TCS Daily


Taking the Man Out of Manufacturing

By Pete Geddes - February 13, 2004 12:00 AM

We can learn much from observing the Democratic primary debates. Politicians are rarely rewarded for taking principled positions. Their incentives encourage constituent pandering. Once elected, they use their office to transfer opportunities and benefits that increase the odds of reelection. It works. According to opensecrets.org, in 2002 98 percent of House incumbents were reelected, as were 85 percent of incumbent senators.

This unfortunate reality impoverishes our political discourse. The current alarm over the loss of American jobs to poorer nations is an example of pandering over principle. We can do better.

Manufacturing jobs are indeed vanishing -- but this is a global phenomenon not limited to the U.S. Alliance Capital Management reports that between 1995 and 2002, 22 million factory jobs had disappeared in the world's 20 largest economies. The Japanese lost 16 percent; Brazil, 20 percent; and China, 15 percent. What is the explanation?

Manufacturing is following the same trend as agriculture. In 1900, one-half of adult Americans worked on farms. Today, it's fewer than 2 percent. Despite lower farm employment, American farm productivity is the highest in the world. Applied technologies are responsible. For example, super-efficient tractors with global positioning systems administer fertilizer and pesticides tailored to variations in soil moisture and pathogens. Progress follows.

Productivity is the amount of output per unit of input. As productivity rises, unemployment temporarily increases. In China, modern factories are replacing inefficient, polluting state-run enterprises, displacing millions of Chinese workers.

Does this mean we should shun productivity gains and the technologies responsible for them? Of course not. Productivity is a basic indicator of economic health. Why? Because producing the same good with less input not only makes it more affordable, but importantly frees human and physical resources for use in other areas. "It can be said without exaggeration...in the long run probably nothing is as important for economic welfare as...productivity growth," wrote Princeton economist William J. Baumol.

U.S. labor productivity has grown about 2 percent a year for the past century. That means living standards have doubled, on average, every thirty-five years. Throughout history the number-one country in the world has always been the productivity leader. It was northern Italy from the thirteenth to the sixteenth centuries, the Dutch republic in the seventeenth and early eighteenth, Britain in the late eighteenth and most of the nineteenth, and the United States for the entire twentieth century.

The jobs that America is losing are being replaced by new and different jobs. A quarter of all Americans now work in jobs that didn't even exist in the Census Bureau's occupation codes in 1967.

Innovation is relentless in driving the global economy toward efficiency. We're moving ever faster from the industrial into the information age. Developing nations benefit from the dissemination of technology. They are able to shortcut the modernization process that took western nations centuries.

Innovation is central to economic progress and we know it often causes painful social transformations. This pain spurs politicians to promote protectionist policies to retard this process. But protectionism is always counterproductive.

For example, the Bush steel tariffs cost far more jobs among steel consumers than they saved among steel producers. Tariffs raised the cost of steel to these industries, making the products they sell less competitive.

President Clinton's Secretary of Labor, Robert Reich, understands the big picture.

"We should stop pining after the days when millions of Americans stood along assembly lines and continuously bolted, fit, soldered or clamped.... Those days are over. And stop blaming poor nations whose workers get very low wages. Of course their wages are low; these nations are poor. They can become more prosperous only by exporting to rich nations. When America blocks their exports by erecting tariffs and subsidizing...domestic industries, we prevent them from doing better. Helping poorer nations become more prosperous is not only in the interest of humanity but also politically wise because it lessens global instability."

We can count on politicians to court voters by making promises they can't keep. Future economic progress depends (as it always has) on how entrepreneurs see and respond to changing opportunities and preferences. This natural progression of "creative destruction" is responsible for America's economic power. Beware of politicians promoting policies that interfere with the evolution of progress.


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