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.

You are confusing a few things, while you make a few good points.

My sister works for Honda. Those windows you make here, stay here for American Honda, that is what I was told.

As for Farmers, most didnt need the larger farms or massive workers due to mechanical progress since 1900, the plows, combines, fertilizers, etc. Frewer people ran larger farms.

And many of us worked boring manufacturing jobs, only we didnt starve doing it. We made good money. Reagan was good for manufacturing up here in Ct. We had a boom unseen before or since.

As for being unskilled and on an assembly line, that already passed awway, only guess what? It passed out the country, also. I know of only a few companies that I have worked for that still have assembly lines in the US, one is Duracell who I work for now, as a temp (as usual), who ALMOST moved their entire line to China...until SARS kicked up!

Never thought I'd be glad for a plague!

cutting costs by taking advantage of a concept called the division of labor is stupid

It is clear to me you have little understanding of the history of the transfer of knowledge from the United States to the rest of the world. There is no sense in arguing the point with you for that reason.

If you are so narrow minded that you cannot examine the one-sided contracts where a few people took the money and ran, leaving our economy holding the bag, then you understand little about greed as well.

China, Japan, et al, have, in effect, "nationalized" our assets for the benefit of a few. That's acceptable to you. It is not to me. Countries exist for the good of the citizens. If not, let's just disband them.

You don't want to put in the extra effort to reduce costs and are comfortable with the status quo. Who cares about costs and quality for consumers - you just don't want to compete!

Au Contraire! I'm extremely competitive!
The motto of my chosen profession is "Work Smarter, Not Harder"...

And Frederick W. Taylor, Frank & Lillian Gilbreth, and W. Edwards Deming are just a few of my professional heroes and role models.
It's just that I don't like trying to compete when my own government has shackled and blindfolded me. T'ain't cricket.

until you get clocked in the jaw from a sharp right hook.

((((sigh)))
Nasty name calling, deliberate misrepresentation of my views on issues, etc, etc, are all tactics that I can largely ignore.
But threats of physical violence?
Nah, I think I'll let the Viking Kitties pass judgement on that one.
Not that I'm much intimidated by your adolescent bravado.
It's just that there's a general consensus among the more civilized members of this forum that such threats are inappropriate, and the rules governing such displays should be adhered to.
We shouldn't leave you with the impression that you can get away with such baiting tactics.

Let the Viking Kitties rule as they may!
As far as I'm concerned, you've made it to my own personal "ignore list". You're just not worth it.

but it's solution is MORE government?

Not more governmment, but different government policy. When the competitors and the rest of the world has economical policies (stupid or wise, harmful of beneficial) in America the free market fundamentalist, hands off doctrine prevailed. Same way as it did in England at the end of XIXc.

The hand of the market is not only invisible, it is also blind. Human intelligence and responsibility cannot be abdicated in favor of inanimate processes or objects.

"And the residue thereof he maketh a god, even his graven image: he falleth down unto it, and worshippeth it, and prayeth unto it, and saith, Deliver me; for thou art my god.
They have not known nor understood: for he hath shut their eyes, that they cannot see; and their hearts, that they cannot understand."(Isa:44:18-19)

Even the Japanese cars are made in the USA. For example Honda's sold in the USA are made in a huge plant in Marysville, Ohio. Honda plants in the USA employ 24,000 people in manufacturing and its dealers employ another 120,000 Americans.

Better rephrase this comment, substitute "made" with the word "Assembled". The effect on the American economy would be much greater if they were "made" here. This plant is merely Americans putting tab A into Flap B. It is cheaper for the Japs to import parts to assemble them here then it is to import a whole car. Now, if the parts were made here, you'd have something. This goes for the TOYota plant in Tennessee. None of the parts in these cars are made in U.S.A. so get that American flag off your Toyota and stop making believe you support American workers.

Wasn't a threat. It was a fact of what would happen if you decided to pursue a certain course of action. And I see you're just another tattle tale.

>It's just that I don't like trying to compete when my own >government has shackled and blindfolded me.

Fine, but that has nothing to do with free trade and everything to do with other policies.

Grand Opening Sale in Norsetown, PA

Traitor Jacks Factory Outlet
Direct From the Chicom Great Wall Mart Factory

And as always...no tarrifs....no regulations.....no import fees.

*CD Players --- 2 for $5
*Bootleg CD's, Videos, Software --- 2 for $2
*American Flags --- $1
*New Chicom Economy Car "The Chia Pet" --- $575
*In the US Army/Navy Section --- Factory Reconditioned Missles (have only been disassemble and reassembled once)
*US Monetary $20 Bill Reproductions --- $10
*FREE- Posters signed by Chicom pilots that forced US Aircraft to land.

We take US Food Stamps. No questions Asked.

"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."

This is simply wrong.

"It's called freedom. It's called capitalism. And no government or state has the right to tell me that I cannot."

Is this a troll of some kind, or are you irrationally waxing poetic about Capitalism -- at least your conception of it.

"I'm not a traitor if I recognize NO obligation to provide you a well paying job. You earn your way in this life. You need to butch up your attitude and bolster your arsenal of productive skills and expertise."

Try getting away from FR, learn a skill and don't expect me or anyone else to provide you employment. Perhaps if you worked a bit harder and got some education you wouldn't lash out at others because of your own problems.

None of the parts in these cars are made in U.S.A. so get that American flag off your Toyota and stop making believe you support American workers

I'll buy whatever vehicle provides me the best value, emotional satisfaction and utility. Whatever its origin of manufacturing.

I don't recall any "American Workers" helping me with my loan payments, even though UAW monkees collect around $80 grand wage/benefit/pension packages before overtime. Sorry, a $35,000 Bonneville doesn't compute. Thank God for those union-lardass American Auto Workers, quality GM and Ford automobiles might actually be priced at an insulting price of $20,000 or so.

Stay out of my money clip pal. You may now go back to fawning over your Dennis Kucinich for President poster.

Hi LNM! I trust you had a swingin' weekend!

KT, there is no substanitive difference in the outlook, dialogue and class-envy hot buttons employed by our 19th Century Luddite Dance Team here and ANY Kucinich, Gephardt, Bernie Sanders or Tom Harkin speech.

I'm so proud of them all. Let's make Blacksmith Anvils!

Fine, but that has nothing to do with free trade and everything to do with other policies.

Free trade agreements have nothing to do with free trade either.

"We are infinitely better off without treaties of commerce with any nation."
--Thomas Jefferson to James Madison, 1815.

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