Manufacturing an Issue

In a recent post in Slate magazine, Matt Yglesias bemoans the Obama administration’s renewed focus on reinvigorating America’s manufacturing sector as a “foolish obsession.”

“[I]t should be obvious,” he writes, “that the path forward for America is to focus on our strengths in information technology and media, and not compete with the Chinese for manufacturing supremacy.”

Yet “the path forward for America” is not principally about competing with the Chinese. It is about marshalling our significant assets and asserting our leadership position in making all kinds of products—whatever they may be—the rest of the world is clamoring to buy, things like transportation equipment, pharmaceuticals, computers (no, not all of them are made at Foxconn) or leading-edge fabricated metal products.

Matt’s piece, in this respect, suggests a fundamental misunderstanding of America’s manufacturing sector by his apparent assumption of a divide between that and high-tech.

Perhaps he hasn’t taken a factory tour in awhile, but American manufacturing is well past the old Rust Belt/smokestack days. High-tech, innovation-driven and -generating advanced manufacturing is the order of the day and a major advantage for U.S. companies.

At one point he says, “If you want to subsidize R and D, then subsidize R and D—there’s no need for the backdoor of an across-the-board subsidy to factory owners regardless of how much R and D they actually do.”

Well, they “actually do” a lot of it. As we noted in a report released in early February, America’s manufacturing sector makes up about 11 percent of U.S. GDP, but it accounts for 68 percent of all R and D spending by U.S. companies. This innovative effort is deeply embedded in the processes and practicalities of the production cycle. For that reason, this high level of innovation investment has concrete results. As our colleague, Howard Wial, has noted previously, the National Science Foundation found that, between 2006 and 2008, 22 percent of U.S. manufacturing companies produced a new product or service. Only 8 percent of non-manufacturing firms could say that. R&D investment has financial returns of its own, as well. Sixty percent of royalty income from intellectual property occurs in manufacturing companies.
All this innovation leads to more efficient processes and newer and better products, but there is also a spillover into the broader economy. Our service industry benefits greatly from innovation in the production sector. So investment in R&D is hardly separate from investment in manufacturing.

Manufacturing also looms very large as a tradeable sector. As the nation began its long climb out of the worst recession since the 1930s, manufacturing represented almost two-thirds of overall exports and three-quarters of export growth. One might note as an aside here that it is impossible to have a vibrant economy without a competitive trade sector.

Matt errs, as well, when he says, “it’s clear that manufacturing-oriented places are relatively poor.” Tell that to San Jose, which he cites as an example of a powerful economic cluster region. As it happens, San Jose is also a metro area with a strong manufacturing base that employs about 18 percent of its workforce—double the national average—and pays an annual average wage of (wait for it) $142,000.

Other metros with robust manufacturing sectors, like Hartford, CT; Chicago; and Durham, NC, flex the same kind of economic muscle. While not all areas pay as well as San Jose, the weekly manufacturing wage across the country is about 20 percent higher than non-manufacturing wages.

Matt’s post strangely replays a curious mindset that took hold among economic policy shapers a few decades ago. Then, America’s economic seers insisted it was time for America to move to a post-industrial economy, one that abandoned our long history of innovation for production and emphasized disembodied “knowledge work.” Well, we are still paying the price for this unbalancing of our economy. Yet now we are recovering our appreciation for how important it is to make things. With that new appreciation must come a commitment to realign our economic policy towards supporting a productive, competitive, globally-oriented sector that will anchor our future economic sustainability.