Manufacturing a crisis

American manufacturing jobs are declining. Many politicians agree on the cause: greedy corporations moving jobs to countries with inferior wages, non-existent environmental standards, terrible working conditions and minimal social safety nets.

Desperately poor 3rd world people may be overjoyed to have these jobs, but American workers are being savaged. As Senator John Kerry pointed out, it is time to stop “Benedict Arnold” corporations from “exporting” jobs.

This reasoning is nonsense, of course. When Kerry asked, “Why can’t we keep manufacturing jobs in America?” he asked the wrong question. The right question is, “What is an American job and how can we create one?”

An ‘American job’ is a job that can be performed more productively in America than in some other place. That’s how we ‘own’ that job, and prevent its ‘export’. We don’t own it because of government subsidy, which is simply taxing one category of employment to prop up another. Preserving American manufacturing jobs, via grants and tax incentives funded by capital borrowed from China, is not simply a recipe for failure, it’s ultimately impossible.

The battle over manufacturing job loss is already over. Though protectionist demagogues would like it otherwise, only about 0.6% of manufacturing job loss correlates with foreign manufacturing. The rest is due to productivity improvement, and if American productivity had not risen – requiring fewer worker-hours to produce a given product – the United States would by now have become a 3rd world country.

If you are not convinced of that, then let’s just legislate away the decline in manufacturing jobs. We’ll decree that all jobs must follow the rules of soccer: You can’t use your hands. This will place us at some competitive disadvantage with the rest of the world, but never mind that, we would need a lot more manufacturing workers to keep production steady.

Manufacturing employment decline is due primarily to productivity increases. It finds a parallel in the decline of agricultural employment. 100 years ago 40% of workers worked in agriculture. If that ratio had continued, 54 million of us would be farmers today. Instead, 25% of Americans are employed in jobs that didn’t exist in 1967. How could we have filled these jobs if farming hadn’t become more efficient?

Of approximately 135 million American workers in 2003, around 12% earned a living in manufacturing (vs. 24% in 1970), and fewer than 2.8 million were employed in agriculture. Nonetheless, we lead the world in manufacturing and our agricultural industry places 3rd. We sell more manufactured goods than anybody, and we feed a lot of people everywhere.

So, those manufacturing jobs weren’t exported; they ceased to exist – worldwide. Between 1995 and 2002, the world’s 20 largest economies experienced an 11% net loss in manufacturing jobs – a decline of 22 million workers. The United States lost about 2 million manufacturing jobs – also an 11% decline. In that same time frame manufacturing output in those 20 countries increased by 30 percent.

Contemporaneously, China lost 15 million manufacturing jobs – a 15% drop. I guess if the United States hadn’t been exporting jobs, China would have lost 17 million.

The only argument left to those in favor of government subsidies seems to be that manufacturing jobs are even more precious now than before all this disruptive productivity improvement. Therefore, governments should heavily subsidize their best-loved manufacturing niche, each government trying to outbid the others. That could be argued, but it is easy to see why it would be just as stupid as subsidizing 54 million of us to be farmers.

Just in time for Michigan’s budget discussions

Well, Michigan made the Wall Street Journal. As an example of what not to do.

It’s one of the largest experiments in smokestack chasing in American history, but one thing it hasn’t done is create jobs. An exhaustive new 100-page study by the Mackinac Center for Public Policy, a Michigan think tank, has reviewed where all the money has gone and what came of it. The study finds that for every 100 jobs that were promised with these tax credits over 14 years, only 29 arrived. Dare we call this cash for clunkers?

How about Dollars from Dummies?

…In Michigan these programs were responsible for 0.25% of all new jobs created in the last decade, according to the study. Meanwhile, in 2007 Michigan raised business taxes by $1.4 billion on other firms to pay for many of Ms. Granholm’s favored companies. Despite all the giveaways, Michigan was recently ranked as having the third most antibusiness climate among states, in a survey of executives by CEO magazine. If Michigan had simply cut taxes for every business, as Mr. Engler did in the 1990s when the state briefly led the nation in new jobs, it’s a good bet unemployment would be lower.

The study is here.

Previous related TOC comment here. The punch line:

The bottom line is that government is generally very bad at picking economic winners. Jennifer Granholm is much worse than that. She should attract all kinds of business and entrepreneurs to Michigan by eliminating corporate taxes and getting right to work legislation passed. It would not take nearly as long here as it did in Ireland for spectacular results. She should take a lesson from Sir John Cowperthwaite, but he’d be her philosophical nemesis.

Obama saves

You’ve almost certainly already seen this graph already, but it is useful for reference. The blue lines represent the Obama Administration’s unemployment projections with and without the stimulus bill. The maroon dots represent what has actually occurred.

The White House claims to have already “saved” 150,000 jobs. This appears to be short around 750,000 from the “without recovery plan” line. Maybe they reversed the labels. Maybe they got the policy backwards.

In other news, the White House is unable to predict how much of the stimulus money will be spent in the next 100 days, but Our President assured us that spending it will “save” or create 600,000 jobs in that time.

What could go wrong?


Jan-2004. Click to enlarge.

This is just one of many criticisms of George Bush’s wild spending I’ve made.

This is just one answer to speeches questions like, “Well, (chortle) where were your teabagger (giggle) protests when Boosh was ravaging the economy with his war-mongering spending and lack of (tee-hee) regulation? Huh? Huh? It’s his fault. What’s this have to do with taxes, teabagger (snicker)?”

These are diatribes questions you can pose only when you insist the words “Hitler” and/or “Chimp” are required to validate criticism of our last President. You also must be willing to believe that if Bush had proposed quintupling his excesses with a carbon tax, nationalization of health care, the banks and the auto industry, that there would have been no objection.

I’ve been principled, which is far more than the vast majority of Obama supporters can say. I criticized Bush’s profligacy, and I criticize Obama’s fiscal insanity.

It’s the productivity, stupid!

When bashing NAFTA for loss of domestic manufacturing jobs one does need to address this:

Index: 1960 = 100


So, Hillary… Barack… how much of this productivity gain should we give up to preserve manufacturing jobs? Think how much more competitive our automakers would be if US plants needed 4 times as many workers as Japanese and Korean factories. They’d probably all vote Democrat, too.

OTOH, we could all consume 4 times as much. As much electricity and jet fuel as Al Gore, for example.

There was a time when 80% of jobs were on the farm. But we got over that.

If Jobs Really Matter ……

Posted for Paladin, who is temporarily disconnected:

Jobs. Michigan needs more jobs. Ask anyone. Read any newspaper. Listen to any politician. More jobs are what we need. Better jobs are what we need. Manufacturing jobs are what we need.

The Wall Street Journal reports that in the 20 years between 1986 and 2006 right-to-work States like Alabama, Texas, and South Carolina added 104,000 auto industry jobs while union-fair-play States like Michigan, New York, and Ohio have lost 130,000 auto industry jobs.

Union membership in the United States has gone from 34% in the fifties to 12% in 2006. How much longer can Michigan afford to ride this curve? Where are the politicians who really do care about jobs? And why don’t we elect them?

Unions were needed in the 1930s. Unions thrived from 1945-1970 in the environment of the auto industry quasi-monopoly. And as long as the monopoly lasted, Michigan’s “fair play” laws could not do serious damage.

Those days are gone. Only free markets for capital, goods, and labor can restore Michigan’s greatness.