didn't really take a look at the other parts but likely those were from overseas as well.

hga 17y ago

In a nutshell, manufacturing != manufacturing employment and the trade deficit just doesn't seem to be linked to the latter.

jerf 17y ago

Secondary conclusion: As long as manufacturing productivity continues to improve, increasing our manufacturing may lead to American prosperity, but it won't save the economy, in that it won't produce jobs. Long-term, I've actually not been concerned about American manufacturing for a while now. Why is overseas manufacturing cheap? Primarily, cheap labor. When does that cease to be an advantage? When labor is no longer a significant cost in manufacturing. We're getting there pretty quickly, and IMHO robotics has only recently (i.e., last two or three years) taken off, which should be able to continue the increased-productivity-per-human trend for a while yet. Bad time to become an assembly line worker. Good time to get into robotics for manufacturing, probably. I had a contract job in a tool & die facility a couple of years ago. It wasn't a factory, it was a "build-to-order" facility that had a wide variety of equipment in various places and they needed better tracking of their jobs and such. I didn't mention this to anyone, but I was struck by how much work was being done that could be automated in the near future. Tens of jobs dedicated solely to moving things around, which robots are going to be able to take over in the 5 year timeframe. Another tens of jobs that involve placing a metal part just so in a press and pushing two buttons (two so you have to use both hands). QA can't be replaced with robots entirely, but it could be helped. The bulk of the people on the floor were not doing things that required human judgment, even for human-class vision or human-class pathfinding. The future is basically now.

nradov 17y ago
Besides cheap labor, the secondary reason for overseas manufacturing is lack of (enforced) environmental laws. That advantage could last quite a while.
- jbert 17y ago
  And could be (partially) negated by requiring western suppliers to demonstrate some kind of parity in their supply chain.
go37pi 17y ago
I echo that sentiment. To share another testimonial, I work in a vaccine manufacturing facility with control systems and robotics. The only reason biologics manufacturing facilities haven't been built overseas with the same zeal as other factories is the stringent requirements by the FDA, MHRA, etc. on manufacturing facilities that use live cultures. Many of the technician jobs are similarly dedicated to pushing carts and transferring components to the robots for processing. Because of the reduced efficiency of old drug discovery methods, many of these jobs are taken by college educated science majors who are finding that jobs in drug discovery research are quickly dwindling. However, I disagree with the idea that robots are going to be able to take over in a five year timeframe. I agree with you that the capabilities for robotics to do these tasks exist. "The future is already here - it is just unevenly distributed." I doubt however whether large manufacturing companies would be willing to shoulder the huge investments needed to develop robotics for these applications even in a healthy financial climate. Maybe this type of development could come from a company that proposes to do consulting work for manufacturing facilities, for example, Honeywell. Additionally, I've seen that while companies see automation as an asset in pharmaceutical manufacturing, they also view it as a huge liability, as a single automation error can lead to enormous problems that take time to detect and can have huge costs, while human error generally leads to small mistakes that can be corrected and detected easily. Not sure how it is in other manufacturing subindustries.

richcollins 17y ago

Secondly, there have been calls for a US industrial policy -- that is, for Washington to essentially "pick winners and losers" by promoting some industries that they feel have a high probability of success. Asian countries have been doing this for years with remarkable success and it is a policy which we clearly need to copy. The market is pretty good at picking winners. Washington likes to take money away from the winners and give it to the incumbent losers that bribe lawmakers.

xanados 17y ago
Yeah, that part seems like it needs more support. The situation for the largest and most diverse economy on the planet is a little bit different than the situation for those Asian countries. Our economy is far too complex for this sort of central planning to be effective. Also, politicians are idiots, and need to secure votes from the workers in industries currently existing, not the industries of the future.
teeja 17y ago
Winners like Goldman and Enron? The government can help by protecting productive concerns from the thieves and pirates. Those "winners" can go to hell.
- jdminhbg 17y ago
  I'm not sure how you saw this sentence: "Washington likes to take money away from the winners and give it to the incumbent losers that bribe lawmakers." and thought that Goldman was an example of the former rather than the latter.
  - aaronwall 17y ago
    "and thought that Goldman was an example of the former" Clearly you didn't see where the AIG bailout money went to at the time, courtesy of then U.S. Treasury secretary Hank Paulson, former CEO of Goldman Sachs.
- richcollins 17y ago

robak 17y ago

I love it how they show a few charts not adjusted for inflation or anything else to claim that the US still has huge manufacturing base and then you can't find a SINGLE "made in the USA" product in a mall. Give me a break with your megalomania.

scotty79 17y ago

Is no Chinese! Is dang robots tha took'ar'jobs!

rw 17y ago

Where are the corrections for population growth? I think the OP's claim might be true, but their case is not watertight. A quote: "The real issue is manufacturing employment, which is dropping like a stone. And the reason for the drop is an increase in productivity." ...Really? Maybe it's only part of the reason? Macroeconomic phenomena are complex. 538 should be better than this! Give me nuanced analysis, with intellectually-honest qualifiers.

bokonist 17y ago

The methodology used by the Industrial Production Index is extremely problematic. Any index that uses Fisher price indexes introduces huge amounts of subjectivity. For instance, the decision to use an "overlap method" rather than a "direct comparison method" is subjective ( http://en.wikipedia.org/wiki/Fisher_index http://en.wikipedia.org/wiki/Fisher_index ). Choosing one method rather than the other can dramatically alter the resulting index. The result is that the index ends up replicating the assumptions and opinions of the index creators.

_delirium 17y ago

I'm not sure this actually refutes a relationship between offshoring and manufacturing employment. It's possible it's purely a result of automation getting better, and would have happened identically with no major shifts of trade. But given that the increase in offshoring makes labor-intensive industries much cheaper to locate elsewhere, it's also possible that market forces have accelerated the U.S.'s shift to less-labor-intensive industries. That is, we haven't just automated existing industries as technology has gotten better, but have actively stopped manufacturing certain things that are hard to automate, even though there's still demand for them, because we can't compete with cheap labor. We then put our resources into manufacturing easier-to-automate things instead, which keeps total output high. If you break down the total manufacturing data and look at labor-intensive sub-sectors, you don't see the same upward trend in output. US textile manufacturing, for example, has totally collapsed, not just in employment but also in output.

ww520 17y ago

We need more engineers to be politician instead of lawyers. Engineers build and lawyers redistribute.

patrickgzill 17y ago

Ever notice it is the guys with indoors, non-science desk jobs who are always pushing science, engineering, and manufacturing on your kids, but not theirs?

techsansar 17y ago

It reminds of the 1980's economy when everything was US and now. What would happen after 10 years if the cycle continues.

randombit 17y ago

It's worth considering that industrial index he cites includes some things that most people might not consider manufacturing per-se, including construction, mining, and utilities. According to http://www.federalreserve.gov/releases/g17/Current/default.htm http://www.federalreserve.gov/releases/g17/Current/default.h... the only sectors in the index that have seen growth over 2% compared to 2002 levels are utilities (electric and gas) and business equipment (which seems to consist of "industrial and other", "transit", and "information processing"). Unfortunately there is no breakdown among them.