Saturday, January 26, 2013

The End of Favoritism Towards Manufacturing?

At Worthwhile Canadian Initiative, Livio Di Matteo asks Why Is Manufacturing Special? (emphasis added):
Is there a special economic value or role to manufacturing that makes it special?  Coyne feels: “If it’s about anything, it’s about aesthetics, or a sort of sectoral snobbery, the kind that finds the prospect of being “hewers of wood and drawers of water” so unspeakably vulgar. And yet it is presented as if it were an economic argument.” My gut feeling is that this tendency to put manufacturing on a pedestal is rooted in an almost 1930s Soviet-style view of economic development with heavy industry and manufacturing being the high ground of the economy.  Industrialization is seen as a sort of “higher-level” of economic activity after agriculture and resource extractio - a logical higher-order stage.
What is also interesting in all of this is why in a similar vein we do not view manufacturing as backward in relation to the post-industrial knowledge economy of high end financial, medical and knowledge services?   Surely, if our society is imbued with a tendency to view economic development as a series of sequential progressive higher-level stages, why not also consign manufacturing - and specifically automobile production - to the dustbin of history?  Is not the highest stage of economic development one in which we effortlessly glide from one shopping and dining experience to another while not having to produce anything that is physically tangible all the while powered by friendly and renewable green energy and green transport modes? I repeat the question raised by Coyne, why is manufacturing special?
Matteo raises more questions than he answers in this post, but all are extremely pertinent to public policy today and moving forward. Previous posts on this blog have highlighted the ongoing bailouts and subsidies provided by the U.S. government to auto manufacturers (see here and here). In contrast to my views and seemingly those of Matteo, the mainstream media frequently depicts declining employment within the manufacturing sector (seen below) as a major concern.

On this point Matteo’s question, in bold, reaches the heart of the matter. During and following the industrial revolution, the share of employment confined to the agricultural sector substantially declined.

Although numerous government subsidies for that sector remain in place today, only a small minority of the population actually prefers returning to a largely agricultural society.

Emerging economies around the world are still expanding their manufacturing capabilities and offering goods at prices much lower than those obtainable with domestic production. Though the road to change has been and will continue to be filled with numerous potholes, rewards from reaching a higher stage (not necessarily the highest) of economic development will surely be worth the costs. For several countries, including the US (see below), the next large shift in employment, away from manufacturing and towards a service-based economy, has already occurred.

The time has come for developed countries to accept this new reality and adjust public policy accordingly.

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