To Manufacture or Not to Manufacture

Matthew Yglesias has an interesting article at Slate arguing that the President's focus on increasing manufacturing jobs in the U.S. is actually bad for the country.

The basis of his argument is that focusing on manufacturing jobs is in one way too narrow and in another too broad. It's too narrow in that the U.S. should not be focused on generating jobs in any particular sector of the economy, but should instead be focusing on those things that are liable to be world class industries in the future, whether they be in manufacturing or not. Although, Yglesias seems to think that the likelihood of them being in manufacturing is quite low.

It's too broad, however, in that manufacturing jobs themselves tend not to be the ones that you really want from a manufacturing business. What you are really after are the R&D jobs. Those are the jobs that have the best prospects of creating long-term economic growth due to spillover effects that would make it more likely that your country will be engaging in the small percentage of manufacturing jobs that actually provide high-wage jobs.

His bottom line is that we should be investing in infrastructure and education instead of spending money to subsidize manufacturing, which I wholeheartedly agree with. There's a reason why countries that are manufacturing heavy tend to be, at best, middle-income countries: manufacturing is generally not a high-value-producing sector of the economy.

I think it's instructive to look at the value-added amounts of Apple's products. Less than 10% of the sales price of an iPhone is made up of manufacturing costs. The bulk of the price is related to R&D, software engineering, and marketing, the value of most of which accrues to the U.S. economy. Transportation costs are themselves around 5% of the price, almost as much as manufacturing.

Bretsky1
What do you think about manufacturing jobs as tapping a labor resource that might otherwise not be used.

While I don't think that there are workers who could not work except in manufacturing jobs, there might well be a number of workers who would find it difficult to find a job that pays as well as a manufacturing position because of their particular skill set.

Of course, that assumes that the average manufacturing job around the world pays as well as the average manufacturing job in the U.S., which simply isn't the case. One of the important points that Yglesias makes in his article is that the reason that things like the iPhone and most other electronic gadgets are made in places like China is that wages in China are well below what they are in the U.S. There are only two ways that the U.S. could win back a large share of those jobs: 1) have it be much more expensive to manufacture those things in another country or 2) have it be a lot cheaper to do so here.

To achieve the first way, you could implement high tariffs to increase the cost of importing the goods into the U.S., or you could simply have a process of income growth in the places where they are manufactured. To achieve the second way, you could subsidize the cost of labor, or mandate that workers in new factories aren't covered by minimum compensation standards, or have U.S. wages stagnate or fall relative to other countries.

None of those methods presents an appealing prospect. They would all damage the economy in some way that would cause way more pain than any gain they might bring. Even the process of income harmonization across countries presents a problem for the U.S. because it would mean that the U.S. would no longer be a relatively high-income country, which would largely signify that we have lost our competitive edge in the cutting-edge industries that will matter in the future.

The better route would be to provide funds for retraining former factory workers so that they can do the jobs that the economy is actually producing, instead of the ones that they wish it would produce. And, even more importantly, we need to completely revamp our educational system so it starts producing large numbers of engineers and scientists and medical field workers, etc., the workers that our economy can actually use in industries that the U.S. has a comparative advantage in over other countries.

Retraining, plus mobility?

The plaint about the loss of manufacturing jobs is tied in with the very politically popular thinking about the evils of big corporations. With many advocates for buying local. We discussed big farming before which I think is a similar question.

Buy local advocates see the local economic stimuls as a value added aspect of the purchase, but I do not see a majority of families paying more to enjoy the satisfaction of buying local.

So how can the discussion move realistically to consider what can be done with the loss of manufacturing jobs, where a couple generations could count on a good life style moving from high school into the plant, and then work up to higher positions at the plant.

We want our local jobs local and our low prices.

And our politicians say they will deliver. Vote me and you can have your jobs and your prices.

We want our local jobs local and our low prices. And our politicians say they will deliver. Vote me and you can have your jobs and your prices.

Yeh, and I'd like a shot at dating Kristin Chenoweth, but that ain't gonna happen either.

Prices are what drive the market. There might be a small segment of the population willing and able to pay more for locally produced things, but, as you indicate, the great majority of people are going to make their decisions primarily on a tradeoff between price and quality, not where the thing is produced. You can develop a thriving locally-produced food market because economies of scale are relatively not that important to food production, but in a manufacturing operation, economies of scale are much more important and the cost of producing most things for a strictly local market are prohibitive even for the upper middle class to afford anything more than a few objects.

The whole locavore movement reminds me, in a little way, of the episode of South Park where the people try to destroy the local Wal-Mart because it's forcing them to buy things at the Wal-Mart and is running local shops out of business. After they destroy the Wal-Mart, they start buying just from the local stores, which in turn turn into giant businesses themselves, and the people wind up destroying them as well.

So how can the discussion move realistically to consider what can be done with the loss of manufacturing jobs, where a couple generations could count on a good life style moving from high school into the plant, and then work up to higher positions at the plant.

"Foreman says these jobs are goin' boys, and they ain't comin' back..." --Bruce Springsteen

The first step is recognizing and accepting that most of the manufactured things that Americans buy will simply not be produced in the U.S. for the foreseeable future. The only things that will be manufactured in the U.S. will be goods (1) that require a high value-added manufacturing process (like chemicals and airplanes) or (2) whose production is capable of being greatly automated (like paperclips and pens). Manufacturing jobs in the former category will require high levels of education and/or training--both of which will be expensive and time-consuming to acquire--while manufacturing jobs in the latter category will be very difficult to come by because a large amount of production will be produced using very little actual labor.

Digression One very important known unknown in the above assessment is what effect 3-D printers will have on manufacturing. I've heard all kinds of wacky things about how they might transform manufacturing. The structural difficulties facing the U.S. economy from a manufacturing standpoint might well be blown away by the advent of 3-D printing, but my assessment above assumes that it won't change much. But I have to admit, I do think 3-D printing is going to have a big impact. End Digression

All that means that the "higher positions" that entry level line workers used to work up to will also be fewer and far between as well, making it extremely unlikely that such jobs will provide a lifetime of employment with ever increasing levels of pay.

The goal should be to train people for the economy we have, not the one we had between 40 and 60 years ago. Good paying service jobs can be local too. Although, as time goes on, local is going to become an urban/suburban setting for more and more Americans. Rural America is slowly dying. There will be technologies that come along that might make it easier for rural communities to weather the loss of agricultural and manufacturing jobs, but employers in the future are going to insist more and more that their employees stay close to where the action is happening, which in the future will be ever increasingly in big cities like New York and Boston and Washington and Atlanta, etc.

Then how do we change our education system. I would like also hear from Lunar on this, because he is such a big supporter of public education.

I think it needs to be to a large degree at the secondary level.

Then how do we change our education system.

The trick, to me, is changing the incentives so that people take the right major courses of study in college. The way that you do that is--not surprisingly for an economics message board--through pricing.

A good education costs a lot of money, but not all educations provide the same benefit to the economy. Someone getting a history or literature education provides less benefit, on average, to the economy than someone getting an education in engineering or math or science. You would think that the fact that people in the latter degree courses tend to make more money over their lifetimes than the people in the former degree courses would be incentive enough, but it isn't. And a disproportionate number of the people who do get degrees in engineering and math and science from American universities happen to be citizens of foreign countries. Some stay in the U.S., but an ever increasing percentage of them return to their home countries when they complete their educations here.

So, what we need to do is change the pricing of education to reflect the fact that some degrees are worth more to society at large than others. To do that, state-funded institutions need to start redistributing the money they receive from the government to bring down the cost of an education in engineering, science, math, etc. relative to one in history, literature, the humanities, etc. That is, classes in the former subjects should be cheaper (a lot cheaper actually) than classes in the latter subjects. The students studying less useful subjects should be subsidizing the ones who are studying more useful ones.

The federal government can also help by providing lower interest rates on student loans for people who graduate with certain degrees relative to others, or by providing part of the funding on an interest-free basis or by wiping out a portion of the debt in its entirety if the student graduates with a certain type of degree (e.g., a B.S. in chemistry).

High schools can also contribute by requiring four years of math and science for all graduates (when I was in high school it was only three and two respectively for math and science) and by adding a requirement to take basic engineering courses. If we have to de-emphasize the teaching of literature and history to add those other subjects, then so be it. Although, my first inclination would be to add another 60 to 90 minutes on to the school day.

That is a very interesting idea to provide cost incentives to the specific degree programs.

I need to think on that a bit.

I would hate to drop language and history at the secondary level, but I do think we need stronger math and science. I had not thought of engineering so much.

It might be that a longer day or even another year.

Not sure the solution, but if we are thinking that high tech jobs are the key to sustaining growth and employment, then we need a high tech education. Or those jobs will also leave.

I would hate to drop language and history at the secondary level...

This may be a matter of semantics, but I do think it's important to differentiate between language and literature. Language skills, to me, are crucial. Literature, not so much. Language entails teaching two of the three R's: reading (which is short-hand for effective information gathering and processing skills) and writing (which is short-hand for effective communication skills). Language instruction should teach a student two things. First, we need to teach people how to analyze and structure an argument. And second, we need to teach them how to communicate their own arguments, be it oral or written communication. Language instruction also includes the teaching of foreign languages. Every American high school student should be required to take at least two years of foreign language instruction.

Literature instruction, on the other hand, teaches the rather esoteric ability to critically evaluate literature as literature, which is to say, as art or as social critique. This is a worthy skill to have in order to develop a well-rounded intellect, but it comes at the bottom of the list of important modern day skills and should be sacrificed if need be to bring in more math, science, and engineering education.

Also, I definitely wouldn't argue that either literature or history should be dropped altogether, just scaled back. When I was in high school, the requirements for graduating in the college preparatory program were as such: 4 years of phys. ed., 4 years of English, 3 years of history, 3 years of math, 2 years of science, 2 years of a foreign language, and 1 year of world cultures. Everything else was elective. Those priorities were largely reversed from what they should have been.

What they should have been were 4 years of math, science, and critical communication skills, 3 years of a foreign language, 2 years of literature and history, and 1 year of world cultures. There should also have been at least one year of some type of basic engineering course. I'd also keep phys. ed., but scale it back to about 25 minutes of calisthenics and jogging and get rid of all the game playing ridiculousness. After all, it's the exercise that matters.