Manufacturing and Industrial Decline
quietly into that good night
American manufacturing has been decimated. We used to be the world’s leading industrial power, not anymore. [1]
In 1979, 19,553,000 Americans worked in good paying manufacturing jobs; last year, only 12,300,000 did. In a few decades we shed over 7 million jobs[2]—5 million of which went to China since they joined the World Trade Organization.[3]
So what happened to all those unemployed people, you might ask? Two things. Many got new jobs, although most of them took a hefty wage cut in the process (it pays better to build cars than to wait tables). The rest dropped out of the labor force altogether, and therefore no longer show up in the unemployment rate. Very convenient. If you want to know how all this job loss hurt America, just look at the “rustbelt” (the hardest-hit area in the Mid-West and North-East): urban decay and post-industrial rot has become the norm in hundreds of, once-great, American cities. Look at Buffalo. Look at Flint. Look at Detroit. The list goes on and on.
But we lose more than jobs. We also lose capital equipment (factories, machines) and labor skills. Eventually, we lose the ability to make things. Just look at what happened to America’s automobile industry. In 1950 we made 70% of all vehicles; now we make 12%.[4] Embarrassing as that is, what is worse is that we are not even the biggest manufacturer anymore. China makes over 25 million vehicles a year—more than double what we make (just over 12 million). [5]
Our politicians lied to us when they said trade with China would help American automakers. They build their own cars.
But it is not just cars. America no longer builds cutting edge products like laptops (aside from one small, ironically, Chinese-owned factory), [6] or mobile phones[7], or even televisions—our country damn near runs on laptops and mobile phones and yet we buy them all from China. I tell you what, we better never tick them off, because they could pull the plug on the modern world. Not only that, we also buy stuff as basic as lightbulbs (Thomas Edison would be spinning in his grave), dress shirts, spoons, and forks. [8] We are literally importing America at this point.
This would be comical were it not reality.
poison the root, poison the fruit
Who cares if America makes forks? We are building the big ticket items like airplanes, right? Yes, for now.
The truth is that even America’s most advanced industries, like aeronautics, Information Technologies, and pharmaceuticals, are bleeding out. [9] This is especially dangerous because they produce $2.7 trillion dollars worth of output (17% of our GDP), employ 80% of our engineers, file 85% of our patents, and provide 90% of private sector research and development (R&D) funding. Not only that, but they anchor America’s economy by bringing wealth into the country (they make 60% of our exports) and supporting large supply chains (27.1 million spin-off jobs depend on them).[10] They are our inventors and innovators. They are our breadwinners. They are building the future. We cannot afford to lose them—but we are.
Evidence abounds. For example, in 1980, 59 of America’s 100 largest cities were “innovation capitals” (meaning more than 10% of their labor force worked in advanced industries); by 2013, only 23 were. [11] This is hurting America’s inventive spirit: when looking at the number of global patent cooperation treaty applications per capita (which is a rough estimate for the number of significant inventions made per person), we find that only 2 American cities (San Diego and San Jose) break the top 20 globally. [12] Americans used to dominate this category, not anymore. Other countries are picking up the slack. Not only has America’s share of global research fallen faster than our share of the world’s GDP (meaning we are researching proportionally less), America has moved 38% of its research jobs abroad. [13]
We are literally importing science. We are buying the future we should be building.
This is happening because America is importing ever-more advanced stuff: last year alone we ran a $632 billion trade deficit in advanced goods.[14] Worse still, 56% of the increase to our trade deficit over the last decade has been in advanced goods. Basically, we are buying more of our most advanced technology, rather than inventing and building it at home. And this is not because foreigners make better stuff, nor make it more efficiently: America’s advanced industries are the second most productive in the world (behind only Norway), and as of 2010 (the most current data I could find) our industries were 50-70% more efficient than our Western competitors like Sweden, Italy, or Germany. Yet our industry is eroding, not Sweden’s. Not Italy’s. Not Germany’s.[15]
We must rebuild America.
indoctrination nation
Many people do not think America’s manufacturing decline is a problem, because they believe it is inevitable (some even say it is good). They claim we are losing jobs because of automation and better technology. They are deluded. This is why.
Employment is balance between output and productivity. If output increases, more workers are needed, while if productivity increases, fewer workers are needed. For example: say a company builds 1,000 cars with 100 workers. They have a banner year and decide to make 1,100 next year. To do this, they hire 10 more workers. In this case, employment increased because output increased (it takes more people to make more stuff). Now consider this: rather than building more cars, the company decides to invest their profits in better welding torches, which make their workers 10% more productive. This allows them to make 1,000 cars with 90 workers. In this case, employment decreased because productivity increased. Finally, pretend that the company decides to both make 1,100 cars and buy better welding torches (they increase both output and productivity). In this case, they will still need 100 workers, because although their workers are more productive, they are also building more stuff. Employment does not change.
The real economy works the same way. Between 1950 and 1979, manufacturing employment increased because output grew faster than productivity. This was great for Americas: real wages were high, the middle class was growing, and economic inequality was decreasing—the economy grew and everyone benefited. After that, employment stagnated, because output stopped growing as rapidly. Between 1989 and 2000, output grew by 3.7% on average, while productivity grew by 4.1%. This led to an average employment decline of 0.4% per year. However, since 2000, output has grown by only 0.4% per year on average, while productivity increased by 3.7%.[16] This has been a disaster—over 4 million American factory workers have lost their jobs since 2000.[17]
Why is output not growing like it used to? Because we started building our factories in China and Mexico rather than in Michigan or Illinois. We are buying goods from foreigners rather than making them ourselves; this slows our output growth but not our productivity growth, which leads to job loss.[18]
It was not always this way. We can still change our fate.
[1] For chart, see Federal Reserve Bank of St. Louis, “All Employees, Manufacturing.”
[2] Jeffrey, “7,231,000 Lost Jobs.”
[3] Scott, “Manufacturing Job Loss,” 1.
[4] Fletcher, Free Trade Doesn’t Work, 147.
[5] International Organization of Motor Vehicle Manufacturers. “Production Statistics, 2015.”
[6] Poe, “Lenovo cranks up Whitsett Plant.”
[7] Mack, “Are Any Smartphones Not Made in China?”
[8] Gorillawire “40 Surprising Products That Are No Longer Made in America.”
[9] The precise metric used has two components that both must be satisfied: the industry must spend in the top quintile in R&D and >21% of its workforce must have advanced skills/education in STEM fields. See Muro et al. “America’s Advanced Industries: What they are, where they are, and why they matter,” 2.
[10] Ibid. 3.
[11] Ibid. 6.
[12] Ibid. 7.
[13] Selvaggio, “Outsourcing Statistics: The Pros and Cons.”
[14] Muro et al. “America’s Advanced Industries: What they are, where they are, and why they matter,” 6.
There are other estimates. According to section 20.21 of the China Statistical Yearbook, compiled by National Bureau of Statistics of China, 20.21: the government of China estimates that in 2000 they ran a 15 billion USD deficit with America in high-technology manufactured products; as of 2015 they recorded at 109 billion USD surplus.
[15] Muro et al. “America’s Advanced Industries: What they are, where they are, and why they matter,”32.
[16] Scott, “Manufacturing Job Loss,” 1-2.
[17] Ibid. 1.
[18] A side note: the free trade brigade claims that this importation has provided cheaper products, which benefits consumers, but this is false, because the lower cost of goods walks hand-in-hand with lower labor costs (people lose jobs, they compete for other jobs, this depresses wages). The proof is in the pudding: remember that the Consumer Price Index, which records the cost of living, shows that goods have risen in price at the same rate as wages, meaning that goods are definitively not cheaper now than they were in 1985. It is one big lie.