Manufacturing: Maybe it isn't China

[Hannah Bell]

Aug 23rd 2010, 16:21 by R.A. | WASHINGTON

IN THE early postwar decades, the American economy grew at a healthy clip, and the growth was broad-based. While college enrolment was increasing rapidly, millions of Americans, including many without a college education, earned a middle class wage by working in manufacturing. In recent decades, rising inequality and the stagnation of middle class earnings have generated a wave of nostalgia for the postwar economy, and for manufacturing employment in particular. If only America hadn't lost its manufacturing edge, thanks to strong dollar policies and China's aggressive export subsidies (so the thinking goes), all would be well.

The problem with this is that American manufacturing output has grown steadily (aside from cyclical ups and downs) for the past half century. America remains the world's largest manufacturer, though China, with four times as many people, will eventually take over the top spot. There is no reason to mourn manufacturing. Manufacturing employment is a different story. Paul Kedrosky passes along this image:



That's manufacturing employment as a share of total employment. The downward trend is over 50 years old. It predates the end of Bretton Woods. It predates the union-crushing, deregulating era of the late 1970s and early 1980s. It predates the era of Japanese dominance, the rise of the Asian tigers, and the recent surge in Chinese growth. And what it is driving this trend, overwhelmingly, is technology. Manufacturers have steadily improved manufacturing productivity, routinising and then automating occupations.

A plunging dollar, a "get tough" approach to China, and an embrace of industrial policy won't reverse this trend. Eventually China will face the same dynamic and the same decline in manufacturing employment. (HB's comment: in fact, china has already lost manufacturing jobs in the process of shutting down & modernizing less automated state industries: in 1996, 97 million in manufacturing; in 2002, 83 million. Compared to 17 million in the US & 53 million in the G7 total. http://www.bls.gov/fls/chinareport.pdf ).

http://webcache.googleusercontent.com/search?q=cache:KI1ZAQBlmXkJ:www.economist.com/blogs/freeexchange/2010/08/manufacturing+china+percent+manufacturing+employment&cd=1&hl=en&ct=clnk&gl=us

[Odin2005]

1. Capitalism cannot survive technological unemployment.

[xchrom]

2. Recommend

[pampango]

3. The same is true throughout the "West". Automation reduced employment in agriculture

a century ago. Then it did the same to employment in manufacturing in the last 40 years. Don't see how we can go back to large scale employment in agriculture or manufacturing. The prospect of a relatively small number of agricultural and manufacturing workers producing large amounts of food and goods must mean that the rest will have to be employed in other ways.

All of Europe, Canada, Japan and Australia are trending more towards service-based economies.

[JVS]

4. It's a fucked up social order that creates poverty out of labor saving technology.

[Little Star]

6. +1

[Junkdrawer]

5. When Capital can get better ROI in Finance and Empire, that's where the money goes....

....

First, thanks to the uncapping of interest rates, we shifted capital into the financial sector, with its relatively high returns. Second, as we shifted capital out of globally competitive manufacturing, we ran bigger trade deficits. Third, as we ran bigger trade deficits, we required bigger inflows of foreign capital. We had “cheap money” flooding in from China, Saudi Arabia, and even the Fourth World. May God forgive us—we even had capital coming in from Honduras. Fourth, the banks got even more money, and they didn’t even consider putting it back into manufacturing. They stuffed it into derivatives and other forms of gambling, because that’s the kind of thing that got the “normal” big return; i.e., not 5 percent but 35 percent or even more.

Go back to the top and repeat the sequence. It was what scientists call an autocatalytic reaction. It just kept going. All of that cheap money would have been a good thing if it had gone into manufacturing. But it didn’t. The capital inflows from the big trade deficits couldn’t go into manufacturing because the returns in banking were just too high. And because this autocatalytic reaction kept going—as long as there was the imbalance between finance and industry—the system could not readjust or stabilize. The bigger the deficit, the bigger the capital inflow; and the bigger the capital inflow, the bigger the financial sector became; and the bigger the financial sector became (relative to manufacturing), the bigger the trade deficit became.

And meanwhile, we lost more and more skill-based jobs. Oh, we had jobs, and even jobs that required college and postgraduate educations. But we stopped being skill-based workers. We became “knowledge workers,” dependent on the financial sector. And knowledge workers, unlike skill-based workers, don’t have the bargaining power to get higher wages out of rising productivity. What can they withhold? They can’t withhold knowledge. And since they have nothing to withhold, it’s much trickier for knowledge-based workers to get a higher wage. And if there are fewer skill-based workers, it becomes harder to raise wages in general. And if it’s harder to raise wages, then more of us go into debt.

...

http://pulsemedia.org/2009/03/23/infinite-debt-the-legalised-crime-of-usury/