The New Face of Economic Growth
Don Grimes and I are working on the latest update of the Michigan’s Transition to a Knowledge-Based Economy report. It will be out in May. It will once again tell the story that Michigan’s decline compared to the nation is the combination of the implosion of our dominant industry – domestic autos – and our lagging the nation in the higher growth high education attainment industries.
The most prosperous places in the country are now and almost surely in the future will be those that have moved away from a factory-based economy to one that is knowledge based. Its the new path to prosperity in advanced economies in a flattening world.
We debate each year whether to include a section in the report that answers the question “can a nation/state/region be economically successful without making things?” To us the answer is yes and obvious. But it’s a question we get repeatedly. It is deeply ingrained in us that prosperity comes from the products we produce. But the evidence is otherwise. As we demonstrated in our 2004 New Path to Prosperity? report, unlike the past, places where factory work is over concentrated are now the low income places in America. The high prosperity places are those that are over concentrated in the broad knowledge-based sectors of the economy.
We don’t believe factory work is going to disappear in America. Anymore than farming disappeared at the beginning of the last century. But like farming, factory work will be a small part of the American workforce going forward and will never again be as high paid. Its now about ten percent of employment and thirteen percent of employment earnings. Still important, but no more a major engine of economic growth.
As we argued in our previous posts on Bissell and Apple, America will continue to be involved in making products. But it will be concentrated in pre and post production work: the knowledge parts of what we think of as manufacturing. These areas can be a growth engine for the American and Michigan economy. Tom Friedman, the New York Times columnist, who has chronicled this transition as well as anyone, has another great column on what economic growth looks like in an economy driven by globalization and technology. Worth reading!
Its about a St. Louis base start up producing a new medical device. It involves American invention by two immigrants, American venture capital and a whole lot of involvement by companies in other countries around the globe. As Friedman describes it:
EndoStim was inspired by Cuban and Indian immigrants to America and funded by St. Louis venture capitalists. Its prototype is being manufactured in Uruguay, with the help of Israeli engineers and constant feedback from doctors in India and Chile. Oh, and the C.E.O. is a South African, who was educated at the Sorbonne, but lives in Missouri and California, and his head office is basically a BlackBerry.
This is the new face of how America will make products for the global marketplace. Where our primary role will be in the creative/knowledge parts of the process. It’s a lesson we in Michigan have yet to learn, but must. What made us prosperous in the past, won’t in the future. Either we align with these new realities or we will be one of the poorest states in the nation.
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Your comparison of factory work today to agriculture about 100 years ago is interesting and true. Expanding on what you said, we probably produce more agricultural goods now than we did in 1900. But we employ far fewer people to produce all that food. Agriculture has simply become extremely efficient compared to 100 years ago. I would also like to point out that there are some very high paid people employed in agriculture, but those people usually have college degrees and sometimes masters degrees. Some have MBAs and can trade agricultural futures and options more successfully than Wall Street professional. However, the non-educated laborers who work in agriculture are among the lowest paid people in America. I think this is the path manufacturing is on now. Even if we recover as far as the value of goods manufactured here, the number of people employed in these factories will continue to decline, because factories will have to compete by becomming automated and much more efficient. Also, manufacturing in such an environment will hire more knowledge workers even in the production process. Automated factories will require workers who are trained in engineering, operations management and computer science. There will be few, if any, of these jobs available to workers without college degrees.