Manufacturing USA

 
BY:pww@pww.org| April 25, 2008


Can there be a restoration and even an increase in the role and
prominence of US manufacturing in the context of capitalist
globalization today?
Short Answer: NO

The Decline in Manufacturing Employment

The manufacturing sector of the U.S. economy has experienced
substantial job losses over the past several years. In January 2004,
the number of such jobs stood at 14.3 million, down by 3.0 million
jobs, or 17.5 percent, since July 2000 and about 5.2 million since the
historical peak in 1979. Employment in manufacturing was its lowest
since July 1950
Statistics provided in 1998-2005 charts below confirm this trend is not
just a product of the 2000 recession.

Manufacturing Employment

(Millions of jobs graph only goes to 2004)

Graph

The drop in manufacturing employment since the beginning of the
recession
The recent manufacturing decline relative to services largely reflects
the weak demand for capital goods in the United States and for both
capital and consumer goods among its major trading partners. In the
United States, the demand for machinery and other capital equipment
slumped after the investment surge of the late 1990s and was only
beginning to recover in 2003. The resulting loss in production in
industries producing capital goods severely reduced employment in the
sector. Meanwhile, tepid growth overseas and a high U.S. real exchange
rate meant weak demand for U.S. goods among the nation’s major trading
partners. Consequently, U.S. exports have been weaker during the 2001
recession and the recovery thus far than during and after most previous
recessions, while imports have grown about as fast as they typically
have after previous recessions. Clearly a strong dollar combined with
cheaper real mfg labo costs in developing countries is contributing
significantly to job loss in mfg.

U.S. Exports and Imports of Goods

(Percentage difference from peak value)

graph

Graph

a) Note. Average of the seven recoveries during the
1949-1990 period, excluding the recovery in 1980 from the recession
that year because that recovery was so short-lived.

Long-Term Influences
Shift in Demand Away from Manufactured Goods
The share of consumer spending devoted to manufactured goods has
declined over time both in the United States and in other
industrialized nations. As consumers’ income has risen, they have
increased their purchases of goods but boosted their spending on
services–including medical care, notably–even more. In 2000, 42
percent of U.S. consumer spending was devoted to goods, down from 53
percent in 1979 and 67 percent in 1950. Likely factors contributing to
that shift are an increase in the value of time resulting from rising
real (inflation-adjusted) wages and married women’s increased
participation in the labor force, which has led households to
substitute some purchased services for tasks formerly performed in the
home.
Manufacturing Productivity
Over recent decades, U.S. manufacturers have continually invested in
more and better capital goods and manufacturing techniques in order to
remain competitive in world markets. That investment has enabled them
to raise their output and keep pace with overall economic growth
without a corresponding increase in the number of workers that they
employ. Since 1979, the productivity of manufacturing workers has grown
at an average annual rate of 3.3 percent, significantly faster than the
2.0 percent growth of labor productivity in the nonfarm business sector
overall.(2)
Improvements in productivity are economically beneficial, as they
permitbut do not necessarily guarantee– greater profits, higher real
wages, and lower prices. But while the prices of manufactured goods
have indeed fallen consistently relative to other prices, those lower
prices have not led to increased sales: the share of gross domestic
product (GDP) accounted for by manufacturing output has been roughly
constant over the past half-century. Strong growth in productivity and
a slower rate of growth in the demand for manufactured goods have
necessarily entailed a decline in manufacturing’s share of total
employment.

Output and Employment in the Manufacturing Sector

(Log scale)

Graph

Sources: Congressional Budget Office; Department of Labor, Bureau of
Labor Statistics; Department of Commerce, Bureau of Economic Analysis.
Note: The vertical bars indicate periods of recession as defined by the
National Bureau of Economic Research.
The gains in manufacturing productivity have continued recently, even
through the downturn in 2001. Since the peak of the last business cycle
in March 2001, labor productivity in manufacturing has risen at an
average annual rate of 5.5 percent, faster than its average annual rate
of growth during previous postwar recessions and the early part of the
ensuing recoveries. Yet medium incomes are not rising at all, and, in
fact, are falling or flat for all but the very highest paid occupations.
Competition from Foreign Producers
A portion of the long-term decline in employment in some manufacturing
industries can be linked to the expansion of trade. The gains from
trade arise as nations specialize in the goods and services that they
can produce efficiently relative to other countries. Thus, the
expansion of trade necessarily involves changes in the mix of products.
The United States has specialized in products requiring a highly
skilled labor force even as lesser jobs have shifted to countries where
labor is less skilled. In the apparel sector, for example, the number
of jobs in this country has declined from over 900,000 in 1990 to less
than 300,000 today.
Some observers have specifically attributed recent job losses in
manufacturing to a surge in the bilateral trade deficit with China.
From 1992 to 2003, the trade deficit with China grew from $18.3 billion
to $124.0 billion, which is larger than the deficit with any other
country. However, much of the increase in imports from China reflects a
shift away from imports from other Asian countries rather than an
increase in total imports. In fact, while U.S. imports attributable to
China increased from 5 percent in 1992 to 12 percent in 2003, the share
of imports from other Pacific Rim countries declined from 34 percent to
21 percent

U.S. Imports from China and from Other Pacific Rim Countries

(Percentage of total imports)

Graph

Sources: Congressional Budget Office; Department of Commerce, Bureau of
the Census.
a. Australia, Brunei, Hong Kong, Indonesia, Japan, Korea, Macao,
Malaysia, New Zealand, Papua New Guinea, Philippines, Singapore, and
Taiwan

Productivity and Income.

While productivity has increased steadily since 1975, incomes measured
in either hourly wages, or total compensation (including benefits,
income from capitalpensions, savings, etc) have not kept pace, except
for professions and very highly skilled workers at the very top. It
should be noted a broad range of very detailed studies of historically
wages and worker incomes relative to productivity in all advanced
capitalist countries demonstrate that worker incomes DO track
productivity over the long run, although it is arguable that social
upheavals from labor struggle THE CLASS STRUGGLE — play an essential
role in regulating and enforcing this trend. If this is true then we
are due for a major social upheaval, since a divergence in productivity
and income, beginning at the bottom of the scale but gradually working
its way upwards, has been underway since approximately 1975. This
correlates broadly with both the decline in the US mfg sector, the
decline in the strength of industrial unions, and first surge in
runaway shops of the late 60s and early 70s. The fact the median
household income did not reflect an absolute decline until the 2000
recession and afterwards only underscores how long this trend has been
underway and how, despite big gains in income due to the explosion
of high-tech related occupations in the 90s, it has now become
the dominant trend. Even the high-tech occupational incomes have been
flat compared with their own productivity growth.

All that being said, it should be noted: in truth, productivity is not
easily measured, especially when a significant number and proportion of
outputs are service oriented, informal, or are intangible.
Manufacturing productivity IS easily measured. However many estimates
of productivity in services or intangibles rely on some questionable
assumptions where real data is highly imperfect, or on very weak
linkages and correlations with manufacturing indexes. Example:
computer cpu increases in processing power have grown at a polynomial
rate since the 70s (at a power of between 2 and 3) per year. However
the software a worker uses to compose a document has grown in
complexity (use of processing power) at a nearly comparable rate. How
do you measure the productivity of a workers ability to insert a huge
and expanding array of formatting features into his/her document? It is
very difficult to find accurate quantitative measures. Another example
of bad correlations: In NAFTA negotiations, Mexican and U.S. economists
had no reliable data on Mexican agricultural labor productivity. Much
work in the agricultural sector was in fact informal, compensated in
kind or barter, and unrecorded in any form. NAFTA negotiators decided
to use the ratio of Mexican to US manufacturing productivity as a
substitute. The ratio was in error by a factor of nearly 70! That is,
Mexican agricultural productivity was nearly 100 times less productive
than US agricultural productivity (whereas Mexican manufacturing
productivity for comparable industries was only 30% less than that in
the US). Consequence: terms of trade negotiated in NAFTA were
disastrous for Mexican agriculture. Millions left farms in 94-96, found
no work in the quickly saturated manufacturing sector, and immigrated
to the US by any means they could.

Conclusions: Our focus should be on raising income, not manufacturing,
per se:

1. While there is some debate on how much weight each
of various causes of this (income lagging productivity) phenomenon
should be given, there is little debate about the list of causes:
a. Weak bargaining power of workers to recapture
gains from productivity.
b. Absence of nationalized health care.
c. Immigration, law of supply and demand in the labor
markets, especially when 6-10 million workers have no legal protection.
d. Competition with cheap, often forced or slave
labor: Transnational corps have become truly transnational; supply
chain technology and infrastructure guarantee their independence from
ANY one national government.
e. Relative decline in investments in human capital
in the US esp. education, retraining, etc.
2. Manufacturing decline is a fundamental trend of
the scientific-technological revolutions continuing re-divisions of
labor, reflecting increased productivity. While this trend can be
modified or smoothed or alleviated by reforms in trade, immigration,
health care and labor-law policy, its fundamental course is an
objective feature of economic development, and cannot be altered.
3. Globalization is here to stay. The negative impact
of global competition on US incomes can only fundamentally be countered
by:
a. Advances in the class struggle in developing
(primarily manufacturing) nations to improve world incomes;
b. More favorable and progressive trade agreements
for developing nations, allowing them sufficient protection, while
promoting freer, completely reciprocal trade zones between advanced
capitalist trading partners. Together, these reforms outlined by
Stiglitz in his program of 2007 will promoting more equitable global
development, and growth for all.
c. Advances in the US and advanced capitalist partner
workforces to new and broad-based high-tech high-skill levels
alongside an enhanced ability to bargain for the productivity gains
inherent in that transformation.
4. Service occupations and incomes are in fact the
key battle ground in raising working class incomes, as they constitute
the fastest growing occupations, invading significant parts of
manufacturing labor markets (the bane of organizing attempts by the UAW
at Toyota, in fact). They are also the source of both the highest and
lowest income categories in the workforce. To the extent science and
technology are increasingly able to automate the repetitive or
algorithmic parts of these occupations: the occupations will become
proportionally unsuitable as sources of surplus value. In other words
they become less and less proletarian, in the Marxist sense, under
the impact of technology. Raising their incomes thus becomes
theoretically and practically problematic from the standpoint of the
traditional collective bargaining and workplace-based class struggle
forms of organization, requiring some adjustments.
a. Consider the labor contracting business in the US,
a rapidly growing sector of the workforce in almost every industry and
service, as a special case, a kind of substitute for service labor in
general. In many ways (though not all), the union hiring hall of yore
could deliver these services no less efficiently, and at greater profit
to the workers, than the existing forms in which services are
delivered. Other than the legal, tax and liability preferences afforded
the corporate form of economic organization there is little economic
justification for a sharp division between owners and workers in
these firms. Contract labor firms require virtually no capital other
than human capital. Beyond reasonable management fees and incentives,
there is really no cause for the labor being traded as labor-power in
the Marxist sense. And, in fact, it is not in many instances. What is
really being traded is the market value of the actual service or
labor product, of which the contract worker is being paid a
proportional part.
b. Thus, an important means, perhaps the only means,
of raising many service incomes is to demand true proportional returns
on the value of the traded labor product; i.e. a division of the
capital earnings, or profits, of the contracting firm. (Of course, an
obstacle here is risk who assumes it? Everyone wants a just share
of the profits, but what about losses?).
c. Raising incomes has to become a political question
where, in effect, getting a raise is directly on the ballot. Contract
services as well as many other kinds of service work occur in
environments that make traditional union recognition and collective
bargaining virtually impossible. The reforms of the Employee Free
Choice Act, while absolutely necessary, are in my opinion not
sufficient to overcome these obstacles, even if they were to actually
pass Congress. And the indirect character of the means by which
the benefits would accrue to all from its passage is going to
make a very difficult mass fight given the much degraded numeric
strength of the labor movement. Further, the verbal assurances of
support from many members of Congress will have to be subjected to
Reagans trust but verify test once the pressure from employers is
brought to bear.

d. In many areas of service work, chiefly education
and health and other public services, worker organizations must move
beyond another boundary of traditional union organization, despite the
many roadblocks put in their path: they must assume
responsibility not only for their wages, benefits and working
conditions, but also welcome and demand — public responsibility and
ownership for the services they deliver. There is a crisis in many
areas of service that goes to the heart of the investments the United
States is making in its people. The working class has the capacity, the
skills, and the know-how to get it done. And done right.

Additional charts of interest:

Exports, Imports and Net Exports share of GDP

Graph

Total Manufacturing Value added compared to total Manufacturing
compensation 87-97 (in millions $$):

Graph

Total mfg VA compared to Total Comp 98-05 (millions $$)

Graph

Mfg Percent of GDP 1947 1986

Graph

Mfg share of GDP relative to selected services 47-86

Graph

Mfg share of GDP relative to financial services

Graph

Average Real Hourly wages

Graph

Compensation portion of value added 1987-2005

Graph

More charts when I get to Chicago!!

Source: BLS

Productivity and Income.

While productivity has increased steadily since 1975, incomes measured
in either hourly wages, or total compensation (including benefits,
income from capitalpensions, savings, etc) have not kept pace, except
for professions and very highly skilled workers at the very top. It
should be noted a broad range of very detailed studies of historically
wages and worker incomes relative to productivity in all advanced
capitalist countries demonstrate that worker incomes DO track
productivity over the long run, although it is arguable that social
upheavals from labor struggle THE CLASS STRUGGLE — play an essential
role in regulating and enforcing this trend. If this is true then we
are due for a major social upheaval, since a divergence in productivity
and income, beginning at the bottom of the scale but gradually working
its way upwards, has been underway since approximately 1975. This
correlates broadly with both the decline in the US mfg sector, the
decline in the strength of industrial unions, and first surge in
runaway shops of the late 60s and early 70s. The fact the median
household income did not reflect an absolute decline until the 2000
recession and afterwards only underscores how long this trend has been
underway and how, despite big gains in income due to the explosion
of high-tech related occupations in the 90s, it has now become
the dominant trend. Even the high-tech occupational incomes have been
flat compared with their own productivity growth.

All that being said, it should be noted: in truth, productivity is not
easily measured, especially when a significant number and proportion of
outputs are service oriented, informal, or are intangible.
Manufacturing productivity IS easily measured. However many estimates
of productivity in services or intangibles rely on some questionable
assumptions where real data is highly imperfect, or on very weak
linkages and correlations with manufacturing indexes. Example:
computer cpu increases in processing power have grown at a polynomial
rate since the 70s (at a power of between 2 and 3) per year. However
the software a worker uses to compose a document has grown in
complexity (use of processing power) at a nearly comparable rate. How
do you measure the productivity of a workers ability to insert a huge
and expanding array of formatting features into his/her document? It is
very difficult to find accurate quantitative measures. Another example
of bad correlations: In NAFTA negotiations, Mexican and U.S. economists
had no reliable data on Mexican agricultural labor productivity. Much
work in the agricultural sector was in fact informal, compensated in
kind or barter, and unrecorded in any form. NAFTA negotiators decided
to use the ratio of Mexican to US manufacturing productivity as a
substitute. The ratio was in error by a factor of nearly 70! That is,
Mexican agricultural productivity was nearly 100 times less productive
than US agricultural productivity (whereas Mexican manufacturing
productivity for comparable industries was only 30% less than that in
the US). Consequence: terms of trade negotiated in NAFTA were
disastrous for Mexican agriculture. Millions left farms in 94-96, found
no work in the quickly saturated manufacturing sector, and immigrated
to the US by any means they could.

Conclusions: Our focus should be on raising income, not manufacturing,
per se:
5. While there is some debate on how much weight each
of various causes of this (income lagging productivity) phenomenon
should be given, there is little debate about the list of causes:
a. Weak bargaining power of workers to recapture
gains from productivity.
b. Absence of nationalized health care.
c. Immigration, law of supply and demand in the labor
markets, especially when 6-10 million workers have no legal protection.
d. Competition with cheap, often forced or slave
labor: Transnational corps have become truly transnational; supply
chain technology and infrastructure guarantee their independence from
ANY one national government.
e. Relative decline in investments in human capital
in the US esp. education, retraining, etc.
6. Manufacturing decline is a fundamental trend of
the scientific-technological revolutions continuing re-divisions of
labor, reflecting increased productivity. While this trend can be
modified or smoothed or alleviated by reforms in trade, immigration,
health care and labor-law policy, its fundamental course is an
objective feature of economic development, and cannot be altered.
7. Globalization is here to stay. The negative impact
of global competition on US incomes can only fundamentally be countered
by:
a. Advances in the class struggle in developing
(manufacturing) nations to improve world incomes;
b. More favorable and progressive trade agreements
for developing nations, promoting more equitable global development.
c. Advances in the US and advanced capitalist partner
workforces to new and broad-based high-tech high-skill levels
alongside an enhanced ability to bargain for the productivity gains
inherent in that transformation.
8. Service occupations and incomes are growing in
their own right, as well as invading significant parts of manufacturing
labor markets (the bane of organizing attempts by the UAW at Toyota, in
fact). To the extent science and technology are increasingly able to
automate the repetitive or algorithmic parts of these occupations: the
occupations will become proportionally unsuitable as sources of surplus
value. In other words they become less and less proletarian, in the
Marxist sense, under the impact of technology. Raising their incomes
thus becomes theoretically and practically problematic from the
standpoint of the traditional collective bargaining and workplace-based
class struggle forms of organization, requiring some adjustments.
a. Consider the labor contracting business in the US,
a rapidly growing sector of the workforce in almost every industry and
service, as a special case, a kind of substitute for service labor in
general. Other than the legal, tax and liability preferences afforded
the corporate form of economic organization, there is little economic
justification for a sharp division between owners and workers in
these firms. Contract labor firms require virtually no capital other
than human capital. Beyond reasonable management fees and incentives,
there is really no cause for the labor being traded as labor-power in
the Marxist sense. And, in fact, it is not in many instances. What is
really being traded is the market value of the actual service or
labor product, of which the contract worker is being paid a
proportional part.
b. Thus, an important means, perhaps the only means,
of raising many service incomes is to demand true proportional returns
on the value of the traded labor product; i.e. a division of the
capital earnings, or profits, of the contracting firm. (Of course, an
obstacle here is risk who assumes it? Everyone wants a just share
of the profits, but what about losses?)

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