What is wrong with manufacturing in the United States right now?

So what exactly is happening with manufacturing in the US? Why is it not what it used to be? Actually, the answer might be nothing. At the very least nothing before unseen in the system of capitalism.

But hang on a minute! Doesn’t every one claim that everything we have is currently manufactured outside of the United States? Aren’t we losing manufacturing jobs to China, India and other countries, because everything is way cheaper to make there? Why yes of course, but there is always a “but”. Read on.

The manufacturing issue can be explained by a variety of factors, not a single reason. We have: globalization, comparative advantage, automation and constant neglection of policies by our government. Something that can happen when living in capitalism, nothing too special. The first three of these cannot realistically be avoided, however the last – POLICY – can be corrected. But let’s not get ahead of ourselves and dedicate this article to talking about the unavoidable issues.

Some Numbers and Statistics

Since the second World War, we’ve seen a steady growth in manufacturing. You can always find a couple of down years in between a lot of really good ones, but the overall trend has been steadily upward. Jobs in manufacturing never exceeded 32 percent of the total non-farm labor U.S. labor force and was at no point more than 27 percent of GDP.

Between 1950 and 1970, manufacturing GDP grew at 3%; from 1970 to 1990, the GDW grew 4%. Since 1990, manufacturing GDP has grown at less than 2%. While increase of manufacturing between World War II and 1990 was good, since then it has slowed down but it’s still considered growth – albeit at a lower pace.

When we look at employment numbers, the statistics paint a different story. Right after the war, employment in manufacturing rose by 18% until 1990 then declined by 33 percent until today! This can be attributed to automation, something that cannot be winded back. Machines are taking over, even though not in a Terminator – Arnold Schwarzenegger style. The reality is, we are much more productive as a nation when it comes to manufacturing, it’s just that it can’t generate as many jobs as before. Increased productivity is great news. Now we should simply make use of all this productivity and create things right? This is one of the big issues – we need to create and sell more goods. With all the positive productivity gains, the use of our bounty languishes in its sight. The capacity utilization of Manufacturing stands at 75%, its lowest in more than 20 years. Most economists think that capacity utilization has to be in excess of 80% for the industry to be healthy and investing. Manufacturing output isn’t on a downward spiral, it’s just anemic. In part 2 of this series we shall focus on what is inevitable and what are our options for the future of manufacturing in the US! Stay tuned!

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