Why Manufacturing Matters

Technology Review
July 1, 2011

Between 2000 and 2010, the number of manufacturing jobs in the United States declined by 34 percent—a loss of more than six million positions. For now America remains one of the world's greatest manufacturing powers—it makes 19.4 percent of the world's manufactured goods, a share that fell only slightly over the past 30 years and is right behind China's share of 19.8 percent. But hard questions remain about the future of production in an advanced industrial country like the U.S. The latest research suggests that the big recent decline in manufacturing jobs is due not only to increases in productivity, as we long thought, but also to large gains for Chinese imports.Do these global trends mean that manufacturing has a limited future in a high-wage country? Does the U.S. even need much domestic production when manufacturing has become a commodity that can easily and cheaply be purchased abroad? As the economy becomes more heavily dominated by services, why focus on manufacturing at all?

These questions have very old roots in American political economy. At the very beginning of the Republic, Alexander Hamilton was already arguing for industrial policies that would stimulate domestic production. More recently, in the 1980s, the rapid gains made by Japanese companies in industries like automobiles and consumer electronics stirred up huge political controversies over whether government should stave off this competition and try to sustain and revive U.S. manufacturing. The advocates for such policies argued that manufacturing plays a critical role in generating economic growth and employment opportunities and in assuring national security. The critics of industrial policies claimed that government was incapable of making good choices about industry—that it could not pick winners and losers. More fundamentally, the critics denied that there was anything special about manufacturing as distinct from other activities in the economy, or that any kind of manufacturing was more valuable than any other. As the director of the Office of Management and Budget in the first Bush administration put it: "Potato chips or silicon chips—who cares? They are both chips."
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