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Will Obama's New "Made In America" Ideas Be Enough To Bring Our Jobs Back?

Obama's latest ideas for kick-starting American manufacturing are a good start, but there's plenty more we can be doing.
 
 
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The January jobs report is in -- and it shows 50,000 manufacturing jobs added last month. That's the highest monthly gain since August 1998. Is it possible that factory work is back after a decade of sustained and steep decline?  

For most Americans, it is difficult to imagine an economic renewal centered around manufacturing. What would this renewal look like, and what would it take to get there?  

When President Obama gave a starring role to manufacturing policy in his State of the Union address, albeit with proposals that were not transformational, many serious people--including progressives--were stunned into silence. Cynics suggested the President featured "Made in America" policy proposals simply because it is a politically popular notion; polls conducted after the speech indicated the policy does indeed have extraordinarily high support. But most people didn't know what to think, in part because the manufacturing sector is seen as not much more than an artifact of nostalgia by a generation immersed in social networks, digital communications, and an economy seemingly dominated by the service sector. 

Some observers smartly noted stories in the New York Times on Apple's manufacturing in China and concluded that any manufacturing policy as a strategy to grow American jobs would be futile in the face of globalized supply chains and a seemingly unshakeable system of worker exploitation in China and elsewhere. Would Apple users and Walmart shoppers tolerate higher prices for goods made in America? Could multinational companies be coerced into returning production? More fundamentally, do we even want those manufacturing jobs?  

Three decades ago, there was a similar debate. The manufacturing sector of our economy had suffered a slow and steady decline since its peak in the 1950s, and competitors like Japan and West Germany were gaining market share as the United States was experiencing layoffs and factory closures. Calls were made for a new American industrial policy--a coordinated strategy of economic policies to boost specific sectors. President Reagan adopted such policies for the defense industry and (for a time) the semiconductor industry, but cast aside any meaningful efforts.  

Now, American manufacturing is coming off of its worst decade ever. We lost one-third of all jobs in the sector (5.5 million), quadrupled our trade deficit in manufactured goods in just 13 years, closed more than 50,000 factories, and recorded a drop in industrial output for the first time. While America suffered a recession beginning in 2008, manufacturing experienced an entire decade of sustained losses, at a far faster clip than any other time in our history. 

What caused this decay? A number of factors contributed. 

1. China provided multinational retailers like Walmart and producers like Apple with an endless supply of highly exploitable workers and plenty of subsidies.  

2. Financial deregulation in the late 1990s made Wall Street the master of manufacturing rather than merely a provider of capital. Quarterly earnings pressures and long-term growth strategies are often mutually exclusive in the world of capital-intensive manufacturing.  

3. A surge in automation, robotics, and productivity all meant that it took fewer factory workers to produce the same amount of output.  

4. The strong dollar policy adopted by the Clinton Administration and carried forward by the Bush Administration made our goods less globally competitive.  

5. Virtually all of our economic policies (taxes, trade agreements) and emphasis on education (college instead of vocational training) encouraged multinationals to shift production offshore. 

What few of us appreciate is that while some changes (low-wage competition, automation, productivity) inevitably lead to lower employment in industry, it doesn't necessarily follow that we should give up on industry altogether. Germany, a nation with a thick regulatory environment, universal health care, high wages ($48/hour compared to $32/hour US in manufacturing), and relatively strong industrial unions, has more than 20 percent of its economy in manufacturing and a balanced trade account with China (compared to the US-China annual deficit of $272 billion). While manufacturing employment and output have declined as a percentage of the overall economy in Germany, few in Germany see a future without manufacturing--or public policies to support it. 

 
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