Why Americans are nostalgic about manufacturing

Last month the sharp and hard-working Jeff Spross wrote:

Jeff Spross: Why Americans Are so nostalgic About the Manufacturing Industry: “The U.S. still manufactures a lot of stuff, but most of it isn’t stuff average American consumers buy…

…These days, we mostly make heavy industrial equipment, circuitry, aircraft, and other big and expensive goods and high-end products…. A lot of manufacturing went overseas… so we get imports for a lower cost, which improves our standard of living. People in other, less developed nations get new jobs, which… improves theirs. A win-win, theoretically speaking. Same goes for rising automation…. But the 1950s economy was also a delicately balanced ecosystem… where wages were good, health and pension benefits… plentiful… job security was high…. Globalization gave certain interests and centers of power in our society the wedge and hammer…. Unions became far weaker, business owners and management got much freer hands, and worker bargaining power collapsed. The economic benefits… weren’t broadly shared…. Other Western countries also endured globalization, but managed to keep their levels of inequality lower…. If we’d found some sort of alternative economic strategy for producing those same results, it’s unlikely voters or politicians would be nostalgically lamenting any [manufacturing] decline.

Moving our workers and our capital out of manufacturing could have been a good idea. It would have been beneficial if it were to take advantage of supply from people in other countries who could make things more cheaply. It would have been benevolent to make space for other countries to engage in successful economic development. Those both would have been good things. But there is an “if”. Those would have been good things if and as long as the industries that we were moving people and capital out of manufacturing into were genuinely the industries of the future.

What do I mean by “industries of the future”? The proper industries of the future are those that are pronounced positive spillover is associated with them–working at them and producing in them build skills and knowledge that can be deployed elsewhere in the economy. The proper industries of the future are those in which a value added is high, not in the sense that less-than-fully-informed consumers are willing to pay for them but the people in their right minds will after the fact look back and say: that was worth buying. The big problem with America’s relative shift out of manufacturing since 1975 was that the “industries of the future” that we shifted into–such treasures as high finance, health-care insurance administration, real-estate transactions, and prisons–were such wonderful prizes from the perspective of societal value-added.

This article is published in collaboration with Washington Center for Equitable Growth. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Brad DeLong is professor of economics at U.C. Berkeley, a research associate of the NBER, and was from 1993-1995 a deputy assistant secretary of the U.S. Treasury. 

Image: A 1914 Model T sits outside the historic Ford Motor Piquette auto factory in Detroit, Michigan. REUTERS/Gary Cameron