Policy-making relies on narratives, and narratives often come from data. Or claim that they do. One story often told by economists—by everyone from Dani Rodrik to Erik Brynjolfsson and Andrew McAfee to James Kynge to Laurence Summers—is that China’s manufacturing sector has been shedding workers since the mid-1990s. This story leads us to believe that something like this is happening:
This argument ends up as a morality tale with serious policy implications: if even China, manufacturing powerhouse with wages developed countries cannot hope to compete with, is losing manufacturing jobs, then surely manufacturing jobs are obsolete and the U.S. is foolish to try to maintain them—let alone get them back.
Unfortunately, this story is based on a gross misreading of inaccurate evidence. There are three major problems. First, even based on a simplistic look at the data, it’s flat out wrong. Take a look at this chart that shows the actual manufacturing employment in China. (You may note that this chart only goes back to 1998, and that the peak of employment underlying most claims was in 1996—more on that in a bit.)
Strangely enough this graph looks nothing
It is now become accepted wisdom in economic circles that America is enjoying a manufacturing renaissance. As the general theme goes: American companies are no longer offshoring factories; foreign companies are building new factories here; cheap energy is allowing manufacturers in the United States to expand; and groups like the Boston Consulting Group are telling everyone not to worry, manufacturing will rebound. Wish that it were so. Unfortunately, reality appears to be more troubling
If a manufacturing resurgence was truly occurring we would see it in an expanded number of factories. In fact, according the U.S. Bureau of Labor Statistics (BLS) there are fewer U.S. factories today than there were two years ago. Moreover, the BLS’ Business Employment Dynamics survey indicates that net new manufacturing establishment openings (openings minus closings) has been negative every year since 1999. In 2012 alone, 3,000 more manufacturing establishments closed then opened. This is not to mention the fact that manufactures in America face one of the highest effective corporate tax rates in the world, while the federal government doesn’t support pre-competitive manufacturing research centers like our competitor nations (e.g. Germany, Japan, etc…)
It was with great interest and mostly pleasure that I read Martin Baily and Barry Bosworth’s new article in the Journal of Economic Perspectives, “U.S. Manufacturing: Understanding Its Past and Its Potential Future.”
The article attempts to analyze recent trends in U.S, manufacturing performance, including output and employment. This is an area ITIF has been working on for a number of years. And in the past, Baily has been skeptical of our analysis, which claimed that U.S. manufacturing was in fact worse off than official statistics, in part because of the overstatement of computers and electronics manufacturing output. So it was with great delight, and some surprise, to see that Baily and Bosworth have now embraced this analysis. As they note, the fact that measured manufacturing output’s share of GDP has remained stable “is largely due to the spectacular performance of one subsector of manufacturing: computers and electronics.” In fact, as ITIF showed, they also show that by taking out computers, overall real manufacturing output fell from 2000 to 2011, something that is unprecedented in our almost 250-year history. They also rightly point out that the massive
This is the fourth and final article of a four part series chronicling highlights from my seven-city tour, Energy Innovation Across America. The first stop was a tour of Salt Lake City’s energy innovation ecosystem, which can be found here. Highlights from my tours of five Department of Energy National Labs can be found here. And my policy discussions with leaders of the Midwest energy innovation ecosystem can be found here. My goal was to meet energy innovators from across the country and bring their stories and perspectives back to Washington. For a brief introduction to the series, visithere, and for information on the Millennial Trains Project, see here.
Ask the average American about what they feel Pittsburgh, PA represents and you’ll likely hear some typical responses: Steelers football, blue-collar middle class workers, steel mills, and coal plants. If anything, Pittsburgh is considered the quintessential rust belt city – historically focused on manufacturing and industry, but one that has fallen on hard times since the 1980’s when strong foreign competition shuttered plants and stopped offering job opportunities. That’s certainly some of the images I
Last week, the Advanced Research Projects Agency – Energy (ARPA-E) announced support for 33 new projects aimed at developing an affordable and scalable clean energy transportation sector. The projects are the latest round of public investment from ARPA-E in high-risk, high-reward low-carbon energy innovations that could be game-changing in the fight to address climate change. The projects are notable because Washington’s current fragile budget and policy environment – a dangerous combination of sequestration, budget cuts, and an overall negative view of energy innovation – puts ARPA-E’s funding at risk for the next fiscal year.
First, let’s look at the programs. ARPA-E takes investing in new sectors of energy innovation seriously – ARPA-E’s due-diligence includes a small, but dedicated government staff, interaction with industry to understand emerging research problems, and a constant influx of new program managers. Program managers are brought in on three year temporary terms to carry out their investments. ARPA-E’s Deputy Director Cheryl Martin explained this is important because the “three year cycle doesn’t allow us to drink our own cool-aide.” In other words, it prevents stagnation of investments and allows for fresh approaches to energy innovation.
Evidence of technological change is all around us—smartphones, self-driving cars, amazing drug discoveries, and even drone warfare. With all of this novelty many futurists and other pundits breathlessly proclaim that technological change is speeding up. In fact, some go so far as to claim that the pace of innovation is not only accelerating, it is accelerating exponentially (which, anyone with a rudimentary understanding of exponents can see, is utter nonsense). Peter Diamandis, author of Abundance: The Future Is Better Than You Think, argues that “Within a generation, we will be able to provide goods and services, once reserved for the wealthy few, to any and all who need them. Or desire them.”
But is the rate of technological change really getting faster? Other commentators, including some notable academic economists, actually think the opposite—that we have run out of the “easy” technological advances and new breakthroughs will take much more work.
Questions about the rate of technological change may seem trivial—will I get one hoverboard or two?—but getting a handle on an answer is critical because in economic terms, technological change equals economic growth. And growth has powerful implications for
Making Innovation Part of Climate Hawks Policy Pitch
In a previous article I argued that climate policy advocates should make energy innovation part of their policy elevator pitch. A good opportunity to start is now available through the debate on reforming and re-authorizing the America COMPETES Act.
Within the climate advocacy community there are those that argue for aggressive clean energy innovation policy (such as myself) and those that argue for aggressive deployment of existing clean energy technologies (such as Center for American Progress’s Joe Romm and 350.org’s Bill McKibben). Each provides different policy emphasis and nuance. Today, deployment policies receive higher priority, reflected in it dominating the narrative among advocates as well as dominating the portfolio of U.S. public investments in clean energy. As a result, conflict occurs over what policy changes should be made.
As Grist’s Dave Roberts argues (correctly to a degree), both “camps” agree on a lot and everyone should aggressively work for clean energy to be a national priority to “lift all boats,”—both innovation and deployment of today’s technologies alike. How then should this consensus be reflected in our pitches to policymakers?
The Smart Manufacturing Coalition recently conducted a survey of Americans to get their views of whether modernizing factories with advanced technology and automation was a good or bad thing for the economy.
Amazingly, nearly two-thirds of respondents said it either made no difference or actually hurt the economy. Half of those making $35K to $50K actually said it has hurt the economy.
Wow, have these people not taken economics? Do they want to go back to farms with mules and factories with hand files? Have they not read the newspapers about how our manufacturing sector has been decimated by overseas competition?
Well wait, they probably have not read those newspaper articles, not because most people no longer see that they have a civic responsibility to read the news, but because by and large, the media doesn’t write these stories. Rather, they almost always write that when it comes to explaining the decimation of U.S. manufacturing jobs, the cause is automation. In fact, as ITIF and others have shown, the loss of U.S. global competitiveness has accounted for over half of manufacturing job loss over the last decade.
President Obama released his long-awaited FY2014 budget request and while it’s unlikely the budget will be taken up by Congress in its entirety, it remains an important document. Namely, the proposal is significant because it steadfastly argues that America can continue to support next-generation industries like clean energy. In fact, the President’s proposal budgets for a number of high-profile, high-impact programs, including those aimed at growing the domestic clean energy manufacturing sector, reduce transportation fuel use, and calls on Congress to fund a new Energy Innovation Hub to transform the electricity grid.
Across the board, the FY2014 request boosts key energy innovation offices at DOE by about 15 percent compared to the FY2013 Continuing Resolution and seven percent higher than the President’s FY2013 request. The lion’s share of budget gains are aimed at the Office of Energy Efficiency and Renewable Energy (EERE), which would see a budget increase of 54 percent from FY2013 CR levels, and at the Advanced Research Projects Agency-Energy (ARPA-E), which would see a budget increase of 46 percent.
Expanding Research Capabilities in Advanced Energy Manufacturing
The largest budget increase target at EERE – 22 percent to
Recently, I wrote about how the 2000s were a lost decade for U.S. manufacturing. Ensuring that the 2010s are not more of the same will require a robust national manufacturing policy to help producers in America become much more productive and innovative. Unfortunately, to date, Washington has not embraced such a policy.
The key question is why?
One reason is that there are three major camps in manufacturing policy and only one puts a national innovation agenda at the top of the list.
Camp 1: Manufacturing Doesn’t Matter, So No Need for a Manufacturing Policy
These advocates have a clear policy message regarding U.S. manufacturing. Don’t do anything specifically to help manufacturing. The reason? Manufacturing doesn’t matter. The members of this camp are numerous. Kenneth Green, a resident scholar at the conservative American Enterprise Institute (AEI), writes: “As long as China is selling us the products we need, the location of manufacturing isn’t really that critical for the economy.” Meanwhile, Columbia University’s Jagdish Bhagwati dismisses anyone who says manufacturing is important as suffering from a “manufacturing fetish,” while economic columnist Robert J. Samuelson writes that