Memo to Wall Street: Manufacturing Still Matters
Wall Street thinks
manufacturing no longer matters. But America's
manufacturing decline has dangerously undermined the
nation's performance.
By Eamonn Fingleton.
The Dow Jones Industrial Average last month underwent
a major revamp -- and, for those who are keeping
score, it signaled a sad twilight for American
manufacturing.
Three erstwhile top manufacturing corporations were
dropped from the 30-company stock market index, to be
replaced by newcomers representing America's vaunted
"postindustrial future." None of the three dumped
companies -- AT&T, Kodak and International Paper --
can be considered a state-of-the-art manufacturer any
more. Indeed AT & T, once famed around the world for
its leadership in making everything from telephone
switchgear to semiconductors, hardly makes anything
these days. But whatever Wall Street says, America
still desperately needs a strong manufacturing base.
One much overlooked advantage of manufacturing is that
it creates a balanced mix of jobs. In particular it
matches the needs of society by creating plenty of
jobs for factory-floor workers. By contrast,
postindustrial businesses -- in everything from
computer software to financial services -- are
generally top-heavy with university graduates.
Manufacturing, moreover, pays superior wages. This
reflects the fact that -- at least in the more
advanced types of manufacturing in which the United
States used to do so well -- the productivity of
ordinary workers can be powerfully leveraged by highly
sophisticated production equipment.
Then there is manufacturing's contribution to the U.S.
trade balance. Per unit of output, American
manufacturing companies export on average about eleven
times as much as service companies.
As American manufacturing has declined, America's
trade deficits have steadily widened. These are now
stunningly out of line.
Last year's U.S. trade performance was the worst since
American economic statistics were first compiled in
the 19th century. The U.S. "current account" -- the
widest measure of international trade -- was in
deficit to the tune of $537 billion. This reflected
the fact that an America denuded of manufacturing
industries now buys far more abroad than it sells.
Last year's deficit represented more than 5 percent
of America's total gross domestic product (or in
layman's language, the nation's total output).
By comparison, the notorious U.S. trade crisis of
1971-72, so well remembered by older Americans, was a
mere blip. The U.S. trade deficit in 1972, at 0.5
percent of GDP, was less than one-tenth of the current
level. Yet in the summer of 1971 the trade outlook for
1972 was considered so bad that President Nixon was
forced not only to devalue the dollar but to cut its
once sacrosanct link with gold.
In fact, history records only one previous instance of
a major nation running a larger trade deficit than 5
per cent of GDP. This was Italy in 1924 -- hardly an
auspicious precedent, given that Italy was then
wracked by strikes and social unrest so severe that
they paved the way for Mussolini to seize full
dictatorial powers in 1925.
Until the issue was raised first by Howard Dean and
more recently by John Kerry, the plight of American
manufacturing had long gone unlamented in American
politics. Even if the Bush administration can continue
to brush aside American industrial workers' concerns,
it is ultimately answerable to a much more powerful
constituency: the world's financial markets. For every
$1 of current account deficit the United States
incurs, it has to sell $1 of American assets abroad.
Much of this financing comes in the form of
foreigners' purchases of U.S. Treasury bonds. An ever
rising share of American stocks and real estate is
also being bought by foreigners. The question is how
long foreigners will continue to finance a U.S. trade
trend that they know is recklessly unsustainable.
In the meantime, foreign purchases of American assets
are becoming increasingly intrusive. Such erstwhile
pillars of American industry as Amoco and Chrysler are
now foreign owned. High-tech companies like IBM and
Lucent have sold key divisions to foreigners. Both the
New York book publishing industry and the New York
financial services industry are now heavily
foreign-owned.
In effect America is selling the family silver. But
you can sell the family silver only once. Then what?
To forestall economic disaster, Washington needs -- as
a minimum first step -- to get serious about opening
foreign markets. Many of these markets have long been
largely closed to American exports.
Certainly, absent immediate measures to reverse the
decline of manufacturing, America will face, among
other things, a devastating dollar crash. Just the
most obvious consequence will be a dramatic rise in
the cost of imported goods -- everything from oil to
computer hardware. The longer the reckoning is
postponed the more painful it will be.
Eamonn Fingleton is the author most recently of
Unsustainable (Nation Books, 2003). |