How America Lost Its Industrial Edge

Economic commentator Eamonn Fingleton speaks bluntly about what he sees as the frittering away of the United States' manufacturing base and what he regards as the consequent stagnation of the American standard of living. For those who believe in the superiority of the current U.S. postindustrial strategy, a reading of the OECD Economic Yearbook makes for a distinctly chastening study. As Fingleton puts it: "The United States trails no fewer than eight other nations, all of which devote a larger share of their labor force to manufacturing."

Fingleton, who distinguishes between high-end and low-end jobs, insists that the former, advanced manufacturing, must be reconstituted if the United States wants to remain a superpower. And what are these eroded industries? Semiconductor materials, ceramic packaging for semiconductors, charge-coupled devices (CCD), industrial robotics, numerically controlled machine tools, laser diodes and carbon fibers, to name only a few.

Where did the manufacturing of these items go? In most cases, Japan now dominates the more advanced areas of these industries, says Fingleton, who lives in Tokyo. Moreover, he argues, by dint of superior know-how and large capital investments Japan now enjoys a global lock on key manufacturing processes.

Fingleton recalls an America where men and women went to work and made the nation great, the old-fashioned way, by producing products people wanted and needed. And he juxtaposes the loss of advanced manufacturing jobs in this country with what he regards as the overvalued dollar, America's compulsion to borrow huge sums of money to fund its deficits and an illusionary U.S. prosperity based on unsustainable debt. For now Japan and China, both running huge trade surpluses, pay the United States' bills, he says. Where does this leave the American worker? He puts the answer simply: Out of work!

It is not true that Japan is in dire economic straits, Fingleton maintains. In a recent article in the London journal Prospect entitled "Japan's Fake Funk," he writes: "The Western consensus is that Japan is a basket case: It is not. That is a misreading by the West."

Meanwhile, he says, ill-conceived U.S. policies have failed to protect home-based American industries, leading to the transference of the most advanced technologies known to mankind. Fingleton says flatly that Japan has built up its industrial base at the expense of the United States, and that China now is chomping at the bit to do the same.

Insight: You speak of the transference of hard industries. What do you mean by that?

Eamonn Fingleton: I mean those engaged in advanced manufacturing. Specifically, industries that are both highly capital intensive and highly know-how intensive. They typically are many orders of magnitude more capital-intensive and know-how intensive than the most advanced of "New Economy" services, such as computer software developed in the last three decades.

Although Japan is known in the West for its leadership in certain consumer products such as cars and television sets, its area of greatest leadership is in much more advanced industries that largely are invisible to the consumer. Specifically, Japan leads almost right across the board in the sort of advanced materials, high-tech components and production machinery that are driving the electronic revolution. Some products may be assembled in the United States, but their key manufacture - the manufacture of the advanced components and materials - is done in Japan.

Q: Do U.S. manufacturers hide from the American people how dependent they are on foreign suppliers?

A: The impression given is that outsourcing is done within the U.S. and that available components come from many sources. But it is clear that most advanced components and materials now are outsourced from Japan. Corporate America is very guarded about its dependence on foreign suppliers, and this applies in spades to outsourcing by American defense contractors.

A: It is absolutely gone. The U.S. started losing its edge about 30 to 40 years ago. By the early eighties, America was already in serious trouble.

The sad truth is that advanced manufacturing accounts for only a very small part of the total U.S. economy and much of it merely is customizing equipment for the needs of the American market. Final assembly of manufactured products often is carried out in the United States and, to the extent that it is the sort of manufacturing that requires close proximity to customers, it likely will stay in the United States.

Meanwhile, high-tech manufacturing here largely has disappeared, particularly mass-production manufacturing. American companies can make almost anything if price is no object, and thus they can produce in small batches, for instance, for defense purposes. But they no longer master the mass-production techniques that are necessary to be cost-efficient in serving world markets.

Q: How vulnerable are Americans to job dislocation and unemployment because of what's happened to advanced manufacturing in this country?

A: I believe most of the job loss already has taken place. The blue-collar worker we all knew some 30 to 40 years ago was the backbone of the American economy. He or she was the best-paid worker in the world. But more and more Americans of average ability now are employed in "Mac-jobs" within the service industries. Typically they are not as well paid as in manufacturing.

The manufacturing jobs are gone, and the U.S. standard of living has been impacted badly by this. When I first came to the United States in the 1970s, I was stunned at how wealthy Americans then seemed. Since then, Western Europe largely has closed the wealth gap with the United States, so that living standards even in a country like Ireland that seemed poor a few decades ago are not far behind American levels.

Q: You describe significant job loss to Japan at the high end of the industrial food chain. Are low-end jobs endangered, too?

A: At the higher end of the food chain, Japan already has taken its bite: The jobs are gone. There now is a serious threat emanating from China, which is vying for the lower end of American manufacturing. Beijing is moving very fast and threatening what remains of the job base in the United States.

A: Blue-collar workers have been hit hard and the erosion of their jobs will continue. But America is of course now overwhelmingly a service-based economy, and jobs in services largely are insulated from international competition. America as a whole is therefore feeling relatively little pain, even in currency markets.

East Asian economies are supporting the U.S. dollar as well as funding the U.S. trade deficit. As a result the dollar has not shown the effects of the hollowing out of American manufacturing, but we are about to see the free market play itself out in the currency markets.

A: It is obvious to many in the U.S. financial sector that Japan, China and, to a lesser extent, Taiwan are supporting the dollar in an organized effort to benefit their own industrial policies. These nations want to promote their manufactured exports, and the lower their exchange rates are vis-à-vis the dollar the more profitable it is for their manufacturers to export.

The dollar now is vastly overvalued vis-à-vis the East Asian currencies. The best way to look at this is to ask yourself a question: How low would the dollar have to fall to enable the United States now to balance its trade deficit? To answer that, you have to look at both the state of American export industries and the extent to which the United States now is dependent on imports for goods that it no longer can make - at least cannot make in mass-production volumes.

The numbers are shocking. In the late 1980s the U.S. dollar traded above Y140 [yen]. Today, the dollar trades at Y117. So we have seen some depreciation even since the Japanese bubble collapsed in 1990. But, for the United States to begin to win back export markets, we probably would have to see the dollar fall to Y60 or lower. A 50 percent devaluation against the Chinese currency also is necessary.

A: It began in the 1960s and became really serious from the mid-1970s onward. One key factor early on had been a U.S. government policy of transferring technology to Japan. There was an American tendency to underestimate the Japanese competitors. This was particularly apparent in the electronics industry, where American companies that won contracts to supply semiconductors to IBM, for instance, would be required by IBM to license a "second source" - a company that could continue to supply if the primary contractor were hit by an act of God.

American companies like Motorola and Intel invariably chose to license Japanese companies to do such second sourcing, on the theory that the Japanese were incapable of eating America's lunch.

Also, there existed a very powerful Japanese plan to extract technology from this country. By the early 1970s, Japan was the second-largest economy in the world, a market that could not be ignored. Firms such as IBM and others were eager to sell their products in Japan. But the Japanese insisted on a quid pro quo. If an American company wanted to sell in Japan, it would have to manufacture there. Then, when the company moved to the next stage of the technology, it often closed down its American factory and served the entire world market from its Japanese operation. Sometimes technology transferred to the Japanese subsidiary leaked to the company's major Japanese competitors.

It all adds up, and now America imports much of its manufactured goods, with the current account deficit at 4.7 percent of GDP [gross domestic product] and almost all of it related to manufacturing. By comparison, the worst trade deficit in the early 1970s when [Richard] Nixon took the U.S. off the gold standard was just 0.5 percent of GDP.

A: Many jobs indeed. But there was also the myth known as the "New Economy," which for 20 years had been growing in fashion.

I was working then at Forbes magazine in New York and I recall how struck I was by the large number of sophisticated people I met who exclaimed that "the future is in services! Manufacturing is a commodity business! We need to get out of it!"

Indeed, America did get out of it. Having allowed its manufacturing base to disappear, the U.S. now is in possession of almost an entirely service-based economy - beating all standards of economic history. The manufacturing sector exports, on average, 11 times more, based on per unit of output, than do service industries. Herein lies the problem: The United States no longer produces the goods to pay for its imports. You have to fund the gap.

For 30 years the United States has run these trade deficits. In the early days, they were relatively small and explained away as a temporary phenomenon. They long since have ceased to be considered temporary even by the most trenchant advocates of laissez-faire.

They have major negative consequences for the United States, particularly in undermining America's ability to project economic power abroad.

Don't get me wrong: I am not saying imports are necessarily a bad thing. But when the United States must go to foreign central banks with its hand extended to fund huge trade deficits for decades on end, something is desperately wrong.

A: Highly dependent. Two countries now are serious capital exporters: Japan and China. There is one huge capital importer: the United States.

The U.S. Treasury is more and more beholden to the Japanese Ministry of Finance, which is a power-driven organization. One doesn't want to be an alarmist, but there is the matter of sovereignty here. It is inappropriate that the world's superpower is dependent on government agencies in other nations to get it through the day.

Q: You argue that the information economy is not the key to future prosperity. Why isn't it?

A: You are referring to the subtitle of my book In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity. The point I was making is that the prospects for the information economy, meaning the all-digital service economy that the American press was then talking about, were vastly overblown. Many of the services being created were basically worthless, a point that has been resoundingly vindicated by subsequent events.

I should make clear, however, that my argument carried no Luddite content. I pointed out that the Internet and many other manifestations of the information economy that were so hyped at the time were indeed great advances for the world in general. But the idea that America could somehow establish a hammerlock on such services and thus graduate to some ineffably higher level of prosperity by providing them to the world was the purest nonsense.

In reality, many of those services are highly labor-intensive and, to the extent that international trade can be conducted in them, they should be located in places such as India, Russia, Latvia and so on, where labor is much cheaper than it is in the United States.

Meanwhile, the United States would be well-advised to follow the lead of the Japanese, the Germans and the Swiss by maintaining and enhancing its position in advanced-manufacturing industries.

Are you daring to question the fulfilling our "duty" and "obligation" to the rest of the world to raise their standard of living by gutting ours?

Don't you realize the glory in carrying the burden of a 34 trillion dollar national debt to lift the boats of the third world is proud burden, or are you flinching that the return on that investment has been world wide anti-Americanism and demands that we give up more and more and more? Like our middle class for instance.

There is a sucker born every minute certainly applies to the citizens of this nation. Not only is it demanded of us to lift the boats of the rest of the world, but also that we should also welcome every boat arriving on our shores, and give no thought to their impact on the survival of our Constitutional Republic. After all "we are a nation of immigrants". It is sickening how we fall for every line out of a snake oil salesman's mouth.

Never mind that we may have been a nation of immigrants a couple of hundred years ago. Since then their decedents are native Americans, and there is certainly more here now than the deer and the antelope. There is what we and our fore bearers have built, what the rest of the world and our politicians want to steal out from under us with calls to a false compassion to everyone but ourselves, and what we are told we no longer have the right to be selfish with or control the future of responsibly, since we are merely just another ethnic group, and soon to be a minority one at that, given the fever pitch at which they are working to make it so.

"Honda plants in the USA employ 24,000 people in manufacturing and its dealers employ another 120,000 Americans."

....while the value added parts that go into these vehicles, that generates trickle down to the economy, is made outside of the country. Aren't these the low skilled assembly line jobs you mentions later?

"For most manufacturers in the USA government taxes and government regulations cost far more than even double time labor."

.....agree. This is the major problem. We can compete on the labor side with automation, but it is easier to send it to China. The CEO's pocket the savings and the employees get the shaft.

Fools like this author want to stay in 1950.. with working class families living in houses of 900 square feet. With one used car per working class family. With enough money to eat out perhaps twice a year. With one week vacations spent at home. With very limited clothes budgets and next to no luxuries. Back then 90 percent of the working class children were unable to afford college.

.....In the 50's one person working could support a family. All these "so-called" luxeries and college you mention = the the massive debt and the mortgaging of future a lot of families are experiencing.

"While you are in China and look at the plants that make the mother boards for your computer. They are totally automated. They have no unskilled workers The plant is in China and hires skilled Chinese because our government makes building such a plant here impossible."

.....all of manufacturing is not low skilled jobs. It takes engineers to design the products and machinery to make it. It takes managers...techinicians...accounting...etc. You need to buy tooling and materials from other companies to make the product. We have a lot of skilled and educated people that were once employed by manufacturing.

Japan is not the industrial power and niether is the US now. It is now China and we will be dependent on them soon to everything from commodity to military products. Buying from a communist country that wants us destroyed is stupid. Besides that how about all of the intellectual properties we are giving away. We are giving away what we created and out country as well.

Can't you come up with anything more intelligent than "Free Traitors?" Nope, I think that all you can do is post an idiotic article and call names.

I have worked in manufacturing before. Now, if you look at the manufacturing trends, you would realize that jobs were steady throughout the 90s, but only began to be shed after the economic downturn that affected ALL sectors of the economy.

You need to understand the reasons WHY asia has been successful in manufacturing. They used much better processes than we did and were able to create goods using less resources and time while improving customer satisfaction. This is why Japan has been extremely successful and were able to compete with us as well as they have.

The good news is that we ARE able to compete, if we too transform our manufacturing methods to reflect greater constomer satisfaction while reducing cost, because the U.S. is far more productive than these other nations.

Now, if I am a company and I want to manufacture goods in another country for any reason, I HAVE THE RIGHT TO DO THAT. It's called freedom. It's called capitalism. And no government or state has the right to tell me that I cannot.

As for you, Willie Green, THIS is what "conservatism" has always been about, not restrictions on trade. Modern day conservatism is supposed to be classical liberalism, i.e. Adam Smith et. al. Unfortunately, more than half the people on this forum don't fit the bill, and are not real conservatives.

Am I saying that there aren't any problems? Of course not. Trade has to be fair, and no free trader I have ever met or discusses with thinks otherwise. A major problem is with China and incompatible trade laws - specifically the problems with patents being honored.
CP, as for you, it's easy to call someone a traitor on the internet. I guarantee that you would not do it to my face.

I have worked in manufacturing before.

Whooptie-do. It's been my profession for over 30 years.
That includes project management responsibility for design specification and installation of new facilities in Mexico, South Korea and China.
I doubt you're going to teach me anything new.

Now, if I am a company and I want to manufacture goods in another country for any reason, I HAVE THE RIGHT TO DO THAT. It's called freedom. It's called capitalism. And no government or state has the right to tell me that I cannot.

Hmmmm.... like I said, been there, done that.
It's a great experience, have a good time!
Just remember: "We the People" have the right to impose tariffs on imports. It's called "sovereignty".

Modern day conservatism is supposed to be classical liberalism, i.e. Adam Smith et. al.

I just quoted Adam Smith's chapter Of Restraints upon the Importation from Foreign Countries of such Goods as can be produced at Home on this thread. You should become more familiar with it.

I guarantee that you would not do it to my face.

Sure I would.
I'm a Buchannanite -- a true conservative: crotchedy, mean-spirited, judgemental and intolerant. (And dang proud of it.) Believe me, I wouldn't give a second thought to calling you a traitor to your face. It sounds like fun!

Well, here are my facts, since I am living it right now...

2.1 million jobs lost in this recent downturn. Plus, "Over the past year and two months, we have seen the weakest manufacturing recovery from recession since the Federal Reserve started keeping tabs on such things back in 1919. The data show that since December 2001, manufacturing production has edged up only 1.6 percent, drastically slower than the first 14 months of the previous six recoveries when growth in manufacturing averaged 10.8 percent."

http://www.house.gov/smbiz/hearings/108th/2003/030409/jasinowski.html

http://www.freerepublic.com/focus/f-news/959787/posts
Lawmaker predicts defeat for 'Buy American' language (Defense Department procurement update)

"But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade." ~ Karl Marx, On the Question of Free Trade, January 9, 1848 http://www.marxists.org/archive/marx/works/1848/01/09ft.htm#marx

"Communists and socialists feel sure that setting up international “free” trade systems which impose regulations chuck full of intrigues, redistribution plans, arbitrary law, and interdependence schemes, will win out against the conservative interests of every free nation. What could be better than to use “free” trade to reverse the advantage of the relatively free, moral, prosperous, and strong nations of the Earth, so that the tyrannical, amoral, poor, and weak nations of the socialist bloc might get the upper hand? What could be a more cunning approach than to market the idea that those who oppose “free” trade are enemies of freedom?" http://www.newsmax.com/commentarchive.shtml?a=2000/6/27/105655

http://www.freerepublic.com/focus/news/954156/posts
Why FREE TRADE was never the answer.

http://www.freerepublic.com/focus/news/957315/posts
Drifting away: Many fear such 'offshoring' will hurt the economy and national security.

http://www.freerepublic.com/focus/f-news/956435/posts
US gives India assurance on outsourcing

http://www.freerepublic.com/focus/f-news/956924/posts
Economy held back by 44,000 job losses

http://www.freerepublic.com/focus/f-chat/956820/posts
WHERE THE GOOD JOBS ARE....

http://www.freerepublic.com/focus/f-news/956686/posts
Conservative sees free trade as threat to manufacturing

http://www.freerepublic.com/focus/f-news/956628/posts
Jobless rate drops, largely because of discouraged people leaving job market

http://www.freerepublic.com/focus/f-news/956517/posts
U.S. labour market shrinks again in July

http://www.freerepublic.com/focus/f-news/955929/posts
President Blames Unemployment On Lack Of Tech Skills

http://www.freerepublic.com/focus/f-news/956461/posts
Tellabs to outsource North American manufacturing

http://www.freerepublic.com/focus/news/957331/posts
White-collar jobs may not be back soon

http://www.freerepublic.com/focus/f-news/957635/posts
It's Unstoppable: High Tech Jobs Ditching US

http://www.freerepublic.com/focus/f-news/957588/posts
Manufacturing rally draws 1,200

http://www.freerepublic.com/focus/f-news/960206/posts
Imports force Hooker's downtown factory to close

http://www.freerepublic.com/focus/f-news/959227/posts
A Passage to India Services to Follow Manufacturing Jobs Exodus

http://www.freerepublic.com/focus/f-news/960501/posts
Newsweek column on outsourcing

http://www.freerepublic.com/focus/f-news/959757/posts
Sprint plans to send hundreds of technology jobs overseas

http://www.freerepublic.com/focus/f-news/960979/posts
Job Losses in State Accelerate; July Payrolls Lowest in 2 Years

http://www.freerepublic.com/focus/f-news/961212/posts
In a small town, workers question the future after factory shutdowns

http://www.freerepublic.com/focus/f-news/961400/posts
Michigan loses as tech jobs slip overseas

http://www.freerepublic.com/focus/f-news/961386/posts
IT happens only in India!

http://www.freerepublic.com/focus/f-news/961476/posts
Loss of factory jobs may have a long fall to bottom

http://www.freerepublic.com/focus/f-news/962024/posts
Ultimate insult for American programmers as employers seek cheaper labor

http://www.freerepublic.com/focus/f-news/962493/posts
'Smart-bomb' technology moving to China

http://www.freerepublic.com/focus/f-news/963730/posts
U.S. Offshore Outsourcing Leads to Structural Changes and Big Impact

http://www.freerepublic.com/focus/f-news/963930/posts
Lucent letting 1,500 more workers go

http://www.freerepublic.com/focus/news/969207/posts
STUDY SHOWS MANUFACTURING IS KEY TO INNOVATION,PRODUCTIVITY, STRONG GROWTH AND GOOD JOBS

http://www.freerepublic.com/focus/f-news/969195/posts
Death of Manufacturing

http://www.freerepublic.com/focus/f-news/969274/posts
Outsourcing boom brews a season of despair in US

http://www.freerepublic.com/focus/f-news/969512/posts
Slump hits white-collar and IT jobs notably hard

http://www.freerepublic.com/focus/f-news/969622/posts
Forging a case for U.S. jobs in manufacturing

http://www.freerepublic.com/focus/news/969664/posts
Experts agree, and jobless know, manufacturing jobs are dwindling

http://www.freerepublic.com/focus/f-news/970204/posts
Free trade's victims turning against Bush, GOP

http://www.freerepublic.com/focus/f-news/970269/posts
Walsh Says "Free Trade" Should Be "Fair Trade"

http://www.freerepublic.com/focus/f-news/970333/posts
Taxing businesses that cut U.S. jobs not that farfetched of an idea

http://www.freerepublic.com/focus/f-news/970319/posts
The call to move overseas

http://www.freerepublic.com/focus/f-news/970305/posts
Cut-throat international competition hurts U.S. textile producers

http://www.freerepublic.com/focus/f-news/971689/posts
White-collar jobs go abroad

http://www.freerepublic.com/focus/f-news/971687/posts
U.S. college grads see jobs being taken abroad

http://www.freerepublic.com/focus/f-news/971659/posts
India no longer as attractive for outsourcing, says analyst

http://www.freerepublic.com/focus/f-news/971540/posts
As layoffs mount, import relief sought

http://www.freerepublic.com/focus/f-news/971272/posts
Passage to India? Productivity at home will counter outsourcing.

http://www.freerepublic.com/focus/f-news/971255/posts
Large Layoffs, Big Raises

http://www.freerepublic.com/focus/f-news/970327/posts
U.S. future needs blue-collar might ^

http://www.freerepublic.com/focus/f-news/971712/posts
IMPACT OF U.S.-CHINA TRADE RELATIONS ON WORKERS, WAGES, AND EMPLOYMENT PILOT STUDY REPORT

http://www.freerepublic.com/focus/f-news/974687/posts
Tech workers protest overseas outsourcing

http://www.freerepublic.com/focus/f-news/976903/posts
Selling Out America's Future

http://www.freerepublic.com/focus/f-news/980791/posts
Exporting U.S. Jobs

http://www.freerepublic.com/focus/news/980622/posts
Thousands of federal jobs may go abroad, U.S. says

http://www.freerepublic.com/focus/f-news/982284/posts
Exporting US Jobs

http://www.freerepublic.com/focus/f-news/981822/posts
US Manufacturing's Steep Decline Calls for New Trade Policies

http://www.freerepublic.com/focus/news/984169/posts?page=1
Patrick J. Buchanan Examines "The Slow Awakening of George W."

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.