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AHC: U.S. remains an industrial powerhouse

History Learner

Well-known member
While industrial output has continued to grow in the United States, manufacturing employment peaked in 1979 and the value of manufacturing as part of GDP has been in decline for sometime. Often, increased productivity due to automation is cited as the reasons of this decline but it doesn't really hold up under modern analysis of the issue. In particular, productivity in manufacturing output peaked in 1988 and places where industry is currently booming-such as Southeast Asia-have one of the highest adoption rates for industrial robots. Other advanced economies likewise have not see the same trend as that which has been occurring in the United States. To quote from The Terminator Myth: It’s Not Robots That Hurt Workers, by Oren Cass:

Compare that period to the 21st century, when America has lost nearly five million manufacturing jobs. Was any of this because of extraordinary technological breakthroughs that caused productivity to surge, allowing firms to do much more with many fewer workers? No. In fact, the average rate of productivity growth in manufacturing this century has been 3.1%—lower than 1947–72 and no different than 1972–2000. But output growth has been only 1.3%, less than a third the rate of the earlier period. We’ve gone from the world where firms use a doubling of productivity to double output, to one where they use it to lay off half their workers. Had output growth this century equaled that of 1950–2000, manufacturing employment today would be near an all-time high. So when policymakers blame automation for job losses, they are looking in the wrong place. Productivity gains have always been with us—in fact, they used to come faster. If anything, the American economy is suffering from insufficient automation—as reflected in declining productivity growth, stagnant wages, and remarkably little use of robots. American manufacturers use only 200 industrial robots per 10,000 workers, the standard measure of adoption. In both Germany and Japan, that level exceeds 300. In South Korea, it exceeds 700. With greater automation and higher productivity, American firms would likely be more competitive in the international economy.​

Other sources also agree with this. MANUFACTURING THE FUTURE: Why Reindustrialization Is the Road to Recovery by Mark Levinson, New Labor Forum, Vol. 21, No. 3 (Fall 2012), pp. 10-15:

Those like Reich and Goolsbee-who think manufacturing is healthy and the employment decline is due to productivity increases point to the fact that the change in real manufacturing value added, relative to GDP, is stable. But what's obscured is that, in 2010, thirteen of the nineteen manufacturing sectors were actually producing less than in 2000. But, more importantly, when corrected for the problems identified by Mishel-overestimation of output in the computers and electronics sector, and problems with how inputs are measured-manufacturing output actually fell over the last decade, while GDP increased by 17 percent. Employment in manufacturing is declining mainly because of reduced output. Productivity growth, rather than being the cause of declining manufacturing employment, is the prerequisite for manufacturing employment growth. This should not be surprising. Only highly efficient factories can survive in todays global economy. William Nordhaus has shown that, within each manufacturing industry, increases in the rate of productivity growth were associated with increases in the rate of job growth from 1948 to 2003. A Brookings Institution study extended the Nordhaus study until 2009 and concluded that "there is no evidence that productivity increases were significantly correlated with job loss." It is not inevitable that manufacturing will decline. Many nations with higher manufacturing wages than the United States- including Germany, the Netherlands, and Norway-have seen either stable or increasing manufacturing output as a share of GDP. Other countries-Korea, Austria, Poland, Finland, the Czech Republic, and the Slovak Republic- have actually seen their manufacturing sectors grow as a share of their economy.​

Taken together, the evidence suggests American de-industrialization is an anomaly born by factors outside of "traditional" economic causes as presented; rather, it seems to be a case of corporate culture of the firms themselves and/or the investing classes. Therefore, with the problem diagnosed, we can speculate upon solutions. One possible remedy is a Tobin Tax, which the Brookings Institute has noted encourages companies to invest in machinery rather than do things like stock buybacks. Another one would be to look for a fix for rising healthcare costs, which is perhaps another fact:


Reflecting upon it, a different Nixon Administration might be the key. During his Presidency, he sought to institute CHIP for example, which was something of a forerunner to Obamacare and thus could help alleviate issues with the rising premiums. The first Tobin Tax was also proposed in 1972 so again, we have some overlap there. What are some other suggestions, do you think?
 

Nyvis

Token Marxist
Location
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It kinda depends on which kind of manufacturing you're trying to prop up exactly. German style high tech exports? Maintaining mass consumer production in the country? The former is probably easier without changing economic policy as much.

Clamping down on financialization might be able to slow down the transition from investing in industry to investing in investing. Maybe.

How about public finance? That could do it.

Of course trade policy is also a possibility. If you want to keep mass consumer production, a US that retain a protectionist mindset instead of using its hegemony to become an import economy without ruining itself is possible.
 

History Learner

Well-known member
The epic mistake about manufacturing that’s cost Americans millions of jobs
One way of gauging how the sector has been doing is to compare how much real output in manufacturing has grown, both with and without computers, compared to the private sector as a whole—which encompasses everything from finance and agriculture to retail and manufacturing. According to Houseman’s research, between 1947 and 1979, real output in manufacturing and the private sector expanded at about the same speed. Strip out the computer subsector from both datasets, and that trend is pretty much the same.

The divergence first emerged in the late 1970s, as the semiconductor industry took off and the computers and electronics subsector began driving growth in manufacturing output. Between 2000 and 2016, the average growth in the sector’s real output was only about 63% of that of the private sector. But when you take out computers out of both data series, the trend is far more striking: Since 2000, manufacturing output expanded at an average pace equal to only 12% of the private sector’s average growth. In fact, according to Houseman’s data, without computers, manufacturing’s real output expanded at an average rate of only about 0.2% a year in the 2000s. By 2016, real manufacturing output, sans computers, was lower than it was in 2007.

This has grim implications for what had been assumed to be healthy productivity. As with real output, productivity growth comes mostly from the computers subsector’s quality adjustment—which means that the apparently robust growth in manufacturing productivity is mostly a mirage. To be clear, automation did happen in manufacturing. However, throughout the 2000s, the industry was automating at about the same pace as in the rest of the private sector. And if booming robot-led productivity growth wasn’t displacing factory workers, then the sweeping scale of job losses in manufacturing necessarily stemmed from something else entirely.

It’s not perfectly clear what, exactly, is the culprit behind relatively anemic growth in manufacturing output. But the signs indicate trade and globalization played a much more significant role than is commonly recognized. Of particular importance is China’s emergence as a major exporter, which US leaders encouraged. A pair of papers by economists David Autor, David Dorn, and Gordon Hanson, found that the parts of the US hit hard by Chinese import competition saw manufacturing job loss, falling wages, and the shrinking of their workforces. They also found that offsetting employment gains in other industries never materialized. Another important paper by this team of economists, along with MIT’s Daron Acemoglu and Brendan Price, estimated that competition from Chinese imports cost the US as many as 2.4 million jobs between 1999 and 2011.

Why did China have such a big impact? In their 2016 study, economists Justin Pierce and Peter Schott argue that China’s accession to the WTO in 2001—set in motion by president Bill Clinton—sparked a sharp drop in US manufacturing employment. That’s because when China joined the WTO, it extinguished the risk that the US might retaliate against the Chinese government’s mercantilist currency and protectionist industrial policies by raising tariffs. International companies that set up shop in China therefore enjoyed the benefits of cheap labor, as well as a huge competitive edge from the Chinese government’s artificial cheapening of the yuan.

The resulting appreciation of the dollar hurt US exporters—in particular, manufacturers. A 2017 study on the dollar’s appreciation in the early 2000s by economist Douglas Campbell found that the dollar strengthened sharply, in real terms, compared to low-wage trading partners including China. The subsequent increase in foreign imports and diminished demand for American exports resulted in a loss of around 1.5 million manufacturing jobs between 1995 and 2008.

There are also observable signs that automation wasn’t to blame. Consider the shuttering of some 78,000 manufacturing plants between 2000 and 2014, a 22% drop. This is odd given that robots, like humans, have to work somewhere. Then there’s the fact that there simply aren’t that many robots in US factories, compared with other advanced economies.
 

Nyvis

Token Marxist
Location
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Pronouns
She/Her
It’s not perfectly clear what, exactly, is the culprit behind relatively anemic growth in manufacturing output. But the signs indicate trade and globalization played a much more significant role than is commonly recognized.
Who would have thought! The only people who don't think this is the case have a clear agenda and profit from it. Commonly recognized my ass.

So either Nixon doesn't go to China at all or Clinton doesn't push for WTO inclusion despite their protectionist policies?
 

History Learner

Well-known member
Who would have thought! The only people who don't think this is the case have a clear agenda and profit from it. Commonly recognized my ass.

So either Nixon doesn't go to China at all or Clinton doesn't push for WTO inclusion despite their protectionist policies?
Seems like the latter, honestly. Easy PoD would be the Chinese reaction to the accidental bombing of their embassy in Serbia in 1999:

Chinese protesters infuriated by the deadly NATO bombing of the Chinese Embassy in Yugoslavia continued violent demonstrations into their third day today, attacking American diplomatic missions across the country and trapping the American ambassador inside the U.S. Embassy in Beijing.​
“No question that we’re hostages here,” James R. Sasser told CBS-TV’s “Face the Nation” by telephone on Sunday. “I think this demonstration is now exceeding government expectations, and there’s always the danger that it’s going to go out of control.”​
Thirteen people besides Sasser were stuck inside the compound.​
“It is not safe,” an embassy staff member said today by phone. “We’re not going near any windows.”​

If it had escalated, that seems an easy way to derail China's WTO entry. At the very least, that will keep industrial employment stable, and if encourages investment in capitol goods/industrial machinery, we could even see the high level of manufacturing employment Oren Cass talked about.
 

Simon

Oblivious
NAFTA had already come into force five years earlier, if China remains outside of the WTO how much of the movement that went there goes to northern Mexico instead?
 
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