Manufacturing the Future: Why Reindustrialization Is the Road to Recovery

Four and a half years after the crash, the American economy sputters along. Twenty-three million workers cannot find full-time work, and the percentage of the employed population has hardly budged since it hit bottom two and a half years ago. Republicans argue that we should reduce the deficit (a disastrous policy); Democrats urge a new stimulus (a necessary step, but not sufficient to repair our economy). Missing from our national discussions about economic revitalization—even in arguments made by many of the nation's progressive economists— is the need to restore a badly damaged manufacturing sector.

This idea—supporting manufacturing through an industrial policy—has always had powerful enemies. Opposition from conservatives is to be expected. Industrial policy challenges the notion that a nation must make do with whatever "comparative advantage" God and history have given it. It is premised on the idea that government can shape the direction of the economy.

But even prominent Democratic economists tend to disregard the importance of manufacturing. Some believe government policy will not be effective. "Government is a crappy venture capitalist," was how Larry Summers dismissed the Obama administration's attempts to support clean energy manufacturing.¹ Others believe that the decline in manufacturing jobs is not a problem, but rather a symptom of success. Robert Reich states: "What happened to manufacturing? In two words: higher productivity."² He argues that manufacturing output is strong, but it requires fewer workers to produce it. As Austan Goolsbee—former head of Obama's National Economic Council—put it, manufacturing decline is nothing to worry about because manufacturing is going through "exactly the same process that agriculture went through."³ Just as the U.S. economy shifted from agriculture to manufacturing, now we are shifting from manufacturing to a service-based economy.

This story, though widely believed, is misleading. The manufacturing decline is not similar to the jobs loss in agriculture. Unlike agriculture, the nation's manufacturing output has declined and its job losses cannot be explained simply as productivity increases. Given this reality, and the importance of manufacturing to our economy, there are good reasons to support a robust industrial policy by strengthening the Obama administration's plan for resuscitating manufacturing.⁴

What Happened to Manufacturing?

The decline in manufacturing has been stunning. Having peaked at nearly twenty million in 1979, the number of manufacturing jobs has dropped to under twelve million, its lowest level since the early 1940s. The largest decline in jobs (six million) has occurred since 1998. Across the country, once bustling industrial towns shrink amidst once unimaginable decay.

Manufacturing jobs are starting to return. The Financial Times reports that "reshoring is causing great excitement in the U.S." Business consultants at Accenture report that two-thirds of big U.S. manufacturers have moved factories in the past two years, with the most popular destinations being within the U.S.

The recent jobs gains, however, pale in comparison to the losses. In the last two years, we have gained back just under five thousand (a mere 8 percent) of the millions of manufacturing jobs lost since 1998. At this rate it would take until 2037 for the nation to regain the manufacturing jobs lost since 2000.⁵

Is Manufacturing's Decline Like Agriculture's Decline?

The shift from low-productivity labor on the farm to higher-productivity, higher-paid employment in industry is precisely what economic development is all about. The same movement, supposedly, is happening with the shift out of industry and into business services and high tech. This view of economic history as an inevitable process of shifting from sector to sector—in order to shift to higher and higher levels of productivity and pay—is reassuring. However, it is also wrong and misleading.

What is currently happening to manufacturing is not what occurred with agriculture. And the difference is important. American agriculture did not go offshore. We automated agriculture and increased its output enormously by boosting productivity. Manufacturing, on the other hand, is declining because, in large part, it is moving offshore. The difference between continuing production by automating versus shifting...