The image above comes from
Mark Perry, a professor of economics and finance at the University of Michigan, who writes on his Carpe Diem blog:
We hear all the time from Donald Trump and others about the "decline of U.S. manufacturing," about how nothing is made here any more, and how everything that used to be made here is now made in China and other low wage countries. An underlying assumption of most of those claims is that if the manufacturing base is shrinking in the U.S. (the "hollowing out of U.S. manufacturing"), that there is an offsetting manufacturing gain that is captured elsewhere in the world, as manufacturing output supposedly shifts from the U.S. to other countries, with world manufacturing remaining constant.
In reality, the chart above shows that the decline in U.S. manufacturing as share of GDP between 1970 and 2010 is really a global phenomenon as the entire world becomes increasingly a service-based economy.
His bottom line:
[T]he declining manufacturing/GDP ratio reflects declining prices for manufacturing goods, which is a sign of economic progress, not regress. The standard of living around the world today, along with global wealth and prosperity, are all much, much higher today with manufacturing representing 16% of total world output (including the U.S.) compared to 1970, when it was almost twice as high at almost 27%. And for that progress, we should celebrate, not complain about the "decline of manufacturing."
His logic seems compelling, no?
11 comments:
Uh, I'd say no, sort of. At least in the U.S.
The problem is that the decline in manufacturing as a % of GDP correlates with a stagnation or loss of real wages in the U.S.
http://images2.dailykos.com/i/user/6/change-since-1979-600.gif
We're working far more hours simply to make ends meet.
http://images1.dailykos.com/i/user/6/toilindex
The global picture is probably quite different. Aggregating the U.S. and global economies hides some important factors for the U.S.
Sorry - second link doesn't seem to work.'
http://www.dailykos.com/story/2011/12/28/1049266/-Another-10-charts-peer-into-the%C2%A0economy
Scroll down to the "Toil Index."
40 some hours of work per month for median wage-earner to earn median rent in 1950.
Close to 100 hundred hours of work per month in 2005.
Ouch!
Yes, the logic is compelling.
The other thing you can look at is the value of manufacturing which has gone up. Manufacturing is declining in employment.
The current bunch of people who claim manufacturing is sacred have a remarkable analogue in the Physiocrats.
The wages thing is a seperate issue.
Is the ratio of Manufacturing to GDP a useful statistic in this context?
To me, the "falling prices of manufacturing" could, even perhaps in large part, be due to the great decrease in labor/regulative costs as the manufacturing base shifts to countries in which people work for much less and where industry is permitted to pollute, be less safe, or more simply put spend less money on regulatory items.
There very well could be 'more' people employed in manufacturing as a result.
http://i108.photobucket.com/albums/n4/RobertOak/manufacturingwage2000.jpg
Manufacturing productivity in the US per worker has also been increasing recently.
It's weird though, at some point it seems like employers will feel like they only have to employ "managers". A recent anectdote, the consortium established by the WashingtonPost (among others) to crack down on internet content peddling invested $30,000,000 for the new effort. The number of jobs created: 11
I think you need to ask a second question, where did the money go? From what I understand, the proportion of money devoted to health care went from ~5-7% of GDP in the 60's to over 17% today. As bad as that might be, the proportion of GDP that is taken up by the financial sector has also more than doubled in recent years. How would productivity look in these two sectors? Perhaps that's where the real problem lies.
No!
Continuing advances in automation and information technology permit manufacturing with less and less labor input per unit of production. Just as modern agriculture also produces more food with fewer workers. And this is occurring world-wide – although faster in developed than developing countries.
Concomitantly, although this increases the relative value of the work of those who provide 'service output', it often DECREASES the purchasing power of even larger numbers of those displaced by the technological gains in efficiency. This results in lowered ability to pay enough to maintain 'demand' for the cheaper products.
A consequence could easily be growing unemployment, poverty and economic recession.
Does this sound familiar?
The only long-term 'cure' may be to switch from the valuing of (ultimately unsustainable) continuous 'economic growth' to the more realistic and equitable valuing of (attainable) innovation-driven, continuous growth in 'quality of life'!
"Close to 100 hundred hours of work per month in 2005."
2.5 weeks just to pay the rent? That's seems really high. Do you suppose that's gross pay, or net pay? It seems unbelievable that it's gross pay...
#7 - Mark -
Good question. I don't know. But remember for many renters, i.e, those at the lower end of the income spectrum, there is less of a difference between gross and net pay.
I am also unclear on the source of the data - for the US, I imagine the UN data is taken from the BEA NIPA series.
The chart and comments seem to focus on GDP shares. A similar analysis using e.g., BLS data, on where people worked yields a similar but different dataset which is needed to discuss the income inequality question.
I briefly looked at the UN data making a single plot with Manufacturing value ($) and Manufacturing share (%) over the data set period 1970-2010. The UN data allows one to look at the major ISIC sectors but not aggregate into something called “Services, ” which in fact has driven both economic growth and job creation over the past decades (and what economists such as Dale Jorgenson at Harvard have spent much time studying). US Manufacturing “share” has decreased steadily; however, the absolute “size” (dollar) of manufacturing has continue to increase steadily (although with significant bumps during the 1997-2001 Asian crisis and the current debt crisis/recession. The rate of absolute growth of Manufacturing is around ~ $50 billion per year over all periods in this time frame (let me know if you would like to see this).
So Manufacturing has not been declining, but its share has been declining. Manufacturing employment has been dropping even faster as a result of technological developments and productivity improvements. Higher value added links directly to higher labor rates as you would expect in a “virtuous cycle” economy – software engineers, financial advisors and ad executives earn more than truck drivers and craftsmen. The “vicious cycle” part of the story is some people are harmed more than others.
This suggests that the present inequality crisis comes from both globalization and productivity improvements both having downward pressure. Productivity improvements during the 1980s-mid 2000s resulted in large part from ITC - technological improvements which also enabled redesign of work / business processes (e.g. using ERP, SAP ...). The result is a double whammy – both upward and downward pressure causing increased dispersion on both tails of the income distribution (I dislike the term “income inequality” which has a pejorative connotation suggesting intentionally harmful actions whereas what has happened is an outcome of the evolving dynamic in our system). What is worrisome to me is the growth in Services seems to be strongly driven by public services (…you name it), leisure (Droids, Kendles and Nooks; 70” and 80” LED flat screen TVs, etc), online social networking thingies – Facebook, Linked-in and Groupon (merchant coupon aggregator) and so on. I always had a picture of long term growth coming from added stock of capital (physical, financial and human). Although the technology items mentioned here could just go on and on in a forever Schumpeterian destruction and renewal – that would bring along the consumption but what is the contribution to the economic stock (the “wealth of nations”)?
Someone should tell the folks at DARPA and MIT (by way of Make) that the "decline of manufacturing" is a world-wide trend rather than a uniquely American one that will be turned around by a "Sputnik moment," and that "decline" doesn't mean we don't make things anymore, it means we do a lot of other stuff now that we didn't used to do.
how does china look on this graph?
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