2 February, 2015Issue 27.2EconomicsNorth AmericaPolitics & Society

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The End Of The (Assembly) Line?

Joel Krupa

Vaclav Smil
Made in the USA: the Rise and Retreat of American Manufacturing
MIT Press, 2013
£27.95 (hardback)
256 pages
ISBN: 9780262019385

With the dazzling array of round-the-clock information available to the modern consumer, one finds no shortage of pundits, analysts, and experts covering nearly every conceivable social, political, and economic topic. Some of these commentators are accurate, others decidedly less so. Separating fact from fiction in this quagmire of information is often difficult, making the discovery of an historically-inclined and holistically-minded guide (grounded in a firm understanding of the limits of predictions) a truly invaluable find. Enter Vaclav Smil, a Distinguished Professor Emeritus at the University of Manitoba. As Bill Gates has written, “the word ‘polymath’ was invented to describe people like him.”

Despite an apparent lack of formal economic training, Smil displays a keen understanding of social science in his latest book, Made in the USA: The Rise and Retreat of American Manufacturing—one of a staggering four volumes Smil has released within the last year and a half. In this fact-dense publication, he assesses America’s move away from the country’s original strength in making “things” towards a new status as a big-time borrower, net importer of many raw materials, and top customer for the Eurasian workshops of the world (a drift treated with indifference or, at least in some cases, delight by both mainstream American economists and many Eurasian residents). This largely structural deterioration—accelerated by what Smil calls “huge and rising budget deficits, large and persistent trade deficits, enormous indebtedness, a low savings rate, a worsening state of indispensable modern infrastructure, poor achievements in education for the masses, worrisome public health…and a grossly dysfunctional government to run it all”—does not have a ready antidote. Armed with seemingly endless data, the quantitatively-oriented Smil paints a picture of an America where manufacturing jobs, corporate manufacturing growth, and value-added manufacturing innovation are declining. Left unaddressed, he argues this could severely undermine America’s capability to maintain a leadership role in the world.

At this juncture, one is tempted to ask a few hard questions. Isn’t the dematerialization of the still-evolving digital economy a good thing? Surely the “new normal” in which a newish start-up boasts a greater valuation than mainstream brands with large numbers of real assets can make high-tech exports viable replacements for creating comparatively boring household items like appliances and furniture? And even if we agree that the decline in manufacturing is regrettable, are there not readily replicable historical examples of manufacturing-led economic renaissances—renaissances that are possible with a good dose of hard work and a modicum of fortuitous timing, especially given that America has been in similar positions before?

Smil contends otherwise. To address the first point, he employs an analogy from agriculture to show that the percentage of GDP occupied by a given sector is not a good proxy for usefulness to the ultimate beneficiaries of an economic system (although agriculture “only” contributes 1.2% to U.S. GDP, few would argue that replacing that percentage with other activities is a good idea). In the same vein, manufacturing is not merely the mindless assemblage of things; indeed, it entails huge research and development expenditures—some of which can spawn new industries—and creates all manner of backward and forward linkages across the economy. According to Smil, “sales of every dollar of manufactured products support $1.40 of additional activity, while the rate for transportation is about $1, and the retail sector and professional and business services generate less than 60 cents for every dollar of final sales”, making manufacturing an indispensable activity with an attractive multiplier effect. Manufacturing creates a durable source of employment for the middle classes essential to social harmony and future taxation bases, while simultaneously entrenching economic opportunities for future generations (not all of whom are capable of entering the few coveted high-wage skilled jobs that dominate service-oriented economic systems).

Augmented high-tech company exports are no panacea for ubiquitous export declines, either. Smil points out that the U.S. actually runs a trade deficit in the country’s areas of supposed competitive advantage (in 2011, this deficit reached almost $100 billion). Referencing the industries grouped by the U.S. Census Bureau as “advanced technology products” or ATP (i.e., information and communication, electronics, flexible manufacturing, advanced materials, aerospace, weapons, nuclear power, optoelectronics, biotechnology, medical diagnosis, and manufacture of drugs), he notes that although isolated bright spots exist within aggregate ATP statistics, recent trends in many of these spheres point towards either “a total sectoral capitulation” or “a substantial retreat from what was once a position of undisputed dominance” in terms of market percentage captured by currently operating firms.

Finally, Smil does a particularly good job of showing that the global manufacturing market is changing rapidly, and that American manufacturing is badly lagging behind developments elsewhere. China is rising at a frantic pace, fossil fuel prices are higher than before, and capital flows are highly mobile. Automation, big data, and computational manufacturing are making old models obsolete, and international competition is becoming even more frenzied. Indeed, many foreign competitors—be they Chinese firms formerly hamstrung by Maoism or others emerging from similar difficulties—have thrown off the shackles of their old production processes and are now flexible, efficient, and highly disciplined capitalistic machines. Within this framework, America still has the chance to reverse the present course, but it will not be as easy a resurgence as it once might have been (America can neither return to Clinton’s budget surpluses nor encourage greater domestic savings on the scale that is necessary). Smil puts America’s chances at no better than 50-50.

Smil is a hardened empiricist who adopts a refreshingly unorthodox intellectual outlook (for example, he is a vocal critic of climate change policy inertia while he is a regular contributor to the neo-conservative American Enterprise Institute’s magazine The American). He makes a compelling argument for the importance of manufacturing to America’s long-term economic prospects and, in the process, does much to dispel the superficially appealing notion that manufacturing is unnecessary in our hyperconnected 21st century world. Whether you are a die-hard American nationalist, a cheerleader for Yankee malaise, or somewhere in between, Made in the USA‘s arguments should not be missed.

Joel Krupa is a researcher at the Department of Geography at the University of Toronto. He is a graduate of Mansfield College, Oxford.