Hanging on to the past: not smart!

Micheline Maynard wrote an insightful article for Atlantic Cities entitled The Midwest’s Big Economic Miscalculation. She writes particularly about Michigan’s continuing belief that the auto industry will once again be the engine of economic good times as it was for most of the 20th Century.

But, as she writes, auto factory jobs can never again drive a prosperous Michigan economy: “But automotive investments still are front of mind, even though the new jobs that the auto industry is going to create now are a fraction of the 500,000 lost to the recession. Their economic value to these communities is far less than the jobs that were lost, given lower starting wages and fewer (if any) benefits.” Rather she continues:

As the economy recovers, there’s a very narrow window for these cities and states to shake the impression that ‘all we are’ is autos, or steel, or mining. I’ve been hearing my entire life about the need for this region of the country to diversify, and now the opportunity is finally here. Rather than seizing the moment, I fear my state is poised to wake up five years from now and somehow be surprised to find that auto sales haven’t rebounded to the levels of the 2000s. Or for that matter, that crucial infrastructure repairs still aren’t funded because of continued of budget cuts. Then, perhaps, someone will say, “Maybe we should have tried” this or that, instead of re-embracing the same old, same old. My advice to these industrial cities and states: don’t give in to the temptation to build your future based on your past. Keep focusing on what you can create anew, not recreating what was once there.

This, of course, has been the central theme of our work since our founding in 1991. That what made us prosperous in the past, won’t in the future. Not because of misguided federal and/or state policy, but because globalization and technology are reducing the need for American factory workers and lowering  wages for those who remain on the assembly line.  Just like technology at the dawn of the 20th Century dramatically and permanently reduced the need for American farm workers. No matter how much policy makers –– of both parties –– have tried to support agriculture, it has not brought farm jobs back. The same is true for factory jobs. As I wrote in an earlier post factory work in America is going the way of American agriculture: highly productive, with far fewer, mainly higher skilled, workers.

In a terrific New York Times article Eduardo Porter explains: Much of the anxiety about factory jobs is based on the misconception that job losses have been due to a sclerotic manufacturing sector, unable to compete against cheap imports. Until the Great Recession clobbered the world economy, manufacturing production was actually holding its own. Real value added in manufacturing, the most precise measure of its contribution to the economy, has grown by more than two thirds since its heyday in 1979, when manufacturing employed almost 20 million Americans — eight million more than today. American companies make a smaller share of the world’s stuff, of course. But what else could one expect? Thirty years ago China made very little of anything. Today its factory output is almost 20 percent of world production and about 15 percent of manufacturing value added. What’s surprising is how little the United States lost in that time. American manufacturers contribute more than a fifth to global value added. Manufacturers are shedding jobs around the industrial world. Germany lost more than a fifth of its factory jobs from 1991 to 2007, according to the United Nations Industrial Development Organization, about the same share as the United States. Japan — the manufacturing behemoth of the 1980s — lost a third. This was partly because of China’s arrival on the world scene after it joined the World Trade Organization in 2001. Since then, China has gained nearly 40 million factory jobs. But something else happened too: companies across the developed world invested in labor-saving technology.

University of Michigan economists George Fulton and Don Grimes have just completed for the Michigan Department of Transportation projections for the state through 2040. From 2010 through 2040 they project: “At the other end of the spectrum is manufacturing, which declines on average by 0.49 percent per year. This does not mean that the output of local manufacturing firms will decline; indeed, we are forecasting an increase in manufacturing output. But because productivity growth in manufacturing is relatively high, employment declines despite the expansion of output.” The worse job performance of the eight sectors they analyzed. The sector is projected to produce more, continue to be an important component of the Michigan economy, but with fewer and fewer workers.

As Maynard writes defining ourselves by what we did in the past is a recipe for decline. The path to growth and prosperity is to get aligned with where future growth will occur. And in an economy being reshaped by globalization and technology that is increasingly the knowledge-based sectors of the economy. Which includes pre and post production work of companies that make products. As Porter writes in his Times article:

More important, perhaps, manufacturing is not the nation’s only cutting-edge industry. Many of the most innovative firms are not manufacturers but service companies. Apple is very competitive. But so are the companies that design applications running on its iPhones and iPads. Hollywood studios and marketing companies are big exporters. These firms need highly trained workers and pay high wages. … Innovation — not manufacturing —has always propelled this country’s progress. A strategy to reward manufacturers who increase their payroll in the United States may not be as effective as one to support the firms whose creations — whether physical stuff or immaterial services — can conquer world markets and pay for the jobs of the rest of us.

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