Is US Manufacturing Ramping Up Again?

A recent article in Harvard Business Review suggests that the stage is being set for a resurgence of manufacturing in the US. This is primarily due to rising Chinese wages. This pattern has played out around the globe with Japan for example, which used to be the low cost supplier, giving way to Mexico, which then gave way to Korea and now, China and India.

The author cites statistics from The Institute for Supply Management, which reported an increase in U.S. manufacturing over the past 24 months. The Federal Reserve reported a 0.6 percent increase in manufacturing in July 2011, with a year-on-year gain of 3.8 percent.

With Chinese wages in some regions going up by 15-20 percent, they are now only around 30 percent lower than the US, which, when combined with the rising renminbi (China’s international currency) and the higher productivity of American workers, gives Chinese goods made there only a relatively modest cost advantage, which could easily be nullified once shipping is taken into account.

This makes US goods, particularly in the Southeast, attractive once again, which explains, at least in part, major investments in that region for new plants by Volkswagen (TN), Embraer (FL) and Mitsubishi (NC).

So far, so good, but there are other sides to this story, especially if one takes a longer time frame into account. For one thing, the two year uptick in manufacturing output came after a relatively brief downturn that started in 2007. Prior to that, output has been steadily rising (with a couple of other brief dips) since 1975, more than doubling in that period. In other words, it's not manufacturing  that has fallen sharply, it's manufacturing jobs.

The thing that seems to linger beneath the radar is the fact that manufacturing productivity, the amount of goods produced per worker, has soared. In fact, productivity rose from $80,000 per worker to $280,000 per worker during the same time frame. But, here is the piece that we usually hear about out of context: the number of manufacturing jobs fell, since 1975, from roughly 17 million to just a little over one million, about a 92 percent drop.

So there are two things that we can take away from this. First of all, the well-known argument that foreign competition is responsible for the loss of American manufacturing jobs is not wrong, it’s merely incomplete. If there had been less foreign competition there likely would have been even more American output and even more jobs. But perhaps the larger reason for the job decline is because manufacturers have found ways to squeeze far more production out of a smaller and smaller number of workers.

The second and perhaps larger question we need to ask ourselves is this: is all this productivity a good thing or bad thing? After all, mechanized farming is so much more effective now than old-fashioned farming was 200 years ago. Today, little more than a handful of farmers are feeding the world. But what about the human toll? Is it possible that we’ve ridden this productivity bus off a cliff?

Companies will argue that such productivity gains are not only good, but necessary for them to stay competitive. And if you look at our trade deficit, it’s hard to argue that point.

But this week, when thousands of people are peacefully protesting on Wall Street about the way that the leaders of our financial system have behaved so badly in their unrepentant pursuit of profit, it might be as good a time as any to ask the question, is there another way?

Maximizing profits is good for the company that is doing it, but what about the rest of us?

Isn’t it time that we built a vision of the world that is based on maximizing the quality of life for everyone? When the concerns of businesses are balanced with those of the environment in which we live and work, and the people who need to find a way to make a living?

[Image credit: Oddgeir Hvidsten: Flickr Creative Commons]

RP Siegel is the co-author of the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water.  Like airplanes, we all leave behind a vapor trail. And though we can easily see others’, we rarely see our own.

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