John Henry, Technology, The Chinese and Jobs

There are many statements made, particularly in the current political climate, that are often accepted as true. One of the most oft repeated is that"we [as a country] don't make things anymore." Another is that we have lost all our manufacturing jobs to outsourcing.

As to the first claim that "we don't make anything anymore" that is, to put it politely, a lie. According to UN data (nicely collated for us at the Curious Cat Economic blog website) showing the top 15 manufacturing countries the US is still the world's leading manufacturing country. Admittedly China is closing the gap but not because of a large decrease in US output but large increase in Chinese output. The US actually manufactures more that the remaining top 13 countries combined.

But, you may ask, is happening to all those US manufacturing jobs? Admittedly some jobs have been lost to outsourcing and we taxpayers have paid to do some of it. We gave money to GM and the UAW (and make no mistake this was also about bailing out the UAW which is now part owner of GM) and they use some of that money to open an assembly plant in Mexico. Economic Stimulus money for green energy jobs has gone to create wind energy jobs in China and electric car making jobs in Finland. NAFTA also get some blame but we do not have a free trade agreement with China so that logic is failed.

The truth of the matter is that most manufacturing jobs have been lost to technology not outsourcing; at least not directly. It is similar to the story of John Henry "the steel driving man" going up against technology represented by the steam engine. Now days the American worker faces a new steam engine represented by computer technology and automation. The simple fact is it takes fewer people to perform manufacturing tasks. You do not need as many people to make a ton of steel in a modern "mini mill" as you do in the older more labor intensive steel mills. It does not take as many people to assemble a car as it use to. You can go online to Youtube or a similar site and see old 50s and 60s footage of automobile assembly lines as well as more modern assembly lines. The difference is there are a lot fewer people in the more modern assembly lines. The lesson here is if you can be replaced by a machine you will be.

How does this drive jobs overseas? Well suppose you are a US manufacturer and want to modernize your plant to remain competitive. This would mean that it would require fewer employees to run the new plant but your employee's union insists that you keep the same number of people on payroll so you end up paying people to do nothing. Reminds us of the UAW job bank doesn't it? Solution: build your new modern facility outside the US to avoid the union restrictions.

This job loss does not only happen in the US. Alliance Capital Management released study that showed worldwide over 20 million manufacturing jobs were lost from 1995 to 2002. These jobs were not outsourced to another planet because over that same time period productivity increased by 30%. The difference was made up by technology. A parallel can be drawn between this and agriculture. Even as farm employment has dropped in the US farm output had increased thanks to technology. From 1995 to 2002 The US lost 11% (about 2 million) of its manufacturing jobs but even China lost 15%, in part as it closed many state owned labor intensive businesses. Other rising economies such as Brazil also showed similar if not greater losses.

Some are predicting a return of some manufacturing jobs to the U.S. In an article entitled World Power Swings back to the US (by Ambrose Evans-Pritchard the Telegraph, 23 Oct 2011) points out that manufacturers that had left are returning to the US because they realize we offer many competitive advantages over other countries and more will continue to relocate here. Very little of those advantages come from any specific government policy. The problem is that they may not create a lot of jobs in the process. The reason once again is technology and this is not limited to the manufacturing sector. The article Are American workers in a race against the machine? by Zachary Roth points out that many middle class jobs are disappearing due to technology, particularly retail and there are no easy answers as how to fix it.

One final thing I would like to address is the subject to Free Trade. Free trade is American. One of the founding fathers' grievances against the crown was the restrictions it place who they could trade with and how. The economic isolationists would have you believe that we can survive fine on our own or with a highly restrictive trade policy. In fact that has never been the case. We are an island nation highly dependent on; trade always have been, always will be. In fact a higher percentage of our per capita income came from foreign trade in 1776 than it does now. The US empire was founded on doing business. It is what we as a nation do best. We suck at foreign policy (historically) our military ability is more based on material than strategic competence but we excel at business. We never established the colonial empire in the same sense as the European powers. The Philippines was a colony due to location, securing shipping lanes for trade, than resources. We made no territorial claims on Africa or China and when Commodore Perry forced open Japan it was not to claim territory but to force them to do business.

Now some, logically, insist on what they call "fair trade" but this "fair trade" cannot be so restrictive that it puts at a competitive disadvantage. We cannot be afraid to compete and we shouldn't be because we have shown we can beat anybody.