There they go again -- another gratuitous attack on manufacturing strategy. Once again, the argument by some economists seems to be base on the fact that manufacturing as a percent of GDP has steadily declined over the years. Therefore, manufacturing in not important.
I can almost guarantee that the percentage of income of these economists devoted to food has declined since their graduate school days. By their logic of economic shifts, food is no longer important to their survival and therefore it would be fine if the just stopped eating. As much as I disagree with them, I wouldn't recommend that they act on this logic.
As I've noted before, manufacturing is a part of the Intangible Economy. But lets take a closer look at the supposed decline of manufacturing. Here is the data.
Yes we buy more intangibles and services that we used to. But, we haven't stopped buying and using things (at least until that drop in the Great Recession).
What we can't see from that graph is how much of that consumption is intangibles. Both services and goods embody a greater and greater amount of intangibles. Just because more of company and national value is made up of intangible assets does not mean that production of goods is less important. It does mean that intangibles are more important in the entire production process.
The other part of the argument of manufacturing doesn't matter concerns employment. As the ratio of goods to services in final output changed, supposedly this meant that employment had to decrease. Wrong. This is a classic case of confusing relative to absolute. Relative manufacturing output decreased; absolute it increased. The governing factor here is the rate of output growth versus the rate of productivity growth. As long as output is increasing faster than productivity, employment grow -- that was one of the miracles of the industrial revolution. If productivity and output are basically match, employment stays constant.
That is roughly what happened in the 1980's and 1990's. As the amount of goods consumption and productivity (brought about by increased investments in intangibles such as worker skills and better organizational methods) both increased, employment remained relatively stable. Until about 2001, that is, when manufacturing employment started a major decline.
The fact is that at the turn of the century, we stopped making things. It was not a many decades long decline. It was like some on turned off the switch.
We can argue as to what happened in 2001. But it is clear a shift in manufacturing took place that had little if anything to do to do with the increased output of intangibles. Output (as measured by our consumption) of goods continued to grow -- we just didn't make them here anymore.
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