Thoughts on the “decline” of US manufacturing

CompositesWorld's editor-in-chief Jeff Sloan notes how the US presidential candidates and actual data differ on the current state of the US manufacturing industry.

As I write this, in mid-May, Donald Trump and Hillary Clinton are the presumptive US presidential nominees of the Republican and Democrat parties, respectively. Each nominee has pointed to the US manufacturing economy and, one way or another, emphasized its decline as a brake on the engine of middle-class growth.

Trump identifies China as the culprit of this alleged decline, aided and abetted by profit-chasing manufacturers: “They [China] are stealing our jobs, they’re beating us in everything, they’re winning, we’re losing.” The New York Times reported on May 4 that Trump says one of his first acts as president would be to call up “corporate executives to threaten punitive measures if they shift jobs out of the United States.”

Clinton’s position is less direct, but she stated in January that “we do need to try to revitalize the manufacturing sector,” and she calls for a “New Manhattan Project” to rebuild American manufacturing. Clinton’s use of the words “revitalize” and “rebuild” signal, obviously, that she believes the manufacturing sector is something less than vital and in need of help.

Each time a presidential election rolls around, manufacturing provides a big and easy target for politicians of all stripes who equate its apparent decline in the US (accompanied by manufacturing growth in developing countries) with the decline of the American middle class. And that middle class, through the ’50s, ’60s and ’70s, bought a lot of homes and cars and sent a lot of kids to college with the income that manufacturing jobs provided.

Today, however, according to the narrative, those middle class jobs have been captured by Mexico, China, Taiwan and a handful of other countries that have significantly lower labor costs. Meanwhile, US manufacturing — and the middle class — have become a shell of their former selves.

The truth, of course, is not so simple. It’s also much less adaptable as a political campaign narrative.

Understanding what has really happened in the US manufacturing economy requires first that we de-couple two concepts that have been — falsely — linked: Manufacturing growth and manufacturing employment. The fundamental belief, if you’re a politician, is that overall manufacturing health is tied proportionally to manufacturing employment. If one is good, the other is good; if one is bad, the other is bad. The fact is that, over the past 30-plus years, that is an assumption that cannot be supported by the data.

Michael J. Hicks and Srikant Deveraj, from Ball State University’s Center for Business and Economic Research, published in 2015 a short report titled, “The Myth and Reality of Manufacturing in America.” In it, they note that “the country’s growth of manufacturing production has been a constant feature of the economy throughout the past century.” They present Federal Reserve Data that show the US manufacturing GDP since the early 20th Century: In inflation-adjusted dollars, it has  — Depression and recessions not withstanding — demonstrated long and strong expansion, not contraction. They point out that this has been accompanied by a decrease in employment, but primarily due to productivity improvements (offshoring accounts for less than 20% of the losses). The math is simple: You take the value of all goods manufactured and divide by the number of workers. In fact, say Hicks and Deverarj, “Had we kept 2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1 million.”

And that’s the good news/bad news here. Good: The manufacturing economy has been and is expanding. Bad: Increasingly efficient manufacturing requires fewer and fewer workers, which throws highly qualified, motivated people out of the workforce, and leaves them struggling to find a place in a fast-changing economy.

And this leads me back to the presidential election and the vision our candidates should be communicating: The American worker is among the most efficient and dynamic in the world. We know that because they created this efficient and dynamic manufacturing economy. Imagine what this country could be if all of its workers were given a chance to prove their mettle.