The Power of Narrative

I remember getting into a forum argument on this issue more than a decade back (excerpt):

Opinion: Think nothing is made in America? Output has doubled in three decades

The U.S. manufacturing sector doesn’t get any respect.

Ask a random sample of people on the street and you’re likely to hear that America doesn’t make anything anymore, that China, Mexico and Vietnam took all of our factories, and that the only jobs left in America are flipping burgers and cleaning hotel rooms.

“Throughout history, at the center of any thriving country has been a thriving manufacturing sector,” says presidential candidate Donald Trump. “But under decades of failed leadership, the United States has gone from being the globe’s manufacturing powerhouse — the envy of the world — through a rapid deindustrialization.”

As with all myths, there’s some element of truth in what everyone says.

The number of jobs in the manufacturing sector has declined by about 5 million since 2000, falling from 17.3 million at the turn of the century to 12.3 million in 2015.

During World War II, when America was the Arsenal of Democracy, manufacturing provided more than a third of civilian jobs in the U.S., but that share has declined to only 8.7% in 2015. Only one of every 11 jobs is in a factory. Retail, health care, professional and business services, and leisure and hospitality services now employ more workers than manufacturing does.

The decline in manufacturing jobs certainly makes it seem as if America has been deindustrialized, but it’s not so. America still makes lots of stuff, but the number of jobs has shrunk because it doesn’t take nearly as many workers as it used to....

I remember noting that industrial production had been continuously increasing (this was before the Great Recession), and its only manufacturing employment that was getting hit. Reflecting further on it, there also appears to be a structural shift in the nature of US manufacturing employment where white collar workers displaced blue collar workers as manufacturing became higher value added and more sophisticated.

I don’t think I need to draw too many parallels with Malaysia’s case here. Given the low skill base of our work force (3/4ths are semi- or low-skilled), going up the value chain might be just reducing job opportunities for existing workers, without introducing alternative work. After all, that’s what increasing productivity means: producing more while employing less.

I won’t argue against increasing productivity, which is after all the basis for long term prosperity. But unless you believe that economies are inherently self-correcting and tend towards full-employment, there will be costs in the transition.