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January 22, 2007
Manufacturing in the US
Speaking of distributed production, here is evidence from the Wall Street Journal that the US still have some manufacturing capability - For Some Manufacturers, There Are Benefits to Keeping Production at Home:
It has long been an axiom that U.S.-made consumer goods such as TV sets and kitchen appliances can't compete in a world where cheaper labor can be found elsewhere. Like many axioms, though, it isn't entirely true.
Recent data from the Federal Reserve contained some surprises for anyone who thought U.S. companies don't make things for American consumers anymore. In its monthly update on factory output, the Fed reported that U.S. production of audio and video equipment surged about 2% in December and was up 23% for all of 2006.
That is a significant change from several years ago, when the numbers were negative as U.S. production moved overseas. Even output of appliances, though down for 2006, popped 5% in December.
The shift doesn't necessarily represent a renaissance. More likely, it reflects the fact that much of what can go abroad already has, leaving behind what can and should be made in the U.S. One area of strength: high-end goods like top-of-the-line $6,000 Sony Grand WEGA TV sets and $15,000 Sub-Zero PRO 48 refrigerators, which appeal to the affluent folks who have been driving much of the growth in U.S. consumer spending.
"It's the very high-end products," says Daniel Meckstroth, chief economist at Manufacturers Alliance, a trade group. "Manufacturers who have niche markets in high-end products have a very good outlook."
Such manufacturers account for only a tiny fraction of U.S. output and employment. Still, the numbers illustrate an important point about the physical and strategic limits of globalization: In just about any possible future, there will always be some business that is better done close to the customer. The obvious examples are home building and services such as restaurants, but the logic also can apply to certain types of manufacturing.
"If the thing being sold to the U.S. market is locally customized, delicate, or very large, chances are it'll continue to be produced in the U.S.," says Bruce Greenwald, professor of business and economics at Columbia University in New York. The same, he says, is true "if the manufacturing process itself involves almost no labor, like medical testing or like some very automated electronic-component manufacturing plants, chemical plants and metal-fabricating plants."
But continuing to have manufacturing base in the US isn't the same as higher manufacturing employment:
Across the manufacturing sector, the picture is similar: To stay competitive, companies are doing everything they can to boost productivity -- that is, make more stuff with fewer people. "Manufacturing in the U.S. is headed toward plants that have no people in them," Prof. Greenwald says.
That is bad news for factory workers who must retrain or be cast aside. It could be better for the U.S. economy as a whole. The more the U.S. can produce for each hour worked, the wealthier the average American becomes. If, for example, output per hour rises an annual rate of 3%, the average inflation-adjusted wage will more than triple over 40 years.
"Manufacturing is contributing to the welfare of the economy in terms of standard of living, but it's not generating net new jobs," says Mr. Meckstroth. "The electronics sector is one of the areas where that's most visible."
One way or another, routine manufacturing jobs are decreasing - either through automation or outsourcing. Manufacturing has a future in America. It's just not a future that looks like the past. We need to be discovering what the high-skilled, non-routine tasks that can produce the I-Cubed Economy's middle class - just the way that factory jobs created the middle class in the Industrial Era. Trying to return to that era won't work. But neither will the laissez faire approach of "let's all become computer programmers". We need to think differently.
Posted by Ken Jarboe at January 22, 2007 2:34 PM
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