NewsBusters.org - August 18,
2007
Busting the
'Deindustrialization' Myth
By Tom Blumer
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powerful "manufacturing is in decline" meme won't go away soon, but it
should.
It apparently isn't enough that the Institute for Supply Management's
Manufacturing Index has read "expansion" in 48 of the past 50 months. It has
become an article of faith among reporters and opportunistic politicians
that American manufacturing has been, and continues to be, in a long-term
decline.
The fact is that government reports also show the exact opposite. Why
apparently no one, including the sector's supporters, has done, or at least
published, the simple math involved to debunk the myth of
"deindustrialization" is indeed a mystery.
There has been support by anecdote. For example, on August 6, Joel
Kotkin, a presidential fellow in Urban Futures at Chapman University, wrote
an op-ed piece for The Wall Street Journal . His column led as
follows:
It's been a quarter-century since author John Naisbitt blithely described
manufacturing as a "declining sport" that Americans could easily offshore to
Asia. Since then obituaries for U.S. manufacturing, both mournful and
enraged, have been written many times.
The reports of death are premature. Many of the most vibrant economic
regions in this country from the deep South to the Pacific Northwest are
still making and transporting real goods. The success of America's "material
boys" suggests that the old economy and its blue-collar workers so often
patronized and pitied can still more than hold their own in today's global
economy.
Mr. Kotkin then cited several examples around the country (Dubuque, Iowa;
Houston; Seattle; Charleston, SC, and others) where manufacturing is vibrant
and prospering.
But what about the big picture? Reporters and others will usually note
that manufacturing's contribution to the economy has fallen from about 25%
of Gross Domestic Product (GDP) in the mid-1960s to just over 12% as if
that ends the "deindustrialization" argument.
It does. The deindustrialization argument disintegrates if you remember
that the entire 2007 economy is over 3-1/2 times bigger than the economy of
1965.
Specifically, look at this chart (based on data obtained here at the
Bureau of Economic Analysis for GDP and components, and from here for GDP
growth):
As you can see, the real value of manufacturing output grew at an average
rate of about 1% a year from 1965 until 1982, the bottom of the post-Carter
Era recession. From that year on, through the remaining Reagan years, Bush
41, Clinton, and first few years of Bush 43, the sector grew at average rate
of about 1.5% a year.
What about the rest of the Bush 43 era? After all, in 2003 and 2004, some
commentators (examples here and here) attempted to paint the manufacturing
sector as near death. Those reports are, to say the least, exaggerated. In
the past three years, manufacturing growth has averaged over 2.3%.
Okay, what about the decline in total manufacturing jobs? Well, that's a
result of productivity, and calls for a history lesson.
As shown here, in 1945, 16% of American workers were involved in
agriculture. By 2000, that percentage had shrunk to 1.9%. Yet, as with
manufacturing, and despite steep, long-term, productivity-driven drops in
the prices of agricultural commodities, the sector's GDP has grown
consistently in real terms but again, just not as fast as other sectors in
the economy.
When's the last time you read somebody bemoaning the "de-agrification of
America"? And who will say that it would be a bad thing if, over the next
few decades, we're able to get ever more value out of manufacturing with
fewer people as long as overall unemployment stays low?
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Tom Blumer is a CPA based in Mason, Ohio and a contributing editor to
NewsBusters
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