Unpacking the manufacturing renaissance narrative

Posted by mmcmullan on 11/06/2013

This dude Eamonn Fingleton has a pretty scathing review of the “manufacturing is back” narrative. Writing for Forbes, he says:

Stirring stuff – at least it would be if it were true. Unfortunately it is largely smoke and mirrors. Various American corporations, not least General Electric, Walmart, Whirlpool, United Technologies (Otis), and Caterpillar, have helped propagate the illusion, and no doubt have good public relations reasons for so doing. What is less understandable is the naiveté with which the American media have swallowed the story.

That’s a dang good question. For all of the hubbub about manufacturing flooding back to America, it hasn’t produced an employment boom. And that’s in spite of reports that productivity is up, says an analysis from Businesss Insider; and the fact that wages (labor costs) are down, notes the Associated Press.

So it’s not like every media outlet is buying the feel-good story that even your pals at the Alliance for American Manufacturing (AAM) have been complicit in promoting. But hey, self-reflection is healthy. So while we’re always happy to hear about jobs “reshoring” by American corporations that have gone global, we understand it comes with some serious caveats. In the case of General Electric’s Appliance Park facility, which the company has recently revived, Fingleton has this to say:

GE’s Louisville operation (there) once employed thousands of workers to make almost every part of every appliance and their output was used not only in GE products but in products of other manufacturers around the world. Those jobs are gone forever. Not even GE makes any pretense that its most economically sophisticated components such as compressors for refrigerators, electric motors for washing machines, and a host of microchips – will ever return to the United States.

Okay, lets apply the breaks a little bit, Eamonn, lest we lose each other completely. While Fingleton thinks American manufacturing (or employment, at least) is Screwed with a capital S, we’re not, uh, ready to bury the manufacturing sector quite yet. He’s dead on when he says that there’s a lot of pap out there regarding the health and the direction of the manufacturing sector. But that doesn’t mean we should just bow out of the game entirely.

Fingleton, in his article, cites Ralph Gomory, the New York University academic who recently undressed a Boston Consulting Group (BCG) study that might be the most enthusiastic cheerleader for the whole manufacturing-renaissance narrative. But Gomory doesn’t spend his entire article dunking all over the BCG report. Nope, he also identifies why America has lost millions of manufacturing jobs to Asian competitors like China (and it’s not just bad trade policy):

Americans are assured, based on flawed analysis, that when U.S. companies find it cheaper to make certain goods domestically, they will do so. What is overlooked in reaching that much-wished-for conclusion is that the Chinese, following the example of other Asian nations, simply do not allow important outcomes to be determined in that way.

China did not get to where it is today by allowing natural economic forces to decide the outcome. The reality is much closer to the exact opposite. An industry is targeted, and then the economic forces needed to obtain a dominant position -- including subsidies, special tax rates, exchange rates and technology agreements -- are put in place. This fundamental reality cannot be ignored.

According to Gomory, the Chinese government is fighting for its industry. So maybe we need to do the same. A national manufacturing strategy, anyone?

No one said it would be easy. But if our competitors are in the ring and swinging, then maybe we should start swinging back. Look, we're just saying: Cheer up and chill out, Eamonn Fingleton! American manufacturing is down in the dirt right now. But with the right policies (and plenty of support) we can get it back up.

Image from Flickr user Chuck Miller, used following Creative Commons guidelines.

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