Make It in America: How We Can Bring Manufacturing Back (No, Really)

In this highly polarized country, one idea about fixing America's economic woes reverberates across ideological, partisan, geographic and class lines: “Let's make things in America again.”

And well it should. Although manufacturing accounts for just 12 percent of our economic output, manufacturers shell out 70 percent of our research and development dollars – innovation follows manufacturing.

We've been shedding manufacturing jobs for years. They now make up a smaller share of our economy than at any time since the United States entered World War Two. And their decline has accelerated in recent years; we shed about a third of our manufacturing jobs between 2000 and 2009. Today, the share of the workforce that makes things has been halved since it peaked in 1979. And that period of decline correlates well with a period of stagnant wages and disappearing economic security. That's because many of those jobs were relatively high-paying gigs; many were union jobs with decent benefits.

According to economic reporter Dave Johnson, manufacturing jobs pay 15 percent more, on average, than do service jobs. Johnson also notes that a manufacturing job “supports on average four or five other jobs in the economy—and in some industries far more. For example, the Milken Institute estimates that every computer-manufacturing job in California creates 15 jobs outside the factory.”

So a campaign to bring manufacturing to our shores would be good policy married to excellent politics. Yet calls for doing so are met with scorn from the establishment. We're told those jobs are gone forever, and anyone who says otherwise is pining for a lost era. According to the editorial boards of the Washington Post or the Wall Street Journal, they're Luddites, who don't understand that technology brings us all manner of wonders, or “protectionists,” whose preferred policies would only result in painful unintended consequences.

It is true that some manufacturing jobs have been lost forever to technological advancements. Manufacturing isn't as labor intensive in the age of the robot as it had been mid-century. But the decline in manufacturing as a share of our economic output, rather than the number of jobs in the workforce, has everything to do with chasing cheaper labor, less stringent environmental regulations and other ways to cut costs abroad.

The reason talk of bolstering American manufacturing gets such short shrift is that the most effective means of doing so are unpopular with corporate America, particularly the financial sector. These include losing tax breaks for companies that offshore jobs – or imposing tax penalties on them – adding “buy American” provisions to federal contracts (which requires revisiting some of our trade agreements) and investing in infrastructure repairs and upgrades. Taxing capital gains as income would help spur real investment in general, rather than speculation at the Wall Street Casino (although that investment wouldn't be limited to manufacturing).

And then there's the elephant in the room: America's “strong dollar” policy, the stated goal of keeping the dollar's value high relative to other currencies. There is some debate about whether our strong dollar policy is more rhetoric than reality, but there is little doubt that the powers-that-be at the Federal Reserve – and virtually everyone else in the political and media establishments – believe that a strong dollar serves our long-term interests. As Ezra Klein put it in the Washington Post, “a 'strong dollar' sounds great! It sounds like a strong America, like Old Glory waving in the breeze, like our soldiers planting the flag at Iwo Jima. As for the 'weak dollar,' well, yech. That’s American decline, compact cars, the Vietnam War. We might as well say 'awesome dollar' and 'America-hater dollar.'”

Yet a “weaker” dollar is exactly what our economy needs in the near-term, and exactly what the doctor ordered for American manufacturing. A weaker dollar makes imported goods more expensive and stuff made here more affordable. It makes imported oil less expensive, and it helps lower our debt-load by narrowing the trade deficit. The American manufacturers would be the big winners.

Who loses when the dollar is “weaker”? Banks, which lent out strong dollars and don't want to be repaid in weaker greenbacks, hate the idea. It's bad for Americans traveling abroad, and it hurts those holding a lot of accumulated wealth in dollars. Ultimately, a stronger economy leads to a strong dollar, but even over the near-term, with a ton of excess capacity holding back the “recovery,” talk of maintaining a strong dollar remains pervasive.

And then there's the small matter of China. A lot of the China-bashing out there is unjustified, but there is little question that the Chinese government is manipulating its currency to keep it artificially low against the dollar. Our trade agreements are meaningless in the face of that imbalance, yet Washington doesn't appear to be ready to do anything other than give the Chinese some “tough talk” about the situation.

The good news is that the economic crisis – and the measures taken in response to it – has weakened the dollar to some extent. Combined with higher shipping costs, this may help return some manufacturing jobs to the United States. According to Archstone Consulting, a management consulting firm, shipping costs increased by 135 percent between 2006 and 2009 and Chinese manufacturing wages rose by 44 percent over that period. And a number of respondents to a survey of businesses Archstone conducted say they see clear advantages to locating manufacturing closer to one's market.

But if the global economy is rebalancing, it's not happening fast enough to spur a real economic recovery, or an enduring recovery of the manufacturing sector. What we need in this country is something that has helped other countries grow but is anathema to our “free market” discourse: a comprehensive industrial policy that brings the private sector and government together to encourage us to “make it in America” once again.

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