Thursday, December 14, 2017
Opinion

Column: American factories actually make more stuff than they ever have, and at a lower cost

Quick, answer this: Does America make stuff anymore?

Anyone who listened during the presidential election may be inclined to think not. Both candidates decried the disappearance of good-paying manufacturing jobs. President-elect Donald Trump garnered votes with his promise to restore America's manufacturing base to its former glory.

"Under decades of failed leadership, the United States has gone from being the globe's manufacturing powerhouse — the envy of the world — through a rapid deindustrialization," Trump wrote in one op-ed. On the campaign trail, he promised to bring back American manufacturing jobs by making sure U.S. trading partners can't take advantage of us — including slapping a tariff of 45 percent on China, if necessary.

But keeping this promise will be difficult, as Mark Muro, a senior fellow at the Brookings Institution, recently argued. That's because American workers may be struggling, but American factories are not.

The relationship between factories and workers has changed over the past decades, and it's unlikely to go back. Over the past 35 years, the United States shed about 7 million manufacturing jobs. And some industries, such as textiles and apparel, have disappeared almost entirely.

Yet American factories actually make more stuff than they ever have, and at a lower cost. Manufacturing accounts for more than a third of U.S. economic output — making it the largest sector of the economy. From that perspective, it's hard to argue that American manufacturing today is anything but a success.

The issue is that the fortunes of factories themselves and of manufacturing workers have diverged. U.S. factories now manufacture twice as much as they did in 1984, with one-third fewer workers, according to the Federal Reserve.

The reason, of course, is that productivity has risen so sharply. Technology, and automation specifically, allows manufacturers to make more than ever before, at a much lower cost.

The economics are unavoidable and irreversible. Although a human welder may earn $25 an hour, a robot welder costs around $8 an hour over a five-year period, according to estimates from the Boston Consulting Group. The group projects that the cost could fall to as little as $2 an hour within 15 years.

"More generally, the 'job intensity' of America's manufacturing industries — and especially its best-paying advanced ones — is only going to decline," Muro writes. "In 1980 it took 25 jobs to generate $1 million in manufacturing output in the U.S. Today it takes five jobs."

Given this reality, bringing back manufacturing to American shores may not be a true solution to restoring good blue-collar jobs.

Economist Gordon Hanson, who has studied the impact of Chinese imports on the U.S. economy, has suggested that imposing a 45 percent tariff on Chinese imports, as Trump has suggested he may do, may actually benefit factory owners and their investors more than workers. A tariff would encourage American consumers to buy more American-made goods. That would substantially increase business for owners and investors with factories in the United States, but it may not translate into that many jobs, since factories could invest in automation, rather than workers, to produce more at home.

The problem is easy to identify; the solution is much harder. Some economists have argued for policies that do more to redistribute wealth to workers who have moved into the service sector, such as minimum-wage laws or a universal basic income. Hanson has suggested giving laid-off workers an immediate lump-sum payment, rather than periodic payments for retraining, to encourage them to find work quickly.

Muro argues for investing in manufacturing innovation and relevant training to make sure workers are prepared for 21st-century manufacturing jobs.

Ana Swanson is a reporter for the Washington Post's Wonkblog specializing in business, economics, data visualization and China. © 2016 Washington Post

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