June 17th, 2011 at 9:02 am

That’s where I am today, giving a presentation on the importance of manufacturing in the US and what to do about it.  (I’ll post my slides once I figure out how to do so…I know, very un-Netrootsy, but hey, gimme a break…I’m over 50…at least I’m here!) Figured it out! Here they are.

Key points:

–these are better than average jobs: even while global competition has lowered the manufacturing wage advantage, the sector is still high value added and that’s reflected in the paychecks.

— manufacturing is a productivity leader (even with the measurement error problem I wrote about the other day) and a consistent source of innovation.  Output per hour in the manufacturing sector has significantly outpaced that in the rest of the economy over the past 30 years and manufacturing firms are responsible for 70 percent of the R&D undertaken by private industry in the United States.

–governments in advanced economies, including our own, have always played an important role in promoting manufacturing.  The economic rationale is the set of “negative externalities” that create barriers to entry, expansion, and innovation that no single, private firm can solve:

  • Research Barriers: R&D can be prohibitively expensive and hard to capture profits (e.g. advanced batteries)
  • Coordination Barriers: No single firm could coordinate national projects like the internet or smart grid
  • Innovation Barriers: Firms need help morphing academic innovations into the production process
  • Credit Barriers: Markets will underinvest when returns are particularly uncertain
  • Exports: Firms need the federal gov’t to pushback against unfair trade practices that block our exports and artificially lower the prices we pay for the goods our competitors export to us.

For the record, the Obama administration has been quite good on at least the top four of those five, IMHO.

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18 comments in reply to "Netroots!"

  1. Peter says:

    “Firms need the federal gov’t to pushback against unfair trade practices that block our exports and artificially lower the prices we pay for the goods our competitors export to us.”

    ….and more generally to regulate unfair trade practices that stifle new technologies that threaten to displace incumbents.

    But this is probably a should, and not a could.

  2. Kevin Rica says:

    “Firms need the federal gov’t to pushback against unfair trade practices that block our exports and artificially lower the prices we pay for the goods our competitors export to us.”


    It’s the manipulation of exchange rates. The more we get sucked into the distraction of “unfair trade practices” the more we quibble about the commodity composition of trade rather than the real macro issue: the magnitude of the external imbalances.

  3. rootless_e says:

    What’s amazing is how the extremist Austrian theories have displaced traditional American economics. Here is James Madison in 1815 explaining why the US was about to become an industrial super-power instead of remaining an English commercial colony.

    However wise the theory may be which leaves to the sagacity and interest of individuals the application of their industry and resources, there are in this as in other cases exceptions to the general rule. Besides the condition which the theory itself implies of reciprocal adoption by other nations, experience teaches that so many circumstances must concur in introducing and maturing manufacturing establishments, especially of the more complicated kinds, that a country may remain long without them, although sufficiently advanced and in some respects even peculiarly fitted for carrying them on with success. Under circumstances giving a powerful impulse to manufacturing industry it has made among us a progress and exhibited an efficiency which justify the belief that with a protection not more than is due to the enterprising citizens whose interests are now at stake it will become at an early day not only safe against occasional competitions from abroad, but a source of domestic wealth and even of external commerce.

    • Jared Bernstein says:

      That’s great. I’ve been collecting examples like this of clear thinking from the past and this is a great gem.

      • readerOfTeaLeaves says:

        In case JB is not familiar with a terrific resource, the Univ of VA has a database available for free public access of all US Census records going back to the origins.

        This data is also available through the US Census site, but the Univ of VA website enables you to click on “Economy, Mfg, Employment” and then click subcategories of the demographic groups tracked in 1820, 1840, etc… (by state).

        In some of the earliest US Census records, you will actually finds lists for each state’s forge’s. Kinda cool if you like doing that sort of research (or have someone who can do it for you). It really was quite clever of them to record and track this kind of info back in the early 1800s.

    • John says:

      This isn’t 1815 – it’s nearly 200 years since.

      He continued (State of the Union 1815):

      “In selecting the branches more especially entitled to the public patronage a preference is obviously claimed by such as will relieve the United States from a dependence on foreign supplies, ever subject to casual failures, for articles necessary for the public defense or connected with the primary wants of individuals.”

      A true story, since you mention batteries. Earlier this year I was consulting with a small company that had been doing defense contracting – among other things, manufacturing solar-supplied batteries for battlefield use (Afghanistan). Funding had dried up and there was no domestic demand for their products, so they had found an Asian investor to whom to pitch the prospect of sales into the Asian domestic security market.

      Turns out the Asian “investor” had other things in mind.

      Near the end of the discussion, the Asian businessman reversed the pitch, revealing himself to be an exporter of even better battery technology from China, for which he wanted this company to serve as a US distributor. And indeed, there is more advanced battery technology from China.

      I can’t tell you how embarassed I was. They likely took the deal; I didn’t hang around to find out.

    • general c. san desist says:

      hey rootless…’tis a smart man using the guidance of Madison. I look to the Federalist also when the conservative brotherhood’s Ministry of Fairly Unfounded Truisms surface…nothing like the big stick of humility to catch their attention.

  4. Michael says:

    There are basically two ways to run an oligarchy:

    1) Do everything you can to improve productivity and distribution without upsetting the rich folks.

    2) Loot the place and burn it after it’s looted.

    The problem we’re facing is that the culture and economics of oligarchy are so firmly entrenched that we’re faced with a choice between (1) and (2) on a national level. (1) is definitely better, no question. But neither of them are the social contract created by the New Deal and Great Society.

  5. John says:

    Capital vs.labor, JB.

    I look at this same data and see clear evidence of the very problem I’ve been trying to point out for years now.

    Manufacturing output has increased. Manufacturing wages have decreased. And not just recently, but over the past 30 years. This isn’t rocket science, it’s simple math.

    Yes, productivity has improved – at the institutional level, but not to due labor productivity – it’s due to improvements in technology. Capital, not labor.

    And the thing is, every business in the country knows that labor deserves no credit for the productivity improvements, so they don’t increase wages – they buy more technology. And by now, they’re actually decreasing not just wages but employment, using fewer people. Technology competes with labor for investment dollars and loses. That’s how it devalues labor. Because it’s across the board – information technology is nothing if not general purpose – it’s Baumol’s cost disease in reverse.

    Again, the factor of production that information technology intends to replace is human labor itself, and it’s been successful at that, and is getting more successful at it every day.

    So I don’t see any of this as good news for labor, and I don’t see how the administration is getting the point. They’re applauding the manufacturing sector for being able to successfully reduce the involvement of labor in production, and apparently trying to reward them for it. That doesn’t help with “jobs, jobs, jobs.” Quite the contrary.

    Primum non nocere, JB.

    • John says:

      Let me add, JB, since you mention R&D, that this can be confusing.

      I have a PhD in computer science (if CBPP wants to offer me a job, I’ll take it, since I’m available). I was doing R&D decades ago. So my perspective isn’t economics from a distance, it’s from being in the middle of all of this for decades now.

      There’s virtually no market anymore for permanent employment in technology R&D. It’s all temporary work offerings, except for legacy and big-name people. And for a reason: once developed, technology products don’t need ongoing involvement from researchers and developers, if they’ve done their jobs well – it suffices to replace them with low cost maintenance and support personnel.

      In other words, good researchers and developers make themselves obsolete.

      This is not theory or speculation – been there, done that, and have seen it happen to more than just myself.

      Intellectual property laws – particularly so-called “work-for-hire” laws – allow employers to effectively steal innovations from its inventors for short-term pay, and then makes gazillions from those innovations. The inventors are often left looking for their next jobs with very little to show for it.

      Economists and policy makers really could use a first-hand perspective from actual innovators, to balance this pervasive capitalist-only perspective. There’s a reason there’s an open-source movement, and this is it: we’re tired of companies stealing our work product from us and getting filthy rich from it. We’d rather give it away for free than let that continue to happen.

      Please, JB, try to see the other side of the coin – the labor side. It’s been ignored for far too long, especially where “innovation” is concerned.

    • John says:

      Case in point – I just commented about this on HuffPo.

      Oracle is suing Google over Java – apparently for “billions.”

      Java is Oracle’s IP via its buyout of Sun. Java’s principal developer at Sun was one James Gosling.

      Gosling left Oracle/Sun shortly after the buyout. Parties claim it was voluntary, that he didn’t like Oracle management. I’m not so sure.

      A year later – I presume after being unemployed for that year – Gosling is now a Google employee. I doubt he’s impoverished, but I also doubt he’s a billionaire. But I know Larry Ellison is, as are Page and Brin at Google.

      Gosling developed Java, but the company at which he developed it is suing the company at which he now works. Because legally it doesn’t belong to him, it belongs to his previous employer.

      Is there not an economist or politician who sees something wrong with this picture? And you folks can talk about innovation this way – rewarding the culprits while ignoring the actual innovators themselves – with a straight face?

      I’ve personally been defrauded of patents by a previous employer. Again, this isn’t hypothetical for me.

  6. readerOfTeaLeaves says:

    (I’ll post my slides once I figure out how to do so…I know, very un-Netrootsy, but hey, gimme a break…I’m over 50…at least I’m here!)

    Break given.
    Hope the ideas flow like Niagara.
    Lord only knows the nation needs it!

  7. Terry Saunders says:

    Heard you on Tom Hartmann a little while ago — I love the idea of FAST (Fixing Americas Schools Today). Where do I get my bumper sticker? It would be a really visible, satisfying way of putting people to work

  8. general c. san desist says:

    To speak of resources being organized to meet the wants of the community tends to be a fool’s errand. In an advanced economy, consumers are persuaded to want almost anything if enough resources are devoted to the task of persuasion.

    Community can & must be severed from the idea as a whole. What is good for the earth community may not be understood as welfare to the rain forest slash & burn farmers. True, they would benefit from solar & wind generation & advanced battery storage…but that is a future & foreign concept.
    We can see what R&D has done in the past. Companies using the tax advantage to develop a cheaper mouse trap or more effective medicine & have it made overseas…where is the benefit? The corporate HQ is in the Caymans…where’s the benefit to Americans?

    The barriers stated are indeed the impasse of having the private side getting involved. The saddest of all is the protection of self-interest. Battery research may pay due to the weight to shipping ratio…next stop, Mexico. Nothing Stateside I fear. The smart grid is cake…the Parsons Corporation comes to mind…but these are ten year projects, minimum & organized through the social media networks.

    Advanced battery design should be coming from our research Universities, why else fund them if not for advanced, nanotech tweaky kind of stuff that will save us from ourselves. Snatching energy from the sun with chlorophyll technology seems pretty darn simple…plants even do it! You get my drift. The patentability is all that matters..hence no collaboration.

    Exports fall in the ‘whose Pareto optimum’ is that, China, U.S., Euro zone, emerging markets? That’s what tariffs are for! With Japan & Germany reversing the nuclear future with alternatives will give the incentive to whom…the Saudis is where my money would be with the same results as the movie The Formula with George C. Scott. The first one to hold the patent wins & the world loses, period.

    Should research of alternatives be allowed in the private market? The answer is a big yes but with a big asterisk attached. Salvation will come from the non-patentability of solar, wind, wave energy sources. The governments of the industrial world must fund the research but keep the rights to the technology.

    …if wes is bes, then woods has the goods…Fill the Woods With Laughter, phil that is.

    • Kevin Rica says:

      “To speak of resources being organized to meet the wants of the community tends to be a fool’s errand. In an advanced economy, consumers are persuaded to want almost anything if enough resources are devoted to the task of persuasion.”

      A bold assertion — but no one can ever persuade me to like Brussels sprouts. That’s why you see Count Chocula advertising on kids shows and not the Jolly Green Giant. Ho Ho Ho!

      • Michael says:

        Brussels Sprouts are awesome if you steam them, then slice them in half and sautee them in olive oil with a little garlic, salt, and pepper.

        If you try the above, congrats — you now love Brussels Sprouts.

      • general c. san desist says:

        hey kevin…the sprouts are part of the three big ‘b’s, broccoli & beets that only mothers can pitch to the kids.

        You mention the Jolly Green Giant. My 9 year old (yes, I’m a gummer with a kid…my fly fishing partner)commented one time about the peas & green beans served at school being the Jolly Green guy. I was surprised by the branding he has been exposed to through institutional suppliers…talk about built in consumer, yikes! They just cannot give the kids a break, Disney being truly pervasive.

        Seems that they (I love the ‘they’…tough customers, them) have won the game that we never agreed to play. How does that happen? Ill-informed electorate, lack of Fairness Doctrine, apathy, lethargy, stupidity, it’s in the water…what? Guess I’ll go kick a post. Same results.

        • Kevin Rica says:

          Mothers don’t pitch those things to their kids — mothers use brute force and television deprivation. But even if you eventually conceded so that you would get to watch The Lone Ranger, you still hated those things. Vegetables are like water boarding for children.

          Nobody had to persuade me to eat Milky Way bars or French fries. Nature beats nurture!