ANALYSIS/OPINION:
The next time I hear complaints about lazy, worthless government bureaucrats, I’ll try to tell the source about Gregory Tassey. Mr. Tassey is a senior economist at the Commerce Department’s National Institute of Standards and Technology, and amid a mini-outbreak of euphoria about a rebound in the vital U.S. manufacturing sector, his latest research provides a reality check desperately needed by American leaders.
The stakes couldn’t be higher. Although the debate over the recession and possible recovery remains dominated by wrangling over finance, the economy’s real sickness lies in its neglected productive core. The industries that generate real wealth — principally, manufacturing — have long been far too small to finance the affluence Americans expect in a responsible way. Determined to prop up affluence without adequate income and earnings, the nation’s economic and political elites set out to addict the nation to borrowing.…
A finance- and housing-led meltdown has produced some lip service to the need for healthy growth and good jobs spurred by reindustrialization. But nearly three years after the subprime housing market finally collapsed, manufacturing is still a policy afterthought at most. Worse, twitches of activity sparked solely by record government stimulus are already breeding complacency about the sector, and the nation’s overall prospects.
Indeed, the tycoons-and-pundits-that-be lately have been touting a U.S. economic recovery actually led by manufacturing. This boosterism in turn reinforces the comforting view — pushed notably by White House economic kingpins Lawrence H. Summers and Christina Romer — that the recession is mainly a garden-variety cyclical downturn, and that durable growth can be restored with standard economic policy tools like spending and taxing and interest rates. In the process, manufacturing’s troubles — overwhelmingly, a panic-driven nose dive in demand — will take care of themselves.
Mr. Tassey’s findings, published online in January in the Journal of Technology Transfer, demolish this Pollyannaism, and show that the massive reindustrialization essential for genuine American economic health keeps slipping further away.
For example, Mr. Tassey presents data showing that not only has manufacturing’s growth lagged overall U.S. economic growth for at least a quarter-century. Since 2000 — i.e., when the economy was allegedly vibrant — the gap has widened. From 1985 to 2000, manufacturing growth equaled only about 70 percent of overall growth. From 2000-2008 (the latest figures available), this ratio fell to 33 percent.
Worse, this relative slowdown has affected the so-called “industries of the future” in both manufacturing and in closely related high-tech services, as well as so-called “Rust Belt” sectors. Thus, where computer and electronics manufacturing saw 144.5 percent growth between 1985 and 2000 in a measure called “value-added” (faster than overall economic growth of 132.6 percent), the latest data show that its output has actually shrunk by 21.2 percent since 2000.
Value-added in publishing — which includes America’s huge and supposedly peerless software industry — expanded by 225 percent in the decade-and-a-half preceding 2000. Since then, growth plummeted to just under 19 percent. And similar patterns hold for information- and data-processing, and for professional, scientific and technological services.
Other trouble signs uncovered by Mr. Tassey, at least for anyone viewing innovation as a key to future national prosperity: The “research and development intensivity” of U.S. manufacturing — a major measure of its technological prowess — has increased over the last quarter-century. But the increase is mainly a result of the offshoring of R&D-light traditional industries, rather than to absolute increases in R&D spending by the remaining industries. And whereas the United States was once the world’s most technologically advanced economy in the world, today it ranks eighth in R&D intensivity, behind such competitors as Japan and South Korea.
Some of Mr. Tassey’s policy conclusions also clash with the conventional wisdom. For instance, though this article scarcely mentions trade policy, it blames production offshoring for much of America’s sagging innovation and industrial capacities. That’s why the nation’s worst manufacturing performance generally came after 2000 — by which time offshoring became a mainstay of big-company business models in particular.
Mr. Tassey also hits the widespread tendency to equate America’s manufacturing weaknesses as individual-industry problems that can be plugged like holes in a dike. U.S. manufacturing, he explains, is bound by a sprawling, complex web of relationships among many levels of suppliers and customers. Closely examine an individual sector in crisis, he shows, and you’ll find problems ranging far beyond its conventionally defined bounds. Therefore, successful industrial revitalization requires more comprehensive fixes than currently being carried out or contemplated.
Mr. Tassey says that his work has attracted some attention in government’s higher reaches. Here’s hoping that the Obama administration, which so instinctively trusts in Washington to solve so many major national problems, can recognize this fount of economic wisdom right under its nose.
• Alan Tonelson is a research fellow at the U.S. Business and Industry Council, a national business organization whose nearly 2,000 members are mainly small- and medium-sized domestic manufacturers. Author of “The Race to the Bottom,” Mr. Tonelson also is a contributor to the council’s website www.AmericanEconomicAlert.org.
Please read our comment policy before commenting.