The Manufacturing Sector

[Bikewer]

Listening to NPR most of the day as I do, you get political commentary from all sides. Seems that a lot of lip service is being given to re-establishing/re-invigorating the manufacturing sector in the US.
This from Democrats, Republicans,and Tea Party types as well.
Everyone wants a return to a vigorous manufacturing sector with plentiful and lucrative jobs for all who want them...
Sounds nice, but is this at all realistic?

Way back in the mid-eighties, futurist Alvin Toffler wrote The Third Wave, in which he proposed that the US was rapidly moving into what he termed a Third Wave economy; one focused on information technology, service, and so forth.
(manufacturing was "second wave", and "first wave" was "pre-industrial")
All through the nineties, this seemed to be the brunt of commentary that I recall; that we were now in a "service" economy, and that we were ceding manufacturing to countries like China and S. Korea.
Now, in a relative sudden... We are talking about manufacturing again.
How can the US compete with China, Korea, Mexico, India, and other such countries where vastly lower labor prices will keep the price of manufactured goods well under what we can manage in the US?
Although going to very high-tech automated plants can help, this means fewer jobs, save perhaps for the robotic industry...
At the same time, the vision of re-training all those factory workers who lost their jobs due to overseas competition to be IT workers has never materialized to any great degree, at least as far as I can tell.

Seems to me that much of this is just lip service for the benefit of the numerous unemployed, without much if any chance of actually coming to be.

 

[Beerina]

If the average person in the US can afford more things while working in a service economy, with actual stuff provided by cheap overseas manufacturing, are we worse off?

Don't know if that's the case, but the question needs to be answered. Assuming you want to ignore that there are free people in the US who decidedly do not want to be forced to buy US products, such as cars.

 

[Igopogo]

There's a major education in doing things. Also, the closer you are involved with reality, the more you can perceive of it.

If you're in the trenches doing the actual grunt work, you are more perceptive to the real economy, and in a better place to keep up with change, compete and thrive. If you think you're above that, & get out of the trenches of actually doing the work, you lose the foundation of your success and have lost the game. It's one of the ways the US advanced over the gentleman classes of Europe in the past, but have fallen victim to it themselves now.

Just finished a good book somewhat on this concept called "Outliers" by Malcolm Gladwell, (a good read).

 

[Beerina]

That could be right, but as long as "they can do anything we can do, cheaper" there's no way out. Even economic isolationism will backfire, as I cannot conceive of the limited, inward-focused market of the US winning out over all of Asia in the long run.

Our only "hope" (which I put in quotes as I do not share this solution, or that there's even a problem, even acknowledging your idea) would be that Asia largely remain broken with heavy-handed socialism replacing communism.

Ironically, one could foster this by encouraging lots of Green Movement stuff there, as well as a rapid escalation of "protect the workers", with the attendant vast overshooting we've seen here in laws appealing to that sentiment.

 

[casebro]

Yes but as the second class worlds move in to higher classes, their pay go up, costs of production go up, we are all of a sudden back on top.

The Chinese want to buy what they produce now. India is moving up too. Next cheap labor source is Malaysia? Will Africa ever come up? Any how, the world is running out of cheap labor sources.

I've heard it quoted that America has the most productive workers in the world. So I'm not surprised that the tide is turning, soon.

 

[Random]

Yes but as the second class worlds move in to higher classes, their pay go up, costs of production go up, we are all of a sudden back on top.

The Chinese want to buy what they produce now. India is moving up too. Next cheap labor source is Malaysia? Will Africa ever come up? Any how, the world is running out of cheap labor sources.

I've heard it quoted that America has the most productive workers in the world. So I'm not surprised that the tide is turning, soon.

Of course, the missing part of the "Things manufactured overseas cause wages overseas to rise" argument is what happens to wages here in the US. If it is cheaper to hire people to make something overseas, the only way that job comes back to the US is if US wages are even lower. And the only way to do that in a free trade economy is to either drop US wages, or raise the wages in every other nation on Earth to be in line with US wages (a bit impractical that one).

 

[Puppycow]

Every year, the relative value of manufacturing per se decreases.

The interesting thing about the trade deficit if you think about it is that China is happy to accept little pieces of green paper in exchange for valuable goods.

We have an unlimited supply of these pieces of paper.

http://www.hoover.org/publications/hoover-digest/article/7125

Even the fact that they keep their currency pegged low to the dollar won't matter in the long run. They'll have to pay for that by having high inflation (or permanently live below their means, like misers, which is illogical).

 

[Igopogo]

Every year, the relative value of manufacturing per se decreases.

What proof is there of this comment?

The interesting thing about the trade deficit if you think about it is that China is happy to accept little pieces of green paper in exchange for valuable goods.

We have an unlimited supply of these pieces of paper.

I can't tell if you're joking here. The little green pieces of paper aren't 'unlimited' and can lose their value if not backed by anything, (like GDP).

http://www.hoover.org/publications/hoover-digest/article/7125

The article argues against tariffs, but says nothing about manufacturing.

 

[Puppycow]

What proof is there of this comment?

This

I can't tell if you're joking here. The little green pieces of paper aren't 'unlimited' and can lose their value if not backed by anything, (like GDP).

They are 'unlimited' in the sense that the Federal Reserve Bank can create them "out of thin air" either as blips on a computer screen or as physical bills of currency, which the Treasury prints out.

The article argues against tariffs, but says nothing about manufacturing.

It doesn't matter. The market can decide whether it values goods or services more at any given time. I see no reason why the government should arbitrarily favor manufacturing over services. Making ordinary toasters is low-end work, and its relative value becomes less each year because most of us already have all the basics.

 

[Igopogo]

This

Interesting, but you can't tell future trends from this site.

It doesn't matter. The market can decide whether it values goods or services more at any given time. I see no reason why the government should arbitrarily favor manufacturing over services. Making ordinary toasters is low-end work, and its relative value becomes less each year because most of us already have all the basics.

I'm referring to making tomorrows toasters. Not enough western producers think as long term anymore. When you off-shore all your manufacturing, you're out of the long term gain, (like the US television industry did). It's exceptionally hard to get back in when you don't do it anymore. For instance, I recall reading in Akio Morita's Autobigraphy how he convinced Sony to stay out of the pocket calculator market because he could see, (correctly), how it was financially going to be a race for the bottom. He then said he regretted it, as they fell behind in the evolution of the market, and it cost them far more to try and catch up again.

 

[Puppycow]

Interesting, but you can't tell future trends from this site.

Well, you can't tell future trends from anything, but the trend is has been going on for a very long time actually, despite that limited data set, which is still enough to illustrate the premise. The trend is not going to reverse in the long term.

Here is a longer data set for "Industry" which includes manufacturing.

Here is the same for agriculture

Here is the same for services

 

[Igopogo]

Well, you can't tell future trends from anything, but the trend is has been going on for a very long time actually, despite that limited data set, which is still enough to illustrate the premise. The trend is not going to reverse in the long term.

My point is that it's dangerous to down-play the manufacturing sector in a long term scenario. We'll always need manufactured goods, & food, (probably more than we need certain services).

Thanks for the links. Like you say, you can't tell future trends from anything, and pendulums do swing. It's hard to see the complexity of the picture from the data you show. Are there more people going into the service sector in recent times because industry & agriculture are becoming more automated? - or is computer work more likely to be considered service work? How many of these services are a spin-off of previous manufacturing jobs? One possible explanation may be one of the scenarios in the 'Outliers' book I mentioned. The premise is this:

- Old world Jewish clothing manufactures move to America and set-up shop for themselves.
- Due to the direct co-relation of in-puts & outputs of this work, (ie: there's a clearly seen connection between amount and type of work done, and business received as a result), they're able to grow their businesses substantially.
- The next generation goes to university & becomes lawyers, (which I assume would fall under 'service' work).

Following from that, let's say the following generation predominately goes into service work, like the financial sector. Sooner or later you could see a tipping point of too many non-producing services chasing too few actual wealth creating opportunities. The further you get away from providing what you need to live, the less in touch with reality you become - and more likely you are of falling into this trap.

 

[dudalb]

How much of a impact has the advent of Computerized Robots had on the number of manafacturing jobs? It seems to me that a lot of the simpler assembly line jobs are or could be done by AI Robots.

 

[Puppycow]

My point is that it's dangerous to down-play the manufacturing sector in a long term scenario. We'll always need manufactured goods, & food, (probably more than we need certain services).

Is this the "manufacturing is important for national security" argument? Well, actually we still have that sector of the economy in the US. We don't buy our tanks and planes from China. We buy toasters and pocket calculators from China. Food is important too, but the US produces more than enough food.

Thanks for the links. Like you say, you can't tell future trends from anything, and pendulums do swing.

But not everything is a pendulum. Some trends do go one way without "swinging back" or they turn and go in a whole new direction altogether.

It's hard to see the complexity of the picture from the data you show. Are there more people going into the service sector in recent times because industry & agriculture are becoming more automated?

Yes. Like food, you can only eat so much before you are full. Same thing with manufactured goods. You can only have so many things before your house becomes too cluttered with junk you never use.

Following from that, let's say the following generation predominately goes into service work, like the financial sector. Sooner or later you could see a tipping point of too many non-producing services chasing too few actual wealth creating opportunities. The further you get away from providing what you need to live, the less in touch with reality you become - and more likely you are of falling into this trap.

You're falling into the trap of thinking that only tangible things are wealth. It's not that less of these tangible things are being produced, it's that fewer people are needed to produce them. The American steel industry produces more tons of steel now than it did 3 or 4 decades ago, but employs only about a third of the workers. It is more efficient.

Wealth is really whatever has value, not just tangible things.

 

[Igopogo]

Is this the "manufacturing is important for national security" argument?

No, (only partially). It's more an argument that you need a healthy manufacturing sector if you want to remain a world leader. It's more about killing the goose that got you where you are for short-term gains.

You're falling into the trap of thinking that only tangible things are wealth.

No I'm not. Careful how you read things.

It's not that less of these tangible things are being produced, it's that fewer people are needed to produce them. The American steel industry produces more tons of steel now than it did 3 or 4 decades ago, but employs only about a third of the workers. It is more efficient.

Yes. There's also a potential problem with too much efficiency, (as well as too much outsourcing).

Less people are sharing in the wealth that's produced, so the rich get richer and the middle class starts evaporating. Leading in expertise in a field can be squandered due to fewer taking part in that particular enterprise. People move on to other things, (productive or not), meanwhile a field once dominated can be lost.