In Retrospect, America Should Not Have Given Up on Manufacturing

When I was younger and more naive, I always assumed that America was over manufacturing. In the same way that America's agrarian past gave way to industrialization and manufacturing, I expected that manufacturing would be a bone thrown to developing countries, while America makes the real money in services (Of course, America still is a major exporter or both agricultural and manufactured goods, but in employment, the service sector dominates.)

Germany's recent recovery has been the envy of all the other developed countries. While America's economy is stuck in recovery that is so slow that it is barely perceptible, Germany recently posted very favorable gains. There are, of course, many reasons that the German economy is (at least for now) faring much better than America's. One aspect that some economists have pointed out is that laying off workers is harder in Germany, and they prefer reducing worker hours over firing. The cost of simply ramping up worker hours when the economy improves may be less costly than firing and rehiring. At the same time, keeping employees employed will still give them paychecks to spend and slow the drop of consumer spending.

However, I believe a key aspect in Germany's fast recovery (which is aided hugely by exports) is its governments active desire to keep its manufacturing sector alive. While 20 percent of the US workforce is involved in manufacturing (a figure that continues to decline) German manufacturing employees a stable 30 percent of its workforce. These workers are generally involved in high-tech, value added manufacturing that the developing countries do not have the technical expertise to compete with, and bring home decent paychecks.

The service industry has no decent jobs for American workers who do not have higher education. Either a service worker is employed in a low wage job like McDonald's, or a better job that at least requires an undergraduate degree. But, there are still large portions of the America population who lack the necessary education to get a higher level service job, and cannot sustain a family on lower end service jobs. Manufacturing used to absorb these workers and pay them decent middle class wages. These jobs are increasingly rare.

I see two possible solutions to this problem:

First, the government could take a more active approach to retaining good manufacturing jobs.

Second, the government could overhaul our education system so that it takes its rightful place as the best amongst the OECD countries, instead of one of the worst. That would make more Americans actually qualified for the middle and high wage service sectors that would make up giving up our steel, automobile, and shipbuilding industries to Asia.

I hope to discuss the fascinating topic of Education Reform in a future blog.