Jim Manzi: A U.S. Manufacturing Strategy
We have some polite fisticuffs on trade over here, which is great. Sometimes, though, I get the feeling I come off as some leftist union boss who waywardly stumbled into a center-right cocktail party. Using "free trade" as a pejorative over here-- despite my other conventionally conservative tendencies-- kind of makes me feel that way.
Thing is, there is something going on, here. Take the NY 23 race, for example. Most conventional wisdom regarding that race centered around the scandalous "MediScare" campaign run by the Dems. But you know what else happened? Jack Davis, the allegedly fake Tea Party candidate, pegged his race on trade. And here we see a fair amount of disagreement on trade and industrial policy issues.
Well, it appears Jim Manzi over at NRO is about to jump in with a series of posts on US manufacturing strategy. I will be very interested to see how this goes. The initial post, for example, includes this gem (to me):
In sum, we want the rest of the world to get richer, but we want to stay much richer than they get.
This demands that we sustain rapid productivity growth over many decades. Unfortunately for us, this is much harder to do for an advanced economy than for those in catch-up mode, and is likely to continue to create very tough social strains in America. Perhaps we’re just not up to it. This, and not some lets-all-succeed-equally-together happy talk, is the real meaning of globalization for America in 2011.
I look forward to that series, and I also look forward to continuing the discussion here. One thing I do hope we can dispense with is the notion that people who do not favor unfettered free international trade are merely superstitious Luddites. Believe me: We know who Adam Smith and David Ricardo are, and understand competitive advantage and opportunity costs.
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Sep '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
If you reread the Economist article -- a magazine founded once over free trade -- they were uncritically cheerleading for the bailouts of the automakers. They weren't tinkering around the margins of national planning; they were rolling around in it and drinking the bathwater.
I'm glad you clarified your conservative street creds, but disdain for the buffoonery at The Economist has come up quite often here: Steyn laughed at Lexington a time or two in the podcasts and John Derbyshire has opined, drawing on an article at Slate.
Dec '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
I actually have all sorts of disdain for The Economist's ideological free-trade stance. As for the the bailout of the automakers: On balance, I come down against it. Marginally. But it was only a few billion (I know, a FEW billion?) of a trillion dollar spend. I have much larger problems with vast swaths of that spend than I do with propping up the automakers
And, importantly, the *reason* we had to prop up the automakers was due to poor industrial policy in the seventies and eighties. I say this, admittedly, somewhat half-a$$edly. But I am pretty sure I can reverse engineer that argument...
With this post, though, I wasn't really aiming to defend the auto bailout. I'm aiming to point out:
1) Straightforward free trade may not necessarily be the best industrial policy for the US
2) This issue is getting traction within the GOP, and
3) There are plenty of perfectly respectable conservative pundits who aren't free traders and can't be dismissed as economic illiterates.
It's the last point that really rubs me the wrong way. Believe me: We new-trade folks TOTALLY understand classic free trade arguments.
Edited on Jun 23, 2011 at 10:14amSep '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
As a more or less free trader I will offer this:
1) FT is not necessarily the best policy - As compared to the ideal perhaps not. A big problem is that the well-meaning policies of politicians are corrupted over time in all cases by a bureaucracy that has no motive force but to grow and by politicians who are not well meaning but have been captured by special interests.
2) It is probably not enough to claim that free trade is not perfect. If you offered a prescription, I suspect it would end up much like US policy today. How does one select manufactures to protect? We have plenty of tariffs when we think we need them. Typically they just add deadweight costs to transactions. We have a mechanism for unfair trade and anti-dumping appeals that imposes tariffs when necessary. But... it is hard to prove anything and the process is slow and cumbersone and political.
3) My view (righlty or not) of the world is that the West blew the rest of the world away with its industrial revolution and market economies. Now the world is catching up. We (me included) understandably feel uncomfortalbe with that.
Dec '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
But please let's DO talk about what the alternatives might be!
Politics are corrupt at all times, everywhere. But when you look at Germany, China, South Korea...well, it becomes obvious that there are tactics that work. I wish I had a better idea of what they would be. I'm working on that part.
But I would like to hear what others think.
Yes, the West blew the world away with the industrial revolution and market economies. Now the world is catching up. Like Manzi says, though, let's make our goal to let them grow and prosper while increasing-- or at least maintaining-- our existing wealth differential by growing faster. Or, yes, impeding the growth of our competition. Because the fact is THEY are trying to impede OURS.
Nov '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
I must ask:
Why is it so important to stay so far ahead? Is it not better when people have more? I can see why we might not want dirty commies having that much money to play with, but what does that have to do with the basic economies of a free-ish people? How much did it hurt us that Japan, Germany, and South Korea mostly caught up to us?
Is it just pride? I certainly understand why it could be good to be No.1, but why is such a giant lead necessary?
That's not entirely on-topic, but I think it's relevant.
Sep '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
You know I do have a policy prescription. Curb the power of unions to monopolize labor in an industry. I.e. get rid of the labor expemption in the Clayton Act of 1914. Workers could still unionize but unions would face anti trust issues if they became too powerful. It seems to me that if any one thing would have helped large industry it is to curb the union's ability to hold those industries captive as a whole. Without a monopoly in an Industry, the union (in this case representing a single company or two but not the whole industry) would have interests which are aligned with the company instead of being always at cross purposes.
Germany is an interesting example. My mother's family is culturally German and I have always thought that there is something special about the German character (perhaps in more than just happy ways). They do a booming trade with folks like Iran that we will not trade with.
We would have praised Japan's industiral policy 20 years ago but now not so much.
Dec '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
TheRoyalFamily: I must ask:
Why is it so important to stay so far ahead?
That's actually a pretty good question.
The richer one society is than its competition, the easier they find it to invest in the early, non-profit-generating R&D critical to building new, high-value productivity. No such enterprise gets off the ground with a built-in competitive advantage. If a country does not make semiconductors, or lithium batteries, or solar cells today, there will always be something else in which that nation's current opportunity costs will maximize immediate profits.
But if you have a wide wealth margin between you and your competition you can get these new and better industries off the ground while giving up immediate profit. Or, for that matter, you can defend the high-value industries in which your nation already has a commanding edge, driving innovation in those industries.
As I mentioned in another post: Three hugely important industries for the US were (and are) pharmaceuticals, semiconductors, and aviation. All of them benefited from early government-sponsored R&D and protection.
Dec '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
Ross Conatser:
We would have praised Japan's industiral policy 20 years ago but now not so much. · Jun 23 at 2:15pm
Well, Japan has had some rough times. But check this out:
http://4.bp.blogspot.com/_-EMpadQx4hM/S_mHZqaO1VI/AAAAAAAAARI/76lmG9d6tvY/s1600/japan.png
Those numbers suggest their problem is largely demographic. When you tweak the economic growth numbers to be an apples-to-apples figure applying to people actually working their growth has been the same as ours since 1990.
Apr '11
Re: Jim Manzi: A U.S. Manufacturing Strategy
KarlUB
Believe me: We know who Adam Smith and David Ricardo are, and understand competitive advantage and opportunity costs. ·
Using the term "competitive" advantage suggests that you don't quite understand what Ricardo meant. Ricardo talked about comparative advantage. This means that who produces what is not determined by who is best/most efficient at producing the good or service, but rather after considering how much capacity they have to give up producing anything else. The United States may be the best at producing everything, but that doesn't mean that we should.
As someone for whom advancing free trade is my number one issue, that term "competitive" advantage is a huge pet peeve. It makes it sound like if you think the USA is better off not producing something, that we're losing some competition. It's not the absolute terms that matter, it's the comparative or relative differences that do.
Mar '11
Re: Jim Manzi: A U.S. Manufacturing Strategy
We just need to figure out how to make ATM machines assemble cars, and we will be all set.
Apr '11
Re: Jim Manzi: A U.S. Manufacturing Strategy
KarlUB
TheRoyalFamily: I must ask:
Why is it so important to stay so far ahead?
...The richer one society is than its competition, the easier they find it to invest in the early, non-profit-generating R&D critical to building new, high-value productivity...
...Or, for that matter, you can defend the high-value industries in which your nation already has a commanding edge, driving innovation in those industries...
I guess to further the question, why wouldn't it be better to have a world full of counties with excess R&D money? Also, defend against what?
I also find it hard to believe anyone could increase their rate of productivity gain by lowering competition.
I have yet to hear any good argument with historical examples against free trade.
But my ears and eyes are open...
May '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
If you look at technological history, most of the US advances that have kept us ahead have begun with defense (electronics, right down through ICs and processors, software, satellites, internet, wireless communications, advanced materials), which also provided the initial manufacturing demand to enable the industry to jump off the "invest-market demand" vicious circle; now telemedicine is actually more advanced in DoD than anyplace else.
The second factor has been that we prized low cost energy and ensured that there was plenty available, which objective has also been completely abandoned. This is not a recipe for future economic prosperity.
When strategic materials were at risk of supply interruptions in the past, we utilized the Defense Production Act to make sure that we had enough emergency domestic capability to meet some basic needs. As always, there is bureaucratic and rent-seeking mischief-making in the implementation of the DPA, but at core, it performed an important function back when defense was important to the US, before Social Security, green energy, and medical care became "more important".
Now the only commodity or capability that appears to be a strategic asset for the politicians is organized labor, for decidedly non-economic reasons.
Aug '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
Let's say I have a factory that makes widgets for $10/ea, and I sell them for $15. Then I discover that I can sub-contract my production to India, and have the widgets made for $8/ea. So I lay off my workers and import the widgets for sale.
Most people would say this is a bad thing for the country.
Now let's say that instead of outsourcing to India, I discover that I can buy a machine that will replace my workers, and with the machine I can make widgets for $8/ea. So I install the machine, and lay off all my workers.
Is this a bad thing? If not, what is the difference between the two cases? Just for yucks, let's say that I don't know how to build the machine, but the Japanese do, so I imported the machine from Japan.
In fact, outsourcing my production to India is no different than 'outsourcing' it to a machine. In both cases, manufacturing jobs are lost, as are the skills to make the widget by hand. But in both cases economic efficiency increases, which increases our standard of living and our competitiveness.
Aug '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
Just in case I wasn't clear enough in the last message, I consider both cases to be good for America. I don't even care if India slaps tariffs on my own goods - the fact that I'm getting widgets the cheapest way possible is still of value to me.
So what happens if the government steps in an throws a $3 tariff on Indian widgets to 'protect' my workers? Keeping my workers might sound like a good thing, but what it's really done is kept my workers in a low-productivity job and prevented them from finding higher-value use for their labor. In the meantime, my customers are paying more for my widgets. My widgets won't be competitive in the international marketplace. My customers will essentially be taxed to support my workers. Eventually, market share in widgets will move to India anyway, and my workers will be out of a job - and I'll be out a factory.
Also, it's a GOOD thing if other countries become just as rich as the U.S. We all benefit from an increase in world GDP. That means more education, more scientists, more engineers, more research.
Dec '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
Dan Hanson:
So what happens if the government steps in an throws a $3 tariff on Indian widgets to 'protect' my workers? Keeping my workers might sound like a good thing, but what it's really done is kept my workers in a low-productivity job and prevented them from finding higher-value use for their labor.
Good point. Which is why we should only fight to protect high-value industries. Nobody is interested in making every unemployed person in the United States be stuck in a no-future minimum wage job.
But take all those McDonald's and WalMart jobs out of our current equation, and I think you'll discover that is precisely what we are doing right now. Nothing wrong with those jobs. But when middle-aged people who can't find work elsewhere are taking them, you have a problem.
Also, we should especially fight to protect our position in high-value industries that we can retain.
Dec '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
Case in point: Remember Rob's post about making chopsticks in Americus, GA? Kinda cute. But not, really, the best thing for the people of Americus to be doing.
Aug '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
Actually, the first thought that comes to mind when I think of these places is that their citizens are people that work: work-ethic is a strong tradition in these cultures.
For example, the traditional Teutonic approach to life is so grimly focused on the moral imperative of doing one's duty that even a generous welfare state hasn't been enough to stifle the work ethic -- though it's made inroads, especially lately. (There's still truth to the stereotype that even German bureaucrats are busy -- too busy for the country's own good, in fact.)
So whatever alternative tactics you explore, please do make sure to factor in cultural differences.
For instance, it might be illuminating to see (though perhaps difficult to arrange) how people with the same cultural background compare across economic systems. And alternately, how countries with similar economic systems but different cultures compare. This could be done by comparing how immigrants from the same culture do under different economies, or how immigrants from different cultures do under the same economy.
Edited on Jun 24, 2011 at 7:31pmMay '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
Good post, Karl. A quick question about the following:
Says who?
Nov '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
Midget Faded Rattlesnake
[It would be] illuminating to see how people with the same cultural background compare across economic systems.
When told that there are few poor people in socialist Sweden, Milton Friedman retorted that there are also few poor Swedes in America.
May '10
Re: Jim Manzi: A U.S. Manufacturing Strategy
We recently bought a bunch of Roman shades for our upstairs windows. Years ago, you would pay some drapery-maker a pile of money to come in, measure the windows, go make the shades.
We paid around $3k all told. The shades were made in China from measurements we provided and shipped to Long Beach, sent FedEx to us from there.
The actual manufacturing would not be more than $500 out of the total. The rest went to the US store that sells the orders, shipping, wholesale, advertising, warehousing, etc. A good $2500 of the "foreign made goods" order stayed in the US; both countries are better off, we get more stuff.
Drapery-makers still do very high end work for rich customers looking for special decorating help, etc. But the market volume was never going to grow at US prices, just as no one would buy flat screen TVs or lap top computers at US labor and burden costs. The key is that labor is an ever-smaller piece of the product. Unless the government comes in and sucks all the cash out of the economy, most of the price after cost of goods sold is removed stays here.