Five years ago, a committee formed by the US national academies of engineering, science, and medicine released Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future. The momentous report argued that the US should increase its investment in science and engineering education and R&D to sustain the country's prosperity.
Chapter 2, whose title asks Why Are Science and Technology Critical to America's Prosperity in the 21st Century?, begins:
Since the Industrial Revolution, the growth of economies throughout the world has been driven largely by the pursuit of scientific understanding, the application of engineering solutions, and continual technological innovation. Today, much of everyday life in the United States and other industrialized nations, as evidenced in transportation, communication, agriculture, education, health, defense, and jobs, is the product of investments in research and in the education of scientists and engineers. One need only think about how different our daily lives would be without the technological innovations of the last century or so.
The authors of the report cite numerous technological innovations that have improved our daily lives, from MRI scanners to transistors. Their case is convincing. The prosperity and security of the US or any other advanced country do indeed depend on flourishing domestic high-tech manufacturing industries.
But what the authors fail to do is prove an assumption that runs implicitly throughout the report: that boosting the number of high-tech manufacturing jobs is good for the economy and good for Americans.
I challenge the assumption on two grounds. First, the prosperity of all but the poorest countries appears to be inversely correlated to the relative size of their manufacturing sector: The smaller manufacturing's share of a country's GDP, the richer the country and its inhabitants are. Second, making things in a factory or workshop, which is what most manufacturing jobs entail, is not necessarily what Gathering Storm calls a 'high-quality, knowledge-intensive job.'
Given the broad support that Gathering Storm received in the science policy community, my challenge might seem futile and ill-advised. I make it because promoting manufacturing jobs at the expense of other jobs could harm the US economy. Moreover, creating the conditions in which high-tech industries can thrive—a policy that I favor—is unlikely to create many US jobs.
How critical is manufacturing to the US economy?
In September, the New York Times reported the appointment of Ron Bloom as President Obama's senior counselor for manufacturing policy. Accompanying the news story was a chart that tracked manufacturing's share of US GDP from 1945 to 2009.
That share peaked in 1953 at 28%. Since then, through wars, recessions, booms, and 11 presidential administrations, it has steadily fallen, hitting 11% in 2009. During the same period, US GDP exploded from around $200 billion to $14 trillion. Services and a swelling population powered that boom, not manufacturing.
The same pattern of services-led growth is repeated in other countries. In the years after World War II Hong Kong positioned itself as a manufacturer of textiles, toys, and electronics. Now, at a time when the territory has reached the same level of prosperity as the US and Western Europe, manufacturing accounts for just 4% of Hong Kong's GDP.
Manufacturing's declining share of the US economy has been accompanied by a change in the nature of US manufacturing jobs. Before an innovative product such as Apple's iPad computer is made, a company conducts market research, decides on features, and designs the device. In Apple's case, the people who do those jobs work for the most part in the company's headquarters in Cupertino, California.
Apple makes and assembles its products all over the world. Here, with my emphasis added, is how the company described its manufacturing operations in the 10-K form it submitted this year to the Securities and Exchange Commission:
Final assembly of the Company’s products is currently performed in the Company’s manufacturing facility in Ireland, and by external vendors in California, Texas, the People’s Republic of China (“China”), the Czech Republic and the Republic of Korea (“Korea”). Currently, the supply and manufacture of many critical components is performed by sole-sourced third-party vendors in the U.S., China, Germany, Ireland, Israel, Japan, Korea, Malaysia, the Netherlands, the Philippines, Taiwan, Thailand and Singapore. Sole-sourced third-party vendors in China perform final assembly of substantially all of the Company’s Macs, iPhones, iPads and iPods.
Those Macs, iPhones, iPads, and iPods are assembled in a factory in mainland China owned by the Taiwan-based Foxconn. Conditions and pay there are evidently grim. Fourteen workers, all between the ages of 19 and 24, killed themselves this year in apparent desperation.
Foxconn raised wages in response to the suicides, but I doubt assembling an iPad is what an American would call a good job. And if working in a US auto plant was a good job, it was because of wages and benefits that were unsustainably generous. Note, too, that when BMW and Daimler were looking for US sites for new factories, they chose South Carolina and Alabama, respectively. Neither state is known for the quality of its education systems. If BMW and Daimler had wanted to fill high-quality, knowledge-intensive jobs, they'd have gone elsewhere.
I and, presumably, the Gathering Storm authors hope that Apple and other US high-tech companies will continue to sprout, grow, and thrive. Among the jobs they create in the US will be some well-paid ones that require a background in science or engineering. Those jobs will be modest in number. A company doesn't need lots of researchers.
But what if the US government heeds Gathering Storm and tries to create more high-tech manufacturing jobs of all kinds? How can that be bad? First, subsidies and tax breaks—the state and federal government's usual job-creating incentives—are cut from a finite revenue pie. The bigger the manufacturing slice, the less that remains of the pie for incentives aimed at creating high-quality, knowledge-intensive jobs outside manufacturing.
Ireland, Singapore, and Switzerland attract foreign investment not through targeted subsidies, but through uniformly low corporate tax rates. Some of the jobs that the investment creates are in manufacturing, but others are in finance and other nonmanufacturing sectors. If the US favors manufacturing, it risks missing out on those other jobs.
The second way in which trying to create manufacturing jobs could be bad is that it won't have much of an effect. Last week, General Motors announced it would hire 1000 scientists and engineers to develop electric vehicles and power plants. The press coverage was justifably positive. But given that GM employs about 60 000 people in the US, an additional 1000, however welcome, will bring only a modest drop to Michigan's woeful unemployment rate.
It's also unrealistic to expect to defy an economic and historic trend of worldwide scope and power. The relative decline in manufacturing in rich countries in the 20th and 21st centuries is as inexorable as the decline of agriculture was in those same countries in the 19th century.
If you travelled out of London this past summer in almost any direction, you'd have seen field after field of growing crops and grazing livestock. A passenger on one of Britain's first steam trains would have seen much the same in the 1830s. Despite continuing to occupy a large fraction of the country's land area, agriculture now contributes 1% to UK GDP and employs 1% of the workforce.
Manufacturing might one day dwindle to a similar fraction in the UK and the US. What matters is that people are happy, healthy, and secure. For that, you need a good job, not necessarily a manufacturing job.
Charles Day
