Search
The Financial Times on Friday tackles a problem that is as tangled and difficult as it is encased in myth and nostalgia: American manufacturing. (Our own Matt Miller has written extensively on this subject in The Deal magazine, see here and here.) The paper does a good job explaining why you just can't flip a switch and get factories humming again -- even if you could convince thousands of newly minted M.B.A.'s to eschew the riches of consulting and Wall Street for wire-hanger makers in the depths of the Midwest. You come to the end of this analysis and you're left with a couple of thoughts: There's certainly more that the government -- and that's what these pieces always unavoidably come down to -- can do to make the life of manufacturers in the U.S. easier, from targeted subsidies, tax breaks and tariffs to more aggressive attempts to establish trade agreements to weakening the dollar. But every one of these items has trade-offs, which grow ever larger, and more damaging, as they scale up. And it requires great delicacy and sophistication to pull them off.
And even if you do succeed, you'll probably be improving the situation only on the margins. In a large, mature, advanced economy like the U.S., which has evolved into a powerful consumer and service economy, reviving manufacturing -- improving on its 8% of American workers and 11% of GDP -- is a huge task. In the FT, Leo Hindery, the former head of AT&T Broadband among many other top media jobs, now at the New American Foundation, argues that the manufacturing sector should employ "at least 20% and more like 25% [of workers] to sustain the economy and avoid "consumer-credit driven bubbles." Hindery's off-the-cuff estimates are fairly typical, if vaporous. First, such a shift would require a massive economic adjustment: a drastically lower dollar, a huge reallocation of capital and no guarantee of either competitiveness or growth (perhaps the most interesting part of the FT analysis involves the discussion of where manufacturing jobs will be located in a global economy: Not here, say executives, and not to generate exports, but in emerging markets themselves). Second, a larger manufacturing sector would not necessarily reduce consumer-driven bubbles; workers, after all, are also consumers. You dampen consumer-driven bubbles by choking off consumer credit. Third, where do these numbers come from? Are they based on some historic period when American manufacturing was robust and the middle class intact, like the '50s and '60s? If that's the case, Hindery falls for the retrospective fallacy, which is a virulent, if common form, of nostalgia. Or is it based on countries like Germany that have strong industrial-based export economies? If that's the case, the problem is the same: The U.S. economy of 2010 is very different from Germany, just as it is very different from the economy of 1955. 
blog comments powered by Disqus
Bob Teitelman, editor in chief and a member of the company’s executive committee, is responsible for editorial operations of print and electronic products. Contact
Goldman, Sachs & Co. veteran Tracy Caliendo will join Bank of America Merrill Lynch in September as a managing director and head of Americas equity hedge fund services. For other updates launch today's Movers & shakers slideshow.
When will companies stop refinancing and jump back into M&A? More video
