Is the US losing its Manufacturing Base?

What is happening to US manufacturing? My message is do not listen to the politicians who have no clue. They will tell you anything and many have very marginal powers of discernment when it comes to economic issues.

US service economy
Just like fewer farmers are needed to support more people, fewer factory workers can supply the world with tangible goods, so the US can focus on intellectual services or high-level industrial production.

My answer to the question about the US production base is, yes US production is shrinking but:

  • Production is becoming more efficient – Fewer factory workers are needed to support more people’s needs. To argue otherwise would put yourself in with the Luddites of the nineteenth century who destroyed weaving looms which were taking away their jobs.
  • New industries are replacing old – Even if the US manufacturing base is getting smaller in old fashion industries, clothes, toys, etc, it growing in new technologies like pharmaceuticals and gadgets.
  • Ownership matters – Also the US might not be doing the production but many US companies control the production process as companies are multi-national.   I buy my sneakers with a US trademark, design and quality control but Asian production.
  • Services are an extension of the production process – It is counter counter-intuitive to be a pro services economist. Meditate on what services are.  Services are an extension of the production process. Adam Smith was wrong on his understanding of economics with production vs services. He was like, well service people are good people, but it is an industry that creates value. This is wrong. As economies develop, services are an extension of production, whether outsourcing accounting or transporting consumer goods or repairing the machines. It is a result of a more complex economy.

Therefore the purpose of this post is to look at the loss of the US manufacturing base from an objective historical and economic viewpoint.  I want to give you a definitive answer to the question “is the US losing its manufacturing base”, why is it going overseas and is it bad?

A nation and economy is built ‘not through speeches and majority decisions , but by iron and blood’. – Bismark 19th century politician.

This type of thinking is old fashion and leads down a dangerous path. Similarly thinking that the old industries make a nation great is not forward-looking, nor enlightened.

Why is this important for you? Because people, the media and politicians love to press people’s buttons and stir emotions regarding the US economy. Particularly ideas based on populist notions of economics rather than reality. Lets look at reality and the truth.

Why did the US manufacturing rule?

  • The US ruled the economic world after the Second World War because much of the world was destroyed and the US was untouched and well organized because it embraced capitalist ideas.
  • The US had almost unlimited natural resources relative to its output needs.
  • Half the world had either communism or European style protectionist markets. These were both inefficient.

The world changed. That is it. We were great, but the world caught up and now we have to work harder to compete for money and power.

The US government can not control the development path of other countries – Therefore, for a period of time US manufacturing and its workers lived a relatively privileged life. When the world recovered and markets opened up and became free, everything got competitive. There is no way the US government could stop this. No internal US economic policy could prevent China from developing or Eastern European markets from opening up or the EU getting organized. It was just an economic reality that the whole world wants to live a middle-class life, not just Americans.

I mean don’t you want a car and a house and a trip to Europe or two? Well, so does everyone else in the world, and they are educating themselves and working to achieve this. This is life.

  • If you think that something the US could do would have prevented the rise of China, it is very arrogant thinking.

Is it bad we are losing our manufacturing base because of increasing global competition? People overlook one thing. That is we do not have a 1890s or 1930s economy. This is so important to understand. Politicians are making wrong economic policy based on this idea. Let me explain.

I have thought a lot about free trade and our factories going abroad. But this is the way I see it.

What happened to our agricultural base is happening to our manufacturing base

Agricultural sector – Society moves to more efficient means of production. In the past, agriculture was 50% or more of the workforce, but now it is less than 1%. That is one farmer can support 100 other people. For me, this is a positive thing. Further, if I am an organic non-GMO guy, I still have the option of growing my own food or shopping at Whole Foods, nothing is stopping you. It is that civilization and economies are becoming more organized and efficient.

Manufacturing sector – Similarly production is not about employing legions of factory workers but has high-tech robotics and advanced technology. Production like agricultural has become more efficient. We do not need workers in the past. Steel mills and assembly plants are from the last generation or two generations ago. Fewer farmers and factory workers can support the world because of technology and efficiency gains. We do not need as many farmers or factory workers as the world has changed with technology and more specialization of labor. Factories of the future produce higher level more complex things that require more R&D rather than blood and iron.

Less and fewer factory workers can support more and more people. Why can people not see this? It is so obvious.

  • From handmade workshops and crafts to assembly lines
  • From plants with production lines to industrial robots and automation
  • This transition from labor-intensive to labor-saving allows for surplus capacity and churning out of manufactured goods in a cost-effective way. This frees others for easier service work.  Economics is not zero-sum and people do not realize this.

Service jobs are good jobs

If you know anything about Maslow’s hierarchy of needs, working in the service sector is easy. You do not need to  get your hands dirty in the service sector, this is a good thing. Who wants to work in a factory. Is it not better to do some fun service job?

I have back problems because I worked such hard physical industrial jobs when I was younger. Do you really want a return to this economy? I do not, any more than I want to be farming potatoes (which I do on my wife’s family’s farm). Believe me, service jobs are an easy life relatively speaking.

Think about it this way, you could throw out your washing machine at home, but why? You can let the machine do the wash while you write a blog. Life is better this way.

What about the argument that service jobs do not pay as much as manufacturing jobs? I do not know when I asked a group of Eastern Europeans and they all said they would prefer to work for some accounting or investment firm or outsourcing center than a low paid factory job. Don’t you understand, if you want to get paid, actualize yourself, do not be a factory worker, use your brain?

Maybe, in the end, we will all be pressing each other’s pants in a service-based economy. But this is not all bad, life is easier now than during the industrial age. Further, if you are employed in cutting edge services, you can make good money.  The world is changing and change your ideas about economics.

Granted there are many ten dollar an hour jobs in the US economy. I know this is the problem. But if you keep a positive attitude and find your niche you can do well in the US economy. I live in Eastern Europe and no matter what Americans say about how bad it is, you would have a hard time to convince me even in the worst economic areas that the US is not the land of opportunity,  for those who do not give up.

In the end, if you understand what the Austrian economist was saying you would understand that service jobs are nothing more than an extension of manufacturing jobs. Service jobs exist because the economy is at a higher level. We are not all coal miners and farmers anymore, nor need to be.

Free markets make people rich – Economic history lesson

It is a very counter-intuitive argument that a decreasing manufacturing base is not bad and free trade is good. This is especially in hard economic times. However, this was no more so than Adam Smith’s arguments against the popularity and mercantile arguments of the 18th century. No one wants to hear the message of capitalism and free movement of labor and capital as they fear economics is a zero-sum game. It is not. It is a positive-sum. There are more winners than losers.

The French pursued protectionism with regard to their industry and the English free trade and the latter prevailed. As much as China is prospering they are prospering in spite of their mercantilism, not because of it. Restrictions and burying your head in the sand is not the way to move the US into the future.

Did I convince you that you need not fear the changes in the economy? If you put yourself on the cutting edge and try to improve your life you do not have to worry about macro economy doomsayers. If you want to make an argument for something noble, argue for a smaller government and less interference in people’s lives and markets. This is the higher ground than protecting some union workers’ jobs in Detroit. That thinking will not put money in your pocket.

Why I get upset when politicians try repeat the US is losing manufacturing jobs – If the US chooses to have an industrial policy and support industries, know that the middle class will pay the price with higher taxes, prices and the elite who work in those chosen industries will have a better life than those who try to better themselves on their own. It is very unfair. I want to better myself without the government engineering the economy based on special interests.

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9 responses to “Is the US losing its Manufacturing Base?”

  1. Greg

    What is so beautiful about this piece it how positive and upbeat life can be if we learn to embrace the sustainability of true capitalism. If any readers have dealt with divorce, they can tell you that government intervention in the fair play of free markets will end up like a nasty divorce. Where the capital needed to sustain the pieces of the broken marriage will be spent on lawyers,tennis balls and country club living as payback for year of perceived neglect. Governments often are composed of legal teams who like to spread the wealth and spend tax money to even the playing field. Legitimizing their own purpose without consideration of the purpose for those who pay the tax bills.

    1. Mark Biernat

      You are right. See a lot of people confuse capitalism with the notion that the rich will benefit. I see capitalism as a system where you can improve yourself, while government interventionists are more for the status quo of giving the empowered more power. Think of the bail outs both on Wall Street and the auto makers. Why do I personally have to pay for that?
      And so to have an “industrial policy that would support US manufacturing” is a coded economic phrase that means I personally must pay for other people’s benefit. Why do people not see it this way?

  2. cwDeici

    This article has a lot of good points but completely ignores the other end of the aisle other than strawman arguments.

    History shows capitalism makes people rich? Certainly.
    It also ripped out Russia’s guts in the 90s, because she went too fast into it (and more radically than the US had ever been) unlike China.
    The world has a long history of mercantilist wealth as well.
    Capitalism is a very useful tool, but it is NOT penicillin.

    1. Mark Biernat

      I am glad you mentioned Eastern Europe as I live in Eastern Europe you know, and can not believe how wealthy capitalism has made this area of the world. I see so much wealth here and it came about in a few years. With freedom and capitalism in Eastern Europe the world around me has transformed from poor to rich over night. We have a middle class here and it is growing.

      Mercantilism of Spain and France could not compete with the capitalism of England. The Spanish world declined, France also until they gave up mercantilism. England grew rich. No comparison when people are free, they act on their own self interest to better their lives are better off.

    2. Katya

      I live in Moscow and I have to say I am not too unhappy that Russia has moved toward capitalism, however, the extent that there are problems are caused by government control, not by giving freedom to the people.

  3. cwDeici

    And yes, the USA has lost a large portion of its manufacturing base. This would be ok if tech-companies had taken up the slack, but tech companies are outsourced too! Enjoy your 8-9% unemployment Amies.

    1. Mark Biernat

      Unemployment in the USA is caused because the Federal Reserve Bank of the USA has pursed a reckless policy creating a boom and bust cycle. The Bush and Obama bailed out the losers and created price rigidity.

      It is that simple.

      The US manufacturing is a problem, but high tech and bio-tech and many other things are replacing it. Why should not worry about the typewriter industry when we have Apple?

      I am not working at WalMart and neither are you. I was looking at rents in Boston the other day and for a one bedroom it is $2,0000, explain to me how the market can support this price if the economy is so bad and we are all making 8 dollars an hour?

      If you strive to use your creativity and brainpower you can do anything you put your mind to and reinvent what manufacturing means.

      Yes we have a bust in the economy, but it is caused by the Federal Reserve pushing interest rates to 1% after 9/11 so we all could go shopping again, not because capitalism has failed.

  4. Thomas

    The Median Hourly Wage in the USA is $12 to 13 an hour with little or No benefits(before taxes). Most Industrial Workers were making this hourly wage 30 years ago my Friend. Secondly 70% of Success in the USA is based on where you came from(Inheritance, Family paying for College, Networks, etc). Thirdly Most of the jobs now are lower end service sector jobs. This is why America’s Total Debt Exploded since the early 1980’s because the majority of Americans did not Benefit from the Economy from that time onward so they tried to keep their standard of living up or the appearance of one by going into Debt,Women entered the Workforce,etc. Still this was not enough and now we are almost 200 Trillion in Debt(Government, State, Consumer, SS, Medicaid, Medicare, Federal Employee Pensions, Tuition loans, Credit Cards, Trade Debts, mortgages, etc). The Banks Helped Destroy the Middle Class first by inflation and Deflation Cycles along with helping hold wages down(that is their code word for inflation. Wages, they don’t care about your living costs)along with Peak Oil and Decline with no alternatives allowed to be implemented(Renewable Energy/Sustainable Developments like in Germany) so here we are after 30 years of Mismanagement and Corruption..In a World Of Hurt and Trouble.

  5. vernon duvall

    You make this long argument about efficiency and then remark that you grow your own food in a garden. That is you personal take on efficiency?

    Your argument has so many holes it looks like Swiss Cheese.

    Somehow, you have arrived at a theme for America to outsource it’s manufacturing base because it is more efficient and anyone who doesn’t agree is just ignorant.

    Following your line of thought we can always find a society or what looks like a society from a distance, whose members live in a dung heap and will work for essentially nothing.

    Continuing this wet dream, we should keep jumping from one dung heap to the next while our own manufacturing base fades into history. I guess this is smart thinking for an author who places no value on the 15 to 20 million Americans who will lose their standard of living and retrain to deliver pizza or be a greeter at Walmart.

    Where do you think the ideas for invention and better products came from when we had an industrial base? Of course many of them came from the people who worked in the various fields. Now who it is thinking up the new ideas?

    I will say one thing for you. You phony line about moving manufacturing is politically correct. Stupid and ignorant of what makes a society successful, but politically correct.

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