The Death and Life of American Manufacturing

How much has American manufactuing declined in the last decade? Afterall, NAFTA and the giant sucking sound took all the jobs, China is making everything we buy, and American factories are ghost towns right?

Actually, American manufacturing hasn't declined over the past decade. It's doubled:

As Stephen Manning of the Associated Press acknowledged in a rare "just the facts" story in mid-February, the U.S. "by far remains the world's leading manufacturer," producing goods valued at a record $1.6 trillion in 2007 — nearly double the $811 billion produced a decade earlier. Indeed, the AP writer noted, "For every $1 of value produced in China's factories [in 2007], America generated $2.50." Not bad for a country that doesn't produce anything anymore.

Not only is the U.S. still the world's leading manufacturer, but there are many good reasons that companies will continue to manufacture here and invest in new plants and equipment. According to the Census Bureau's 2007 Annual Capital Expenditures Survey, released on Jan. 22 of this year, U.S. nonfarm businesses invested $1.36 trillion in new and used structures and equipment in 2007, a 3.9 percent increase over 2006. More than $484 billion was spent on new structures alone.

Harold Sirkin's piece in Business Week outlines what the U.S. still makes and why the death of manufacturing has been exaggerated. He also offers advice on how public policy can address the issue:

For many years now, Washington has been attempting legislatively to discourage U.S. plant closings. But the closing of certain production facilities is often a sign of renewal: a naturally occurring phenomenon in which the old and outdated is replaced by something new. As Manufacturers Alliance/MAPI Chief Economist Daniel Meckstroth has noted, the "death rate in manufacturing" really isn't significantly higher than in the past. What has changed, Meckstroth says, "is that the creation of new factories has dropped so dramatically."

If Meckstroth is right and the problem is that too few new factories are opening, Washington should encourage companies to invest in new plants and equipment. It also needs to identify and change existing policies that discourage the building of new factories.

A recurring theme in my conversations with U.S. CEOs is that the effort it takes to build a new plant is barely worth it anymore. There's just too much red tape, too many hoops to jump through, too much bureaucracy, too many special interests fighting you tooth and nail, too many unnecessary, if not nonsensical rules to contend with, too many permits and legal roadblocks.

None of this eases the pain of someone who lost their job at a closed plant, whether it's in Groveton or Detroit. But the blame can't be placed on trade. Increased productivity means that we're procuding more goods with fewer people. A shift to high-value manufacturing means that products we built decades ago are no longer rolling off the assembly lines. And the use of computers and robotics raises the bottom rung for factory jobs, requiring greater education and training. That certainly has consequences that could be addressed through public policy, but if we never identify what's actually happening, we'll never solve the problem.