But Manufacturing does matter

An article in the Financial Times criticizes the Trump administration’s instinctive protectionism and makes many valid economic points. But it also effectively dismisses manufacturing as not particularly relevant, something which seems to be gaining traction in some popular debate in the quality press, and is simply wrong.

Consider the argument that automation has and eventually will kill off many, if not most, jobs in manufacturing. True, but manufacturing creates also many service, administrative and supporting jobs up and down the value chain. But the main thing, and what many fail to see, is that manufacturing (the art of making) is tightly integrated with design, engineering and innovation. Competitive advantage, particularly in manufacturing, is achieved through clustering, the creation of localized deep knowledge and skills pools that facilitate further knowledge exchange, accumulation, synthesis and innovation. Which, incidentally, is how emerging economies are able to evolve, climb the learning curve and eventually make better, more sophisticated products. And the breaking up of clusters can lead to hollowing out, de-industrialization and decline in advanced economies. Many jobs in the “caring professions”, which the article says is the probable future in the US, will not then arrest the decline in prosperity. Of course the answer is not protectionism. Forcing companies against economic logic to make air conditioners (or any product or component that can essentially be made anywhere) in the US will make all consumers poorer as would tariffs. But not all products are the same. Indeed some are much more challenging than others. So what would make sense is fostering the conditions for the US (or any other advanced economy) to continuously innovate and improve productivity to make the products others can’t: rockets to Mars say, a “hyperloop” system or advanced batteries and electric self-driving cars (not by coincidence are all these Elon Musk projects made in the US). For that you need R&D (science), education, infrastructure and access to global markets, i.e. competition, not to mention sophisticated finance, a credible legal system and sound governance (the trappings of an advanced economy).

The problem in the US is not that many jobs were outsourced to China or Mexico. That is as it should be. Rather the problem is that the US didn’t have the conditions to create enough modern “maker” jobs that would take their place. And the error of the current protectionist logic is not trying to bring back manufacturing, but trying to bring back the wrong kind of manufacturing -and note protectionism is the only way that can be successful in that. Protectionism turns people from makers into rentiers, stifles innovation and productivity, ensures stagnation and corruption and misallocates finite resources. If it takes hold it will ensure that a manufacturing renaissance never actually happens.