Did manufacturing ever leave the US? And how do we get it back?

• Author: Najarian, Gerald
• Position: MEMBERS SPEAK OUT

Though the headline may sound facetious, we are in fact schizophrenic about the state of manufacturing in the United States. It seems many of the familiar products we buy come from developing countries in Asia and Latin America, so we think that manufacturing has left the country. There have been reports of a "rebirth" of manufacturing based on anecdotes, surveys and one or another company's decision to relocate a plant back home, and the press reports that "manufacturing is leading the recovery."

The truth is it never really left. It just changed. The change was caused by the confluence of two major trends: globalization and what economists call "comparative advantage."

Globalization is easy to understand, even though not long ago it would have stretched the imagination to think that India would ever be in the steel and automobile businesses.

Comparative advantage among countries is chiefly about labor costs and is manifest in the high labor-content products--such as sneakers, clothing, electronics and computers--that are now manufactured in foreign countries. These products are manufactured in low capital-cost plants that are set up to take advantage of the momentary low wages in a particular country. When wages inevitably start to rise in those countries, the manufacturers can quickly move to another country in which wages are still low.

As these trends developed, the economic and social landscape changed so that communities once anchored by a high employment factory now seem to be adrift with residents commuting long distances to work.

Manufacturing employment since the end of World War II has declined by 22 percent in absolute numbers and from 32 percent of the total non-farm labor force to 9 percent. Non-manufacturing employment has grown correspondingly. These trends have tracked the composition of GDP but manufacturing employment has also suffered from continuing automation. GDP exploded following World War II as manufacturing grew at approximately half the overall GDP rate.

The most pronounced period of growth for both was in the 20 years between 1970 and 1990, after which growth rates slowed but the growth of manufacturing slowed much more (GDP grew by a factor of 2.5 and manufacturing grew by 1.8, while manufacturing employment dropped by a third).

These numbers tell us three things: we still make plenty of stuff here (industrial production continues to grow); though growing, manufacturing is not growing as fast as it once was...