Friday, January 27, 2012

U.S. Manufacturing: Myth Dismanteled

I, like many others, was convinced that America's manufacturing output was minuscule in comparison to other countries like China, India and Mexico. It certainly appeared what was left of the manufacturing industry was hanging on a thread. As it turns out, nothing could be further from the truth.
We've all heard economists, politicians and professors mouthing off about the vast declines in U.S. manufacturing, and the erosion of jobs in that sector. Over the years, I have read countless articles complaining about America's short sided move away from manufacturing in place of innovations such as technology, and service related jobs.
The voices of dismay grew louder and evermore judgmental during the height of the recession, as unemployment climbed to 10%. After reading Friedman's "the World is Flat" I was now convinced that the US had really bet the future on technology and white collar service industries, having recklessly turned its back on the Manufacturing industry. During the industrial revolution, America excelled in manufacturing, which made us the number one economy - and the envy of the world at one point. The perception was further ingrained ten years after the passing of NAFTA, which precipitated an outsourcing frenzy. It was now “coming home to roost” as my grandmother used to say. Senator Joseph Lieberman submitted a report concerning this very issue in 2004, entitled “Offshore Outsourcing and America’s Competitive Edge: Losing Out in the High Technology R&D and Services”. It was an obituary of statistics that indicated that we were all but buried.

t appears that his purpose was to sounding the alarm, and stimulate discussion toward finding solutions during the Bush Administration. Although he touched upon the outsourcing concerns, ultimately his paper dealt with a broader issue, which I believe to be a compelling argument for the need for America to refocus its attention toward developing a brain trust of highly skilled talent in Engineering, Biotechnology and Science Technology to ensure that this country will better compete with the brain trust emerging from India, Russia and China in the future.
NAFTA, which was thought to be a trailblazing trade agreement when it was first past by Bill Clinton (in the 90s), in hindsight, it was the catalyst for the loss of millions of manufacturing jobs. This trade agreement, meant that China was no longer the only country corporations could get cheap labor without heavy tariffs or taxes. There was now Mexico, as an outsourcing option that was more accessible. This would enable companies to save money, shipping time and reducing time zone issues. It's no surprise that corporations would want to take advantage of the reduced cost of goods in search of higher profit margins. Between 1990 and 2004 the US workforce has lost over 7.5 million manufacturing jobs. Although 4.5 million manufacturing jobs have been added back, making the net loss approximately 3 million in lost manufacturing jobs (Source: U.S. Dept. of Labor). By the end of millennium, Imports had far exceeded our exports creating a widening trade deficit economists and analyst had voiced concerns about for decades. The US trade deficit with China alone has increased 44% between 2001 and 2010, amounting to over $190 billion from $114 billion. The increased trade deficit with China can be linked to the loss of 2.9 million jobs during the same period. Although the statistics are not easy to swallow, they were the building block of the Myth that America had abandoned the Manufacturing industry. In all fairness, economic indicators such as manufacturing, exports, job creation and jobs lost are the foundation for formulating forecasts for near-term economic status and provide a glimpse of potential long term ramifications. GDP and import/ export trade ratios are also utilized as a compus for growth and global growth comparisons. One morning, as I cleaning up and sifting through old article clippings (Im old school, what can I say) I stumbled upon a Wall Street Journal article by Mark Perry, which touted the flourishing manufacturing output in the U.S. What? I thought. I was quick to abandon my cleaning project (this was as good an excuse as any), to get to the bottom of this piece. The article prompted me to conduct a little research to substantiate this myth busting claim. There is no denying that there have been a continuous loss of jobs in the manufacturing sector.
The Auto industry is just one of the industries that suffered a loss of nearly 1.5 manufacturing jobs, as the Big Three auto makers sought bailouts and closed factories in an attempt to save their faltering operations. Statistics covering the period from 1990 through 2009 indicate a loss of nearly 5 million manufacturing jobs, which meant a displacement of factory workers and managers who were forced to rebuild their skill-set by training in new industries, or returning to school, or both. The displaced workers that did not, either remained out of work, or ended up taking unskilled positions at lower pay. This is an unfortunate side effect of changing times and  advancing technology. Nevertheless, the manufacturing industry has been rebuilding itself while no one was looking.  Although many factury jobs are gone forever, as they have been replaced with computers, we have increased our productivity 3-fold. According to the Federal Reserve, the value of  our manufacturing output in of 2009 was $2.72 trillion (in 2000 dollars). Today’s factory worker is so productive that their average output "value" is estimated at $234,220. This means that the output per worker is three times as high as it was 30 years ago, and twice the productivity of 1990.  An article written by Dr. Walter E. Williams for in 2010 stated the following "the Federal Reserve estimated  the value of U.S. manufacturing output  in 2008 was about $3.7 trillion". He went on to say,  "if the U.S. manufacturing sector were a separate economy, with its own GDP, it would be tied with Germany as the world’s fourth-richest economy".  We're still struggling to climb out of the economic recession, but it should be clear that we're making our way back to being a stong economy, that's decidedly back in the manufactuing business.

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K. Reilly
The Cohn-Reilly Report

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