Friday 20 Jul 2018 | 10:50 | SYDNEY
Friday 20 Jul 2018 | 10:50 | SYDNEY

Reader ripostes: Manufacturing and power

2 September 2011 16:29

Below, a note from Pete Speer, but first, Geoff Miller, former Director-General of ONA, Australia's peak intelligence agency (who notes that this is a comment, not strictly a 'riposte'):

I was very interested in Sam Roggeveen's comments in 'Must America make things?, in which he asked how the US can 'create millions of well-paid jobs to replace those lost in manufacturing?'

This question is certainly creating a great deal of attention and concern in the US. An example is a major article in the July/August issue of Foreign Affairs, 'The Impact of Globalization on Income and Employment', by Michael Spence, a Nobel Prize winning economist.

But as is often the case, there are conflicting views, among eminently qualified people, of what has caused the current jobs crisis. Spence concludes that while 'new labor-saving technologies in information services (have) eliminated some jobs across the whole US economy...employment in the US has been affected even more by the fact that many manufacturing activities...have been moving to emerging economies. This trend is causing employment to fall in virtually all of the US manufacturing sector'.

On the other hand, in a NYT article of 25 July, Jagdish Bhagwati, the famous trade economist, criticises 'the fear-mongering that says trade with poor countries produces poverty in rich countries'. He says that 'what depresses workers' wages' (and presumably also reduces the number of jobs, in the US, for example) are 'deep and continuing technological changes'. But, says Spence, 'the structural trends affecting the US economy cannot be explained by changes in technology alone'.

It's an interesting contrast in perspectives.

Pete Speer:

Long ago, the US Department of Commerce described Value Added By Manufacturing as being the best measure of continuing prosperity. No other sector — service industries; wholesale and retail; transportation; housing; and the public sector — can claim the economic multiplier crown. Each of the remaining feeds upon itself and decays at a much faster rate. Investment in manufacturing has the longest life.

Yet we allowed the financial sector at our peril to export production to create in the short term a higher return on invested capital.  We started our decline by trafficking in financial instruments. We are still trapped in a tenuous world economy. The free movement of foreign wages within state-run economies was restricted, creating a favorable balance of payment by lowering the demand for our goods. Their prosperity was created on the back of the household debtors in the United States.

Photo by Flickr user Ford APA.