Friday 17 Aug 2018 | 20:57 | SYDNEY
Friday 17 Aug 2018 | 20:57 | SYDNEY

Industrial power and security

1 September 2011 10:43

Matt Hill is a PhD student in the Department of Government, Cornell University.

The so-called 'de-industrialisation' of the US is a perennial political and analytical bugbear in Washington. Pieces by Sam Roggeveen and Hugh White raise a fascinating double question: is US manufacturing in decline, and if so, does this matter? These aren't clear-cut issues; in both cases, the answers are perhaps more contingent on the strategic perspectives we prioritise rather than the economics themselves.

Firstly, to be clear: in absolute terms, US manufacturing is not in terminal decline, and does not risk being driven to extinction by its Asian competitors. In constant dollar terms, the value-added by US industry was 67% greater in 2009 than it was in 1980 – and this during the worst economic downturn since the Great Depression.

Following 2008, there was a brief, steep decline in US industrial production. However, this was not a reflection of competitive pressures but of the dramatic reduction in domestic consumption. In other words, it occurred for the very same reason US imports of Asian manufactures collapsed: both American and foreign manufacturers faced hard-pressed American consumers who simply weren't buying.

In contending that US industrial power is stagnating, Hugh focuses on the decline in employment in the manufacturing sector, and the relative reduction in the importance of manufacturing within the US economy. Indeed, American industrial workers are increasingly uncompetitive internationally. Yet it would be a categorical mistake to take this as implying that American industry is uncompetitive.

Manufacturing firms have merely shifted from increasingly expensive labour to a more intensive use of capital, automating systems and moving up the value ladder. Rather than suffering from de-industrialisation, the US has instead doubled down on the core principles of the industrial revolution – the ability of specialised machines to substitute for many hands.

Part of the perception of the decline of US manufacturing has to do with how its framed. Driving across the US Northeast and Midwest, abandoned steel mills and factories litter the scene from Bethlehem, Pennsylvania to Deerborn, Michigan. But this decline of the traditional heart of American industry obscures a core driver: the shift of manufacturing south and southwest, along with the mass of the US population.

Looking at the global economy, there is some basis to the perception that America is losing ground industrially – but that's grounded in relative, rather than absolute, shifts in manufacturing capacity. In 2010, China overtook the US as the world's largest industrial powerhouse. Indeed, there has been a shift in certain industries within manufacturing away from the US, from clothing and toys to increasingly sophisticated consumer electronics and componentry.

This brings me to the second point: the implications of relative 'decline'. Strategically, industrial capacity is important. To fight, you need weapons, and to build weapons you need steel, electronic components, petrochemical products and a host of other industrially-processed inputs. Yet with a few exceptions (notably the issue of Rare Earth Metals), these strategic industrial chains remain intact within the US and allied states.

Further, it is debatable whether, under the conditions of modern warfare, relative superiority in these areas counts for as much as it used to. Qualitative factors count overwhelmingly in the military balance, and given the speed and destructive capacity inherent in contemporary warfare, it is far from certain whether a state's ability to out-produce its rivals would count strategically.

The other way manufacturing matters strategically is with regard to the relative economic health of a society as a whole. Hugh appears to imply that the US has gone from manufacturing as a solid basis of national economic power to a more dubious financial-driven model.

If effectively wielded, however, financial influence can be an effective facet of US power, as it has been for other powers going through hegemonic transitions (most notably Great Britain). The problem, as Hugh rightly notes and as I have touched on previously, is the dire fiscal position the US is stranded in on account of Washington's dysfunctional politics. This, rather than any decline in manufacturing capacity, lies at the heart of America's current strategic dilemmas in the face of rising Chinese power.