The Great Jobs Switch: Why the Loss of Manufacturing Jobs is Good for America.

The Economist ^ | 9/29/2005 | Economist Magazine Editorial

[SirLinksalot]

The Great jobs switch

Sep 29th 2005

The fall in manufacturing employment in developed economies is a sign of economic progress, not decline

THAT employment in manufacturing, once the engine of growth, is in a long, slow decline in the rich world is a familiar notion. That it is on its way to being virtually wiped out is not. Yet calculations by The Economist suggest that manufacturing now accounts for less than 10% of total jobs in America. Other rich countries are moving in that direction, too, with Britain close behind America, followed by France and Japan, with Germany and Italy lagging behind (see article).

Shrinking employment in any sector sounds like bad news. It isn't. Manufacturing jobs disappear because economies are healthy, not sick.

The decline of manufacturing in rich countries is a more complex story than the piles of Chinese-made goods in shops suggest. Manufacturing output continues to expand in most developed countries—in America, by almost 4% a year on average since 1991. Despite the rise in Chinese exports, America is still the world's biggest manufacturer, producing about twice as much, measured by value, as China.

The continued growth in manufacturing output shows that the fall in jobs has not been caused by mass substitution of Chinese goods for locally made ones. It has happened because rich-world companies have replaced workers with new technology to boost productivity and shifted production from labour-intensive products such as textiles to higher-tech, higher value-added, sectors such as pharmaceuticals. Within firms, low-skilled jobs have moved offshore. Higher-value R&D, design and marketing have stayed at home.

All that is good. Faster productivity growth means higher average incomes. Low rates of unemployment in the countries which have shifted furthest away from manufacturing suggest that most laid-off workers have found new jobs. And consumers have benefited from cheap Chinese imports.

Yet there is a residual belief that making things you can drop on your toe is superior to working in accounting or hairdressing. Manufacturing jobs, it is often said, are better than the Mcjobs typical in the service sector. Yet working conditions in services are often pleasanter and safer than on an assembly line, and average wages in the fastest-growing sectors, such as finance, professional and business services, education and health, are higher than in manufacturing.

A second worry is that services are harder to export, so if developed economies make fewer goods, how will they pay for imports? But rich countries already increasingly pay their way in the world by exporting services. America has a huge trade deficit not because it is not exporting enough, but because American consumers are spending too much.

A new concern is that it is no longer just dirty blue-collar jobs that are being sucked offshore. Poor countries now have easier access to first-world technology. Combined with low wages, it is argued, they can make everything—including high-tech goods—more cheaply. But that's only partly true. China's comparative advantage is in labour-intensive industries; and a basic principle of economics, proven time and again, is that even if a country can make everything more cheaply, it will still gain from specialising in goods in which it has a comparative advantage. Developed economies' comparative advantage is in knowledge-intensive activities, because they have so much skilled labour. For years to come, China will be more likely to assemble the best computers than to design them.

Employment in rich countries will have to shift towards higher skilled jobs to maintain economic growth. Countries that prevent this shift taking place risk being left behind. Rather than block it, governments need to try to ameliorate the pains which change inflicts by, for example, retraining or temporarily helping those workers who lose their jobs.

People always resist change, yet sustained growth relies on a continuous shift in resources to more efficient use. In 1820, for example, 70% of American workers were in agriculture; today 2% are. If all those workers had remained tilling the land, America would now be a lot poorer

[SirLinksalot]

<<<<
know that there is a growing trend for corporations -- largely in highly complex technology or health fields -- to establish programs that entice older or retired experts back to work.
>>>>

If you can provide some names, I'd probably like to apply to these companies before I reach the mature age of 55. My feeling is that job security and value for experienced employees ceased long ago when companies like IBM and GE started to lay off people en masse.

[chimera]

No discussion at all of the Achilles' Heel of this "no manufacturing is good" mantra: national security. So we send all of our factories and basic industries overseas to make a quick buck. Who makes our aircraft, our naval vessels, our munitions, our defense electronics, our military land transport, our tanks, our small arms? Who supplies our raw materials, our energy infrastructure, our finished materials? I suppose the author thinks we can offshore all those things as well and everything will be hunky dory. Until those offshore sources decide maybe it is not in their interest to sell us military items anymore. Nothing like having a knife held to our collective national throat.

[mikeus_maximus]

I tend to agree with this. My very conservative microeconomics professor argued the same thing. We're at a stage now where we give the third world paper money, and they give us tangible stuff in return. The money comes back to us to purchase our services and the things we produce best.

There will always be some individual inconvenience as our national labor resources are shifted into more productive uses, but on the whole, sending basic manufacturing jobs overseas is the sign of a healthy economy.

[calrighty]

Evidently, to some people on this thread, if you have concern or compassion for a fifty year old professional who has been outsourced, you are axiomatically a communist or a left wing laborite : )

[grey_whiskers]

There is a difference between a job being obsoleted due to technology changes and being outsourced. This author talks about both, and the rants confuse the two.

Those who rant have concluded that the author is deliberately trying to conflate the two, in order to justify outsourcing by lumping it with "replacement of buggy-whips" .

Have you ever been yelled at by a person with a Ph.D who can't figure out how to connect their mouse? I have.

Errr, that must have been me. Sorry.

In the case of programmers, everyone knows that the demand for programmers goes through boom and bust cycles. It might be scarier for a 50 year old to retrain and relocate, but this is the reality of many professions.

The problem is that companies lie through their TEETH about "we want to be the employer of choice" and then force people to train their replacements (all while loudly proclaiming that they have to go with H-1B visa holders) because there ARE NO qualified Americans. (If the Americans are so unqualified, how did they get the jobs, and why are the REPLACEMENTS the ones who need to be trained?) This has not happened to me, but I have watched it happen to others.

[GSlob]

Your notion of "manufacturing" needs to be expanded broadly to include the making/provision of valuable intangibles, like services, or of intellectual property. Unceasingly producing valuable things of any kind, be they edible/wearable, etc., or not, is the way to create wealth.

[DonaldC]

Bla Bla..hehehe I understand your points but the loss of manufacturing leads to two problems.

First, there are a great many people that for many reasons just cannot go out and train for the next hot career, be it economic, personal ambition, or just plain not as capable. It has to be better for them to have some outlet to provide for themselves rather than turning to the government, which is what is beginning to happen.

The second problem is that if this country forgets how to make things, we will be able to do little more than run up the white flag if we are engaged militarily by an enemy any more advanced than the sand maggots of the middle east. This type of infrastructure is practically gone and cannot be switch off and on in any short time frame. We are goin to have this problem sooner or later given the fact we like to butt into people's business all around the world.

Personally, I think in many places around the world we are doing nothing more than exploiting people at a level just above slavery. What a terrible legacy to leave for our children.

[.cnI redruM]

>>>>>Nobody is owed a job, obviously. Jobs are created by people who start and run businesses.


Thank you for pointing out the blatantly obvious fact to those here, and throughout the rest of the political spectrum, who don't want to wake up to it.

[KC_for_Freedom]

I think unemployment is caused by an entrepreneurship defict

This is a very good point. I believe the outsourcing happens to jobs that are routine anyway. A programmer who loses his job should form a start up or at the very least become a consultant.

[TChris]

There are only 3 fundamental ways to create wealth. (not money) Mining/oil drilling, Agriculture/logging/fishing, Manufacturing.

If that's true, then the man who can mine, drill, farm, chop, catch or assemble the most should be the most valuable in the economy. Forget the guy who invents the mining machine, drilling rig, plow, tractor, internal combustion engine, spinning reel or assembly line, he isn't creating any real wealth, because he didn't directly participate in any of the activities you mention; he only helped make them happen more efficiently. According to your ideas, a manager creates no wealth because he isn't directly performing those tasks, even though he may be able to improve the productivity of those who do because of his terrific motivation and people skills.

There is an enormous amount of wealth in knowledge and invention, not just production. The simplistic view you give of how the economy works just doesn't... work.

[Alberta's Child]

Someone who is 50 years old today is 15 years from retirement. Back during the heyday of America's industrial strength, someone who was 50 years old was 5 years from death or total disability.

Yeah, things sure do suck here in the U.S. these days, don't they? /sarcasm off/

[Maceman]

These are some of the companies I've come across that have some type of retiree rehiring or recontracting program.

• Aerospace Corporation
• Deere (tractor manufacturer)
• Geico
• Mitre Corp.
• Monsanto
• Frito-Lay
• GE Global Exchange Services
• GEICO
• GTE (purchased by Verizon)
• Lockheed Martin Missles and Fire Control (Dallas)
• Prudential
• Travelers

As I say, these programs are often informal and limited due to concerns about discrimination liability and tax issues under existing IRS regulations.

There is effort and apparent will to revise certain IRS regulations to accommodate these programs, because even though they are in their infancy, it is clear they are early responses to a growing need of companies to retain the knowledge and skills of retired employees who, for a variety of reasons, are interested in remaining active in their fields.

[SirLinksalot]

<<<<
We're at a stage now where we give the third world paper money, and they give us tangible stuff in return. The money comes back to us to purchase our services and the things we produce best.
>>>>>

I can understand this argument... it seems that the assumption is that these manufacturing countries for their OWN BENEFIT, will have to continue to INVEST their surplus dollars in the USA to ENSURE that they have customers who CAN CONTINUE to purchase their production.

Hence, China will continue to do that, not because she loves the USA, but because of the USA is incapable of buying her products, China itself suffers.

But how long can this continue ?

Eventually -- we might see a case where the wages of the Chinese catch up with the USA and it becomes no longer cheap to manufacture their ( if that day comes, we might even see outsourcing from China to say, Afghanistan ( much like Taiwan used to be the manufacturer non-pareil 30 years ago but then outsource their manufacturing to China ).

It might actually happen. Remember Hongkong ? In the 1960's and early 70's it used to be synonymous for cheap products and cheap factories. No more, the average wage of HK has now EXCEEDED that of even her former colonial master, the UK. Heck, Disneyland recently opened in Hongkong indicating the average HK family's ability to PAY for such luxury when 30 years ago, this would be unthinkable.

Eventually, we might see a return to equilibrium -- the Chinese salaries catching up to ours. By then -- it would not be cheap to manufacture in China anymore.

Bangalore in India, I hear is having problems that Silicon Valley experienced in the heydays of the microprocessor. Extremely talented programmers jumping from one company to another depending on who can give him the best incentive. THIS FOLKS -- IS SALARY PRESSURE. Let them keep this up and in a decade or so, Indian programmers won't be cheap any longer. Unless countries like Ethiopia or Vietnam get their act together, there won't be an attractive place to outsource high tech work when that happens.

What goes around can come around.

[aspiring.hillbilly]

Manufacturing is the taking of substances mined, drilled, harvested, etc from the earth; processing them by refining, smelting, molding, forming, machining etc and fashioning them into finished goods for the marketplace.

[farlander]

Yep - I'm directly in the industry. I'm a software engineering consultant, and lately that's exactly what I've been doing - cleaning up messes left after outsourcing projects gone HORRIBLY wrong. More often than not, mediocre management of the offshoring process causes horrible quality problems, which hit extra hard on the back end - when the software is deployed and delivered to the customer, and ultimately being FAR more expensive than just doing it right where your customer is. It is very difficult to get an offshoring project to seriously succeed and produce the savings offshore company sales people are promising. It requires detailed design and forethought and active project management methodologies that are often lacking.

Hence - there's always work for an architect like myself to come in and tell them what all was screwed up and how to fix it. This keeps on going on, a lot of companies will realize that offshoring is just not cost effective, except in the case you're writing software for those other markets.

[farlander]

Already happening. Burnout, job hopping and associated problems are endemic across Indian and Chinese outsourcing destinations. And the results in terms of quality of completed work are sometimes extremely bad.

[SirLinksalot]

<<<<<
they are early responses to a growing need of companies to retain the knowledge and skills of retired employees who, for a variety of reasons, are interested in remaining active in their fields.
>>>>>

(speaking as an IT Software person )

Not to mention of course that a lot of LEGACY systems need to be maintained by programmers who write in old languages like COBOL and a whole heap of old code that no one teaches in college anymore, that no new graduate likes to learn because they are technologically uncool, but are still doing the grunt of the business logic.

I think it is a good strategy for us to encourage seniors to continue working IF THEY SO DESIRE and WHILE THEY STILL CAN.

Demographically, it will help to mitigate the disastrous problem we will be facing when the bulk of the boomers reach retirement age. Which is this -- WE DON'T HAVE ENOUGH WORKERS TO SUPPORT RETIREES !!! ( Social Security reform is Dead on the water and Bush isn't even bringing it up any more ).

[TWohlford]

"I understand your points but the loss of manufacturing leads to two problems."

I'd like to add a third issue...

What do we do with people who, for whatever reasons, are unskilled, untrained, and uneducated (ie, "stupid"). The various union jobs held out hope that such people could make middle-class livings. What does society do now with the increasing number of people that will fall out of the middle class?

[varon]

Maybe we can re-train all 10 to be project managers ??? But who are they going to manage ?

Train 5 to become Real Estate sales persons and the other 5 to be Mortgage Loan Officers/Originators ;-)

[aspiring.hillbilly]

The so called service economy merely shuffles paper from one pocket to another. Since service demands labor ie populations, then such places with population gluts as Mexico, India, or Sheri Lenka would be rolling in wealth. To put it another way:

The lottery doesnt create wealth it merely shuffles all the dollars to some lucky winner...