Industrial Insight

we are different… | February 6, 2012

Christina Romer makes the argument in the NYT that manufacturing should not recieve any advantageous treatment because it occupies no special role in the economy. Unfortunately, this analysis neglects current disparate treatment that disadvantages manufacturing in ways that harm the economy and the country. For example, depreciation makes capital investment more expensive disadvantaging manufacturing.

More important are some externalities like environmental performance. If the US economy is going to consume 100 million tons of steel a year, the environmental global consequences matter. We recognize this in, our own regulations that burden US manufacturers. We as consumers and citizens benefit from the best environmental practices in steel making. Global competitors do not meet the same standards and there are no trade practices that recognize either the absolute or relative environmental impact of trade in steel. We recognize the eternality in our regulations but not in our trade and tax policy.

http://www.nytimes.com/2012/02/05/business/do-manufacturers-need-special-treatment-economic-view.html?_r=1&ref=business

Do Manufacturers Need Special Treatment?

By CHRISTINA D. ROMER
Published: February 4, 2012

A successful argument for a government manufacturing policy has to go beyond the feeling that it’s better to produce “real things” than services. American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada.

Market Failures:
Government intervention can be justified on efficiency grounds if the free market won’t work well. For example, when competition in a market is limited, antitrust laws that prevent monopoly can be helpful. Without compelling evidence of special market failures in manufacturing, it might be better to enact policies that will make all American businesses and workers more productive and successful. President Obama mentioned some in his State of the Union address: expansion and enforcement of free trade agreements; public investment in basic science, infrastructure and education; and corporate tax reform.

JOBS A key argument for encouraging manufacturing is to create jobs and reduce unemployment. Unfortunately, those effects are probably small.

Unemployment today is high, but not because of a decline in manufacturing. That decline has been going on for 30 years — and for most of the 1990s and 2000s, the unemployment rate was less than 6 percent.

INCOME DISTRIBUTION A final argument for supporting manufacturing is distributional. Manufacturing jobs are seen as one of the few sources of well-paying jobs for less-educated workers. Indeed, in the four decades after World War II, manufacturing jobs paid more than other jobs for given skills.

But that is much less true today. Increased international competition has forced American manufacturers to reduce costs. As a result, the pay premium for low-skilled workers in manufacturing is smaller than it once was.

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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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