It sounds good, this talk of reviving America’s manufacturing base. Especially after Monday’s announcement that a South Korean company will open a steel mill with 1,500 jobs in 2029 in Donaldsonville, La.
But a column on The Washington Post website makes a compelling argument that this idea of bringing manufacturing jobs back to our nation is a mirage, as the headline put it, because “the most advanced economies in the world are dominated by services.”
Fareed Zakaria wrote that not only is a manufacturing revival “highly unlikely to happen, but the efforts to move in this direction will be costly and damaging for Americans.”
Here’s his thinking on manufacturing:
• The idea of a rich, powerful country making things and selling them to the world is a seductive image — of the past, not the future. Service jobs account for the vast majority of employment in the world’s wealthiest countries.
“America’s distinctive exports to the world are software and software services, entertainment, financial services, and other such intangible things — and in these, the U.S. runs not a trade deficit but a surplus with the rest of the world,” Zakaria wrote.
• This change has occurred because as people get wealthier, they spend more money on services, not goods. “And the money for companies is not in goods but services,” Zakaria added. “A sneaker might cost $25 or $30 to make; the value is in the design, marketing and sales that allows you to sell it for $100. Which part of this product would you rather your workers be involved in?”
• Japan is a good case study for this topic because it used tariffs and other barriers to protect its market from foreign goods, same as President Trump wants to do today. The Japanese government had a pro-industry policy and its schools rewarded technical skills and “shop” work. But manufacturing jobs steadily declined.
• Because the Japanese government protected its industries from foreign competition, it led to three decades of economic stagnation from which the country is only now emerging. Two superb examples of how protectionism can go wrong are the VHS recording systems and Walkman audio players. They thrived for a while — until better technology from other countries made them obsolete.
• The United States was more open, and thus more innovative, and thus more successful. This openness is why America dominates the service economy and exports its products all over the world.
• The head of the World Trade Organization said professional and business service jobs in the U.S. pay an average of $43.60 per hour, while the average for manufacturing jobs is 20% lower, at $34.83.
“Services” is a catch-all word. It includes jobs in finance, hospitality, retail, health care, information technology, education and more. Zakaria does not directly address the concern of what to do for people who cannot master any of these skills, but he noted correctly that, “In a free market, people and countries are forced to specialize, moving to those things they can do best.”
The use of protectionism to revive manufacturing is nothing more than “an effort to defy basic economics,” Zakaria wrote. “The long history of capitalism tells us that countries and companies don’t innovate because of tax credits and depreciation. They do so because of competition. That is why markets work: They force efficiency. If you shield U.S. companies and workers from competition, you will get not dynamism but stagnation.”
— Jack Ryan, McComb Enterprise-Journal
