On the Decline of U.S. Manufacturing (and No, It’s Not All About Automation)
Ready for a deep dive into economic trends and theory facing the American manufacturing sector? I get it—the topic may not be an altogether sexy one—but the implications that accompany these trends are important ones, so bear with me for a bit.
Gwynn Guilford, reporting for Quartz, recently penned an excellent analysis of the United States’ effective stagnation when it comes to growth in the manufacturing sector, an eventuality that even trained data-driven economists have misinterpreted by viewing manufacturing more holistically. She begins her piece by talking about Donald Trump decrying globalization as a job killer on the campaign trail, and this being dismissed by economists and other data-driven analysts as rhetoric in favor of automation as the dominant explanation for job loss in the States.
As Guilford tells it, though, Trump was closer to the truth than a lot of experts might otherwise have entertained—though for reasons he likely can’t iterate, so let’s not give the Devil too much of his due.
First, a matter of context. According to Guilford, who cites data from the Bureau of Labor Statistics, manufacturing employment has declined by more than 25% since 2000, to the tune of some 20 million jobs. At the same time, however, the manufacturing sector’s output has continued to increase despite the job loss, roughly in line with growth in the U.S.’s gross domestic product (GDP). The easy explanation for this is that advances in management, skill, and—you guessed it—technology have made manufacturing processes more efficient, yielding superior output and production when adjusting for inflation.
True as these justifications for industrial improvement may be, though, there is still the matter of the paradox created with respect to rising output and concomitant declining employment in the manufacturing sector. Here’s where the economic theory comes into play. Susan Houseman, economist and specialist in matters of globalization, in conjunction with Federal Reserve economists, looked at detailed statistics regarding calculations of manufacturing output.
As Guilford explains, integral to understanding what Houseman and her colleagues saw is how economists assess year-to-year measurements. Not only do they look at the raw numbers of finished products made from one period to the next minus the costs of production (a principle known as “value added”), but they adjust for changes in price and product quality. The problem with measuring things in this way, meanwhile, is that adjustments based on assumptions of value can be misinterpreted as or otherwise confounded with sales data, making it seem as if the country is selling more goods than it is.
As Houseman et al. contend, this is precisely what’s happening with the consensus analysis of the U.S. manufacturing sector, and one relatively small subsector is skewing the observed data: computers. The evidence of this is alarming when controlling for the computing industry in plotting private industry and manufacturing growth over time. Between 1947 and 1977, graphs of statistics recorded by the Bureau of Economic Analysis show growth of manufacturing and private industry largely in step, on a steady incline. From 1977 on, however, taking computers out of the manufacturing equation creates a stark downward departure for the Manufacturing, Less Computers line. As Guilford puts a cap on this, “By 2016, real manufacturing output, sans computers, was lower than it was in 2007.”
In other words, the health of the American manufacturing sector looks to be dangerously overstated, and while automation did, of course, occur here, Guilford points to evidence that globalization and trade may have done more damage than previously considered. In this regard, China, a frequent target of Donald Trump’s as he stumped for votes, indeed plays a central role.
China’s emergence as a major exporter of goods is estimated by one group of economists as costing America over 2 million jobs from 1999 to 2011, helped by competitive advantages in the form of artificially devalued currency and cheaper labor, and exacerbated by the strengthening of the U.S. dollar, which reduced the demand for American exports. But American leadership is not without its culpability herein. As economists Justin Pierce and Peter Schott argue, China’s joining of the World Trade Organization as a member in 2001 negated the ability of the U.S. to retaliate against Chinese currency manipulation and other protectionist policies, a situation Bill Clinton, among others, encouraged as President of these United States.
In addition, going back to the notion of automation as a job killer, there are some logical flaws in the emphasis on this cause being a primary driving force. For one, as Guilford bluntly puts it, robots “have to work somewhere.” Given the statistic that more than 75,000 manufacturing plants in the U.S. closed between 2000 and 2014, for overall manufacturing output to increase, other factors would have to be at play. There’s also the matter of the United States lagging behind other developed nations such as Korea, Singapore, Germany, and Japan regarding use of robotics. The numbers, as they say, don’t add up.
Thus, if anyone or anything should get a wag of the finger, according to Gwynn Guilford, it’s “two decades of ill-founded policymaking,” the kind that “put diplomacy before industrial development at home, offering the massive American consumer market as a carrot to encourage other countries to open up their economies to multinational investment.” In doing so, we as a nation dismissed the threat of foreign competition and accepted (and continue to accept) the popular narrative that automation was and is the major driver of job extinction.
What’s particularly problematic about this mindset is that it obscures the importance of manufacturing to the U.S. economy and as a provider of skills to American workers. With production facilities closing their doors, there’s less incentive to do the kind of research and development that leads to better, more competitive products. As you might expect, too, the brunt of the costs of manufacturing’s decline outside of the computing subsector have been borne by the middle class, while the lion’s share of the benefits of globalization has been reaped by the so-called urban professional elite and multinational corporations.
In turn, politically and socially speaking, the country has become increasingly unequal and more polarized. All of these elements suddenly seem tailor-made for Trump and his faux populism to swoop in and capture an upset victory as he did in the 2016 election. The man struck a nerve in the heart of blue-collar America. Predictably and unfortunately, though, he hasn’t done much to boost U.S. manufacturing, instead focusing on tariffs and pushing the nation to the brink of a trade war with any number of entrants willing to fight back, and ignoring the currency manipulation angle that validates, in part, his anti-China tirades. Not that this exculpates the Democrats, either, whom Guilford characterizes as possessing “no vision for how to reverse the industrial backslide.”
All of this paints a fairly grim picture of the outlook for the manufacturing sector moving forward, as it does for the country’s susceptibility to divisive rhetoric and strongmen like Trump. To quote Guilford in closing:
US leaders’ longstanding misunderstanding of the manufacturing industry led to the biggest presidential election upset in American history. But they still don’t seem to grasp what’s been lost, or why. It’s easy to dismiss the disappearance of factory jobs as a past misstep—with a “we’re not getting those jobs back” and a sigh. Then again, you can’t know that for sure if you never try.
It’s one thing for political leaders, often derided as out of touch with John and Jane Q. Public, to misunderstand the issues about which they profess to know—assuming they ever understood in the first place. When economic analysts are falling prey to the same faulty reasoning, however, it doesn’t instill a great deal of confidence in those of us less well-versed in such matters. The most inspiring sentiment here is Guilford’s seeming doubt about whether or not the jobs we take for granted are really lost for good, that we don’t know for sure one way or another. Then again, we have to try first, and based on the current state of affairs, that’s no guarantee.
Considerations of the stagnation of American manufacturing accompany this week’s not-so-great news for workers amid an ongoing assault on workers’ rights from the political right. In a 5-4 decision that saw conservatives comprise the majority, the Supreme Court ruled that employers can compel their employees to sign arbitration agreements in which they waive their rights to bring class-action suits against the employer. Justice Neil Gorsuch, while indicating this practice of company management is “debatable,” nonetheless found that federal arbitration law does not conflict with the National Labor Relations Act, a piece of legislation in place since 1935 governing the rights of employers and employees alike, and designed to protect the ability of the latter to collectively bargain and form trade unions.
Justice Ruth Bader Ginsburg, meanwhile, speaking in dissent, was unequivocal in her negative assessment of the ruling, calling it “egregiously wrong,” and offering these additional sentiments on the matter:
The court today holds enforceable these arm-twisted, take-it-or-leave-it contracts—including the provisions requiring employees to litigate wages and hours claims only one-by-one. Federal labor law does not countenance such isolation of employees.
As the “Notorious RBG” finds, these agreements are evocative of the so-called “yellow dog” contracts used by employers until being outlawed in 1932 that barred workers from forming or participating in unions as a condition of employment. Now more than 85 years removed from a legislative remedy to such lopsided bargains, to know that we are potentially moving backward on the subject of workers’ rights is frightening.
Ginsburg isn’t the only one painting this decision in such ominously historical terms either. While the Court didn’t specifically address discrimination in the workplace with this ruling, civil rights advocates have expressed their fear it will set a precedent that will allow employers to skirt their responsibility concerning claims of discrimination and harassment in the workplace. Add to this fears that a conservative majority ruling in Janus v. AFSCME could strip unions of their ability to collect “fair share” fees from non-members who nonetheless benefit from union representation, and there is any number of reasons for concern for the fate of American unions and the imbalance of political power fueled and perpetuated by moneyed interests.
As with intervening to attempt to save manufacturing jobs, the impetus should be on lawmakers and the country’s leadership to steer the nation in the right direction on upholding workers’ rights, a point Ruth Bader Ginsburg emphasized in her dissent. At least as long as Republicans control both Congress and the White House, however, any pushback on efforts to undermine organized labor appears unlikely, especially while establishment Democrats fail to rise more strongly to its defense until it’s time to campaign—and even then there are failings, as the story of Hillary Clinton’s 2016 electoral loss demonstrates. A year-and-a-half after the fact, one is left to wonder what lessons, to be exact, the Dems have learned from their defeats of previous years.
Donald Trump was closer than he probably realized to the truth about China’s role in the United States’ manufacturing woes, and it got him to the White House. Until we as a nation get better at diagnosing this reality and abandoning the “robots took our jobs” narrative, crafting proactive-minded policy to adapt to the challenges of a global market, and ensuring that workers can organize and advocate for better wages and working conditions, we run the risk of similarly unqualified candidates taking advantage of the unrest that is apparent in teachers’ strikes and other walkouts which are happening, have happened, and will continue to happen—not to mention continued efflux of research and development skill, factory closures, and job loss.
On the surface, American manufacturing looks to be growing as it has in past decades. A deeper dive into the numbers, though, tells a more complete story—and one that doesn’t obviously lead to a happy ending. Let’s hope we as a country realize this before it’s too late and we fall too far behind on the world stage.