Industrial Insight

Not everyone agrees that manufacturing is vital! | August 10, 2010

http://www.ft.com/cms/s/0/54a03eb6-a3eb-11df-9e3a-00144feabdc0.html

‘Made in America’ is not the way out

By Jagdish Bhagwati

Published: August 9 2010 20:26 | Last updated: August 9 2010 20:26

The flawed case for manufacturing is embellished by several subsidiary fallacies. Richard McCormack, editor of Manufacturing & Technology News, wrote at the beginning of the crisis: “Without an industrial base, an increase in consumer spending … will not put Americans back to work.” Yet why should the composition of output in favour of manufacturing industries matter so critically for employment creation? Increasing demand for those non-tradeable services that need suppliers and users to be close together – as, for example, with nursing and retirement homes – should have just the same effect on employment.

Underlying the current prejudice is the unwarranted presumption that manufacturing industries are technically more innovative than both services and agriculture. Yet agriculture had hybrid corn, the seeds that (at the time of the green revolution) helped growth in developing countries, while genetically modified seeds hold the same promise today. Equally, in services, innovation has transformed the retail and communications sectors – whether at DHL or Tesco.

In policy, sometimes Gresham’s Law operates – with bad policies driving away good ones. With no good argument in its favour, a preoccupation with manufacturing industries threatens yet one more example of such a perverse outcome. By promoting manufacturing of all kinds (as can be expected as the sector’s lobbies get down to work) at the expense of more innovative and dynamic service sectors, precisely when America is faltering in its recovery from the crisis, this unhelpful fascination promises to inflict gratuitous damage on an economy that can ill afford new wounds.

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About author

I'm the executive vice president for a steel casting trade association, the Steel Founders' Society of America. I've got a crazy wife, five crazy children, three crazy people that married into the family, and two crazy fun little grandsons.

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