David Levey pointed me to a Samuel Hammond review of a book by Oren Cass, who is a conservative critic of neoliberalism:
Accelerating productivity and automation aren’t to blame for working class woes, either. On the contrary, despite prophecies of robots rendering work obsolete, Cass marshals convincing data to show U.S. manufacturing productivity has essentially stagnated. More importantly, whether job destruction is from automation and globalization has very different implications. When a factory automates a process, output per worker rises and local labor demand may even increase. But when a worker is dislocated by trade, Cass notes, “the facility in which he once worked is likely gone, and the production now occurs somewhere else,” shunting less-skilled workers into lower paying service jobs or onto public assistance.
This is misleading in several different ways. While manufacturing productivity has recently stagnated, over the past 30 years it has been very rapid, and is the primary cause of job loss in manufacturing:
Output has nearly doubled, even as employment in manufacturing has fallen from 17.5 million to 12.4 million.
Cass also misunderstands the nature of technological progress, much of which is every bit as disruptive as trade. Consider three prominent examples:
1. Over the past 100 years, employment in coal mining has plunged to just a tiny fraction of its previous levels. This is not due to trade—the US is a net exporter of coal—rather it’s due to rapid technological improvements. This has been associated with a shift in coal production from the eastern US to western states where coal seams near the surface are mined by huge machines using relatively little labor. Many jobs were lost in West Virginia, only a few were created in Wyoming.
2. In the auto industry, productivity improvements have also reduced employment. More importantly, car companies have opened new plants in states like Tennessee, Alabama, and South Carolina, while closing older plants in Michigan and other Rust Belt states.
3. In the steel industry, productivity gains have sharply boosted productivity and reduced employment. More importantly, many of the older big integrated steel mills in urban areas have shut down, while newer companies like Nucor have thrived with plants using electric arc furnaces built in rural areas.
Automation is not just adding robots to existing factories (although that happens on occasion)—it’s closing down older obsolete plants and building new plants with state of the art technology in entirely new locations.
Protectionists who talk about “trade” generally mean international trade. But domestic “trade” is every bit as disruptive, as newer technologies cause firms to relocate to new areas, reflecting changes in comparative advantage.
Furthermore, even if countries like China did not exist, the working class would have suffered a major loss of manufacturing jobs. Indeed that massive job loss is a global phenomenon, and last time I look the planet Earth was not trading with Mars.
On the other hand, I strongly agree with this:
Rather than debate “the future of work,” Cass contends we should focus on the future for work; a future in which technological trends like additive manufacturing and e-commerce spur the creation of well-paying blue collar jobs within the country’s interior. Capitalizing on these trends will require adopting an orientation toward “productive pluralism” in which “people of diverse abilities, priorities, and geographies, pursuing varied life paths, can form self-sufficient families and become contributors to their communities.” That includes ditching the monomaniacal focus on one or two high-prestige career paths in favor of a culture (and multi-track education system) that confers equal legitimacy to a wide variety of modes of work and life, from the journeyman to the stay-at-home mother.
Cass is right that the elites in big cities have a snobbish attitude toward manual labor, which denigrates those who did not attend college. We need to emphasize that technical jobs often pay well, and are deserving of more respect. In addition, we need to do a better job of educating young people (especially boys) who are not well suited for college. I recently paid a plumber $145 for 15 minutes work. I don’t have all the answers, but I recall reading that the German educational system does a better job training less skilled students to do technical work, and they often end up with good jobs in manufacturing. Germany has a significantly higher share of industrial workers than the US, and yet they have all the handicaps that protectionists claim cause the US to be unable to compete with China. (I.e. they have high wages, a relatively open economy, etc.) On the other hand, countries that close themselves off from the world economy tend to do poorly.
This is also incorrect:
While the remarkable growth of countries like Japan, Taiwan, and South Korea would have been impossible without trade liberalization, it is now widely accepted that their success depended on rejecting the laissez-faire model in favor of industrial policies that promoted investment in secondary industries and moved them up the value chain.
Not only is that claim not widely accepted, it’s false. These countries did well despite some government intervention, and would have grown even faster with a more laissez-faire policy regime. Indeed if one looks around the world, the more open economies tend to do better than the less open economies, and that’s just as true in East Asia as in Europe or the Americas.
Volvo just opened this brand new plant in Charleston, South Carolina, which will eventually employ 4000 workers. It did not provide jobs for unemployed Detroit residents:
There’s also a big new Mercedes factory in South Carolina, as well as the world’s largest BMW facility.
Meanwhile, the Financial Times reports that the global trade war is causing GM to cease production at a number of plants in the Rustbelt:
General Motors will stop production at seven plants next year as it seeks $6bn in cost savings to bolster the carmaker against a downturn in its home market and the impact of the global trade war.
GM on Monday outlined plans to cease production at three assembly plants and two engine plants in the US and Canada, and two sites internationally, and slim product offerings in a bid to save costs. . . .
GM offered buyouts to 18,000 staff last month, aiming to reduce its US salaried headcount.
On Monday, the company said it would issue no fresh work to three assembly plants — Oshawa in Ontario, Canada, Detroit-Hamtramck in Detroit, and Lordstown Assembly in Warren, Ohio — as well as two engine plants, Baltimore in White Marsh, Maryland, and one in Warren, Michigan.
Protectionism is not the answer.
READER COMMENTS
MarkW
Nov 26 2018 at 5:58pm
In the auto industry, productivity improvements have also reduced employment. More importantly, car companies have opened new plants in states like Tennessee, Alabama, and South Carolina, while closing older plants in Michigan and other Rust Belt states.
I think that’s a misreading of the situation. The plants that GM is closing are not necessarily less automated than the new plants being created in the south — but they are producing cars rather than trucks or suvs and, significantly, they are staffed by UAW labor while all the new southern ‘transplant’ factories are non-union. This is much more of a story of changing consumer tastes and the continued difficulties of operating competitively with union wages and work-rules than it is of automation. Note, too, that some of the non-union transplant factories are in the ‘rustbelt’ states of Ohio (Honda) and Indiana (Subaru). There are none in Michigan, though, because the foreign manufacturers have apparently concluded that there would be no avoiding the UAW with a Michigan plant.
RPLong
Nov 27 2018 at 9:57am
Yes, you’re right about that. GM is also betting on a future involving electric and self-driving vehicles. They have plans to sell an electric bicycle next year. These are new products that do not necessarily translate easily onto a factory that was built to manufacture a Buick LaCrosse. “Big auto maker shutters factories” is the kind of emotional headline that we all want to feed into our preferred narratives, but this is an issue that has more touch points than merely Trump’s trade policy in isolation, although I do agree that Trump’s trade policies are bad.
Scott Sumner
Nov 26 2018 at 7:10pm
Mark, I agree that it’s partly unions, but of course unions are one factor that affect productivity (via the work rules you cite). My point is that this migration of factories within the US is not caused by international trade, but does result in the same sort of regional spikes in unemployment as does trade. It’s not true that automation doesn’t cause the same sort of massive job loss as trade (as the article implies), it does.
Matthias Goergens
Nov 26 2018 at 9:27pm
The German system is worth studying, but it is weird.
Whether you go for the university bound track is mostly decided at age ten or twelve. (Details different by state.) It’s a very segregated system. Mostly academic achievement of the predicts the kids’ achievement to a T.
The vocational training system works fairly well. But on the flip side, you need a license with at least two years mandatory training for nearly every blue collar job you can imagine. (Even fixing computers, or cutting hair. But also working wood.)
And that’s just to work for someone else. If you want to run your own business, you need to add yet another mandatory license that costs years to acquire, the Meister. See Meisterzwang.
Benjamin Cole
Nov 26 2018 at 9:34pm
Interesting post.
I agree that careers as plumbers, electricians and so forth are often more valuable than a career behind a desk somewhere.
“I don’t have all the answers, but I recall reading that the German educational system does a better job training less skilled students to do technical work, and they often end up with good jobs in manufacturing.”– Sumner.
I do not know why you use the words “less skilled” in this sentence. This affirms the stereotype that dumb people go into manual trades.
I think there is still a live debate on whether “free-trade”— which is generally trade as defined by multinationals—always benefits residents of developed nations, given the large structural imperfections that define the global economy. The debate is even further muddied, if one ponders free movement of labor as part of free-trade.
There are free-trade theorists, but going even further we have free-trade theologians. If you ask a free-trade theologian, “Are there any empirical results in the real world that would cause you to reconsider the theory of free trade?”, they effectively say no.
Rajat
Nov 27 2018 at 5:51am
On the manual trades issue, my theory is it suits the left (in Australia at least; I can’t speak on the US) to diminish manual working careers because having kids spend more time in school and university exposes them to more indoctrination masquerading as education. The long term effect on political views might not be huge, but I think it’s there. The interesting thing is that the left can do this despite presenting themselves as pro-worker by dressing up the case for more funding and years of education as promoting equal opportunity. After all, why shouldn’t the children of poor people get the chance to spend years extra in education even if they have sub-100 IQs?
Alan Goldhammer
Nov 27 2018 at 9:11am
I wonder if the decision on locating German auto plants is related to parts shipments. I assume that most of the parts come from Germany and it’s easier to ship to a port city such as Charleston than it would be to somewhere in Michigan. In the old days, GM and Ford made parts close by assembly plants and transit costs were low. This is just a guess on my part.
Thaomas
Nov 27 2018 at 9:50am
Agreed that technology, rather than international trade and, pace President Trump, even less international trade agreements, is the main cause of the fall in manufacturing employment, US fiscal policy — over the business cycle structural deficits — in recent decades had contributed to the US becoming a capital importing country and less an exporter of manufactured investment goods.
Mark
Nov 27 2018 at 11:36am
Perhaps one reason technical jobs pay so well is that they get comparatively little respect so higher pay is needed to attract people into them.
Scott Sumner
Nov 27 2018 at 11:50am
Matthias, Thanks for the info.
Rajat, The left is also too likely to buy into the claim that we are all equal in natural ability. Of course they don’t go that far, but they push the idea further than is practical—to the disadvantage of students that are not suited for college.
Mark, Good point.
MarkW
Nov 29 2018 at 2:08pm
“I assume that most of the parts come from Germany and it’s easier to ship to a port city such as Charleston than it would be to somewhere in Michigan.”
No, I don’t think that’s the issue. The transplants have U.S. networks of suppliers as well as assembly plants, and many have set up far from the coasts. Also, Detroit is a port city (ocean-going freighters come up the St Lawrence).
Warren Platts
Dec 3 2018 at 5:31pm
Respectfully, but vehemently disagree, and it is simple to prove it. Go to FRED, and make a chart combining consumer expenditures on both durable and non-durable goods. Then add a line for manufacturing output, and you will see that the demand for goods has gone through the roof, but manufacturing output has not nearly kept pace. If manufacturing output matched consumption, we would have to about double the number of manufacturing workers. There would literally be more manufacturing workers than at the record high of 1979.
Keep in mind that the equation is Employment = Output / Productivity. As long as Output increases keep pace with productivity increases, employment stays exactly the same. If output increases faster than productivity, employment increases. Thus, clearly the problem is output: it is not keeping up with demand; imports are making up the difference.
Thus the recent plateauing of manufacturing productivity is not a puzzle. Why spend $$$ on new machines when it is cheaper to substitute cheap labor, either foreign or domestic? Especially when confronted with the fact that Chinese dumped products can put you out of business…
That manufacturing real output based on some deflators have very recently set “all-time” highs is touted as good news is extremely sad and says a lot about the state of this economy. The Pew chart above is not a sign of a healthy manufacturing sector. Only now, after a lost decade, are we barely crawling out of the hole caused by the last recession–that itself was largely caused by the massive trade deficit at the time because the resultant capital inflows caused the massive asset bubble through direct buying pressure and making available easy credit with low interest rates!
As for Nucor, you can ask my friend Dan DiMicco how they are doing. As for GM shifting production from small cars to pickup trucks, I am sure the fact that there is a 25% tariff on pickup trucks but only 2.5% on small cars has nothing to do with it.
As for the claim that places like Japan, South Korea, and China would have grown even faster if they had adopted Libertarian-style trade policies rather than their mercantilist industrial policies, that is an assumption–not a proven fact. Just look at the United States: we cannot say that our policy of unilateral free trade has sped up U.S. growth: over the last 30 years, GDP growth was only 2.5% on average, compared to 3.5% for the previous 30 years. If we had maintained the same rate of growth, our GDP/capita would be $20,000 higher than it is now!
Yes, I know that correlation does not equal causation. Thus, you can always say “Gee whiz guys: it shore is lucky we implemented unilateral free trade when we did, because otherwise our growth rate would have only been 1.5% over the last 30 years!” Except for one thing: we actually do have a scientific control: China itself. A country geographically comparable to the USA, yet under mercantilism, the Chinese now have the world’s largest economy on a PPP basis.
I almost forgot to mention Samuelson’s theory that predicted all this as early as the 1940’s. But then again. Henry Clay could have told you the same thing in the 1840’s.
What bugs me the most: that laissez faire free trade has somehow been rebranded as the “conservative” position. That it is not. The classical conservative position is the American System that served this country pretty well for its first 200 years. Under conservatism, if it is not broke, you don’t fix it. Now, however, our manufacturing sector has been broken. The effect on the citizenry is now measured in declining life expectancies and birth rates.
More of the same is not the answer… /rant over/
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