What is so important about manufacturing?

On my way to work this morning, I heard an interview with Gavin Newsom who was once mayor of San Francisco and is now Lt Governor of California. At one point in the conversation, he brought up the issue of manufacturing and the “necessity” of having large numbers of people working in factories in the United States. Now, I don’t mean to pick on Gavin Newsom. It seems that every politician from Ron Paul to Mitt Romney to Barack Obama believes that there should be more people working in factories in the United States. As a Frenchman, I can tell you that Nicolas Sarkozy and Francois Holland (the top 2 contenters for the presidency in 2012) appear to think the same thing, so it’s not a US-specific trope. But being trained in economics, I can only be confused.

From an economic point of view, $1 of value created is $1 of value created whether it was by building widgets, serving food or growing potatoes. For sure, different goods and services have different characteristics, but “manufacturing” doesn’t have a set of properties which make it better or worst than services. The politicians I mentioned above are intelligent and highly educated, so why would they say something so nonsensical? What is it about manufacturing that makes politicians tick?

To put it simply: manufacturing wins wars. If you look at the history of WWII for instance, it is clear that the Axis was no less will and no lack of brilliant generals. What they had a lack of was fuel, steel, coal and all the other accouterments that are necessary to bring soldiers to a battle and kill somebody. This idea is well embodied in the correlates of war project which includes iron and steel production as some of the most important factors in winning a war.

In International Affairs 101, the first thing that was drilled in my young impressionable mind was the definition of a state: “States hold the monopoly on the legitimate use of force.” There is no purer expression of that definition than war. When statesmen and aspiring statesmen ponder issues, is it such a wonder that war would sip into their thoughts whether overtly or not. They are nevertheless making a mistake and their fears are counter-productive.

The fear in the minds of the Obamas, Newsoms and Gingrichs of this world is that they will find themselves leading the USA to war with no allies, no trading partners and no internal manufacturing base to power the war effort. Such a fear of course ignores history. During WWII, the Nazis did have a strong policy of favoring home-grown manufacturing. But that did not matter because the Allies were able to create a broader coalition and trade with more foreigner purchasing raw materials and other necessities. During the Iraq War, despite the strong objections of many European countries to the war, they did not stop trading with the United States. It is highly unlikely that the USA would ever stand alone without at least neutral trading partners.

Of course, many might respond that matters would be quite different if the war was with a major trading partner such as China. That may very well be true. If the USA was to fight with its primary source of steel for instance, it is quite likely that that source might dry up. This is where the extensive literature on interdependence comes in. Countries that have strong trading relationships only rarely go to war with each other. There are many different explanations, but they all boil down to one simple matter: trade is mutually beneficial and when the gains of trade are high enough, states are reluctant to endanger them with war.

Now it is of course possible that all the factors I mention above would not come in to play. It is possible even if highly unlikely for the USA to eventually stand alone, with no friends seeing hostile faces whichever way it turns. But perhaps if that were the case, the cause and therefore the solution might best be found in the mirror. Not manufacturing.

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7 Responses to What is so important about manufacturing?

  1. Ken says:

    Most if not all the arguments put forth by those who claim manufacturing is special are the same arguments that were used centuries ago for agriculture. Political and “elites” couldn’t fathom an economy or a country dependent on an economy that is driven by manufacturing rather than agriculture.

    Now different, but equally clueless, politicians and “elites” cannot fathom an economy or a country dependent on an economy that is driven by services rather than manufacturing.

    Both reflect a stunning lack of understanding of history and economy.

  2. steve2 says:

    While I am sympathetic to your argument, economists should, IMO, be pretty humble about the predictive value of their specialty. Having made the transition from agriculture to manufacturing does not necessarily mean the next transition will work so well.

    Steve

    • PrometheeFeu says:

      I do agree that some humility is in order. However, when I listen to advocates of more manufacturing, the complaint is not that the transition is happening in a bad way, but rather that the transition is happening at all. If the transition is happening in a destructive way, we should be able to see signs of this destruction in rising unemployment, slower productivity gains, etc… Of course, Arnold Kling and Tyler Cowen could be interpreted as saying that our current economic situation is a result of this transition. But they don’t advocate standing in the way of this transition. The ones who want to keep manufacturing in my experience also believe our current situation is purely cyclical. But maybe I just don’t read the right people on the “keep manufacturing in America” side of the debate.

  3. Vblanco says:

    Well, one can assume that Gavin Newsom is actually ignorant, as is Ron Paul, Newt Gingrich, Mitt Romney, and of course as is the entire Obana crowd; or, like me, you might just think he is talking to his base of support, saying what they want to hear, saying it with conviction as if it is true, so that he will get their vote in the next election, or show up for the next flash mob, which ever is the immediate need of Gavin Newsom.

    Pardon my cynicism, but when I see a politician’s lips moving or hear the sound of his voice, I believe there is no way to know whether or not he actually believes the things he is saying. Historical evidence tells me he is lying, distorting, or being disingenuous; but highly unlikely to be revealing his true self.

  4. Whiskey Lima says:

    In my view, manufacturing doesn’t win modern wars. 20th century wars? Absolutely. But it’s difficult to imagine a 20th century-style, resource-heavy war being fought ever again. We lost around 125 aircraft throughout a decade in Iraq (mostly because of accidents); we lost tens of thousands in World War II.

    The few states capable of even contemplating a resource-heavy war possess also the capacity to end one rather quickly, if horrifically. And it is all too likely that, facing an existential threat, one of these states would resort to such extreme measures if it found itself incapable of winning conventionally.

  5. Arun says:

    Krugman: Manufacturing firms often stand or fall not just on their own merits, but because they do or don’t have a surrounding cluster of related firms that are suppliers or customers, provide a ready pool of suitable labor, and so on.

    http://krugman.blogs.nytimes.com/2012/01/24/chinese-manufacturing-and-the-auto-bailout/

  6. Gingrich, Mitt Romney, and of course as is the entire Obana crowd; or, like me, you might just think he is talking to his base of support, saying what they want to hear, saying it with conviction as if it is true, so that he will get their vote in the next election, or show up for the next flash mob, which ever is the immediate need of Gavin Newsom.

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