With Ylan Mui, The Washington Post financial writer covering the federal reserve and the economy, “What Republicans and Democrats Get Wrong About American Manufacturing”
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Ask the man on the street about manufacturing in America and chances are he’ll say the US doesn’t make anything anymore, and all our jobs have gone to China and other countries overseas.
Ylan Mui, who wrote a recent article for The Washington Post entitled, “What Republicans and Democrats Get Wrong About American Manufacturing,” tells us the facts don’t support this perception.
The surprising reality is that we manufacture two and a half times as many products now as we did back in 1970 and “our industrial production—what economists call the output for the manufacturing industry—is near peak level, and it’s increased dramatically over the past forty years”
The misperception instilled in the mind of the man in the street, however, is largely the result of the types of manufacturing jobs lost to overseas concerns and to the very real drop in the number of workers employed in US manufacturing today. Heather points out that while China has taken over in the production of steel, toys, many electronics, and apparel, for instance, we in the US are making a different category of products—pharmaceuticals, heavy machinery, cars and trucks, being among the most notable. The cause of the decline in jobs from nineteen million in 1979 to twelve million today is technology and automation; it simply takes fewer people to produce an item and that leaves about a third of the previous workforce unemployed.
Although, says Ylan, “there have been multiple proposals throughout the years and certainly very good efforts to retrain workers for new industries… finding another place for these workers is a lot more difficult than we thought.” Often, when a company that had employed large numbers closes, it takes the town with it, leaving behind an area in serious decline. So even with training and new skills, some of these workers will have to relocate in order to find new jobs. Often they’re either unwilling or unable to do that for a variety of reasons, one of which could be a housing market that went into decline along with everything else. One bright spot, says Ylan, is that real estate has improved making it easier for many people to sell their home and make that relocation to an area of greater opportunities.
In spite of what the candidates may be promising about bringing jobs back to America, “it’s very hard to stop the march of technology” and as for bringing most of these lost manufacturing jobs back home, it’s about as likely as getting Colgate back into the tube.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: The candidates may be right about one thing. It’s a fact that many people have lost their jobs that they’ve had for many years, and for many, there isn’t an obvious alternative for them. However, the explanations both candidates give for this issue are more suited to getting votes than they are to adhering to the real facts. It’s the real facts that we really want to get to on this show. To get to the point, I’ve invited Ylan Mui. She joins me from The Washington Post where she’s a financial writer covering the federal reserve and the economy and she penned a recent article titled “What Republicans and Democrats Get Wrong About American Manufacturing.” That’s what we’re going to discuss today. Ylan Mui, welcome to the program for the first time.
Ylan Mui: Thank you for having me.
Steve Pomeranz: Tell us the familiar story of the woes of the American manufacturer. I’ll start you off. Companies move their operations overseas to take advantage of inexpensive labor. What is the typical story here?
Ylan Mui: Right. So often we hear that we just don’t make things in America anymore, that China has become the epicenter of the manufacturing industry. It’s the world’s factory floor, if you will. In the US, we have moved toward a knowledge economy, we’ve moved toward a service economy, and those good old manufacturing jobs and that good old manufacturing products that we used to churn out just don’t get made here anymore. When you look at the information and look at the data, you realize that that’s actually not exactly right. We actually make here in the US two and a half times as many products as we did back in 1970. Industrial production—that’s what economists call the output for the manufacturing industry—industrial product is near a peak level, and it’s increased dramatically over the past forty years. When you say that America doesn’t really make anything anymore, that’s not true. What is true is what we make is now different.
Steve Pomeranz: Okay, so there’s a lot of information that you just gave us there. Let me back up a little bit. In spite of the rhetoric and the sense that we’ve lost all these jobs overseas and America is no longer a manufacturing country, the reverse is actually true. We are manufacturing quite a bit more than we were in 1970, and we are actually at a historical peak in the amount that we’re manufacturing, much of which is landing on the floor of American business. Much of it is being exported, as well, so it’s really a way of misspeaking to say that we lost all these jobs because America is no longer a strong manufacturer. Right?
Ylan Mui: Sort of. We’re getting closer and closer to the truth here.
Steve Pomeranz: Go ahead.
Ylan Mui: Let the data tell us. Let’s start with this. What does America actually make? There’s no question that China has taken over a lot of the production that used to be made in America, steel, for example, being one of the prime cases. China’s a big manufacturer of toys, of apparel. Those are some of the things that used to be made in the US that clearly are now being made in China and China is a bigger player. What we are making in the US is a different category of products. We’re making things like pharmaceuticals. We’re a big manufacturer of medicines. We’re a big manufacturer of heavy machinery. Caterpillar is one company that comes to mind. We’re a big manufacturer of autos still. Not just from the big three automakers, but from foreign automakers. I’m thinking here of Honda and their big investment in Ohio, foreign automakers that are building cars here in the US.
To say that we’re no longer making anything sort of misses the point because it assumes that there’s only one type of manufacturing product out there. Really, the US has become much bigger and much more important in the world of advanced manufacturing.
Steve Pomeranz: I think that is the key. A lot of the jobs that used to be around thirty years ago that required lower-skill labor, those, in fact, are the jobs that have gone away.
Ylan Mui: That’s right. That gets to the second part of this. We say we don’t make things in America anymore and that’s hurting manufacturing employment. We’ve addressed the issue of what we actually make in America. The second issue is what about the jobs? What about employment? Clearly, manufacturing employment in this country has to climb dramatically. Back in, I think it was 1979, we had nineteen million people employed in manufacturing, now there’s only twelve million people employed in manufacturing today. Definitely a significant drop. The question is what’s behind that? How are we employing fewer people in manufacturing at a time when we’re making more than ever? Part of that answer, and a large driver of that answer, is technology.
Again, that advanced manufacturing that we talked about, we can now make more things with fewer people thanks to the benefits of things like robots, thanks to the benefits of things like automation. A giant factory that might have employed a hundred people at one time now only needs maybe ten people to do the same amount of work, if not more. That’s part of the reason you see manufacturing employment fall so dramatically, and it’s really an under-appreciated one.
Steve Pomeranz: Well, it’s hard to blame robots and technology when you’re running for president. No, I’m serious. What are you going to say?
Ylan Mui: They don’t get to vote. Robots don’t vote.
Steve Pomeranz: Not yet, anyway. The point is while we are experiencing this huge surge of economic output, two point trillion dollars of value to the economy in manufacturing that manufacturing brings to the US economy, it’s being done more productively with fewer workers. You mentioned a change from nineteen million workers to twelve million workers. That’s about a third of our workforce that has to be retrained or to be displaced somewhere else. Why aren’t the candidates talking about taking federal monies and putting them towards retraining as opposed to coming up with trade barriers and all of these other things to restrict our ability to sell overseas?
Ylan Mui: It gets a little tricky there. There have been multiple proposals throughout the years and certainly very good efforts to retrain workers for new industries. I think what you’re hearing and what you’re seeing out of a lot of the more recent research that comes out is that finding another place for these workers is a lot more difficult than we thought. Perhaps they are less willing to move geographically to a place where there might be more jobs and that pain from the downsides of globalization are being felt in very concentrated ways. It’s an entire town that might’ve relied … There might have been a company town back in the day. There become few options within an immediate geographic area for those workers to transition to. They can get all the training they want. If there’s no jobs on offer, that’s still not going to help them any.
Earlier this year, I was in Minnesota. I did a story about the iron ore workers there and some of the challenges that they felt as the price of iron ore had just gotten clobbered in international markets. The workers there told me, “I’ve got every certification you can imagine. I’ve got a certification in cooling and heating systems. I’ve got my truck driver’s license. I’m certified as a machinist. I’m certified to work in any factory floor and yet there’s no jobs here for me. I’m going to have to move two, three, four hours away from home in order to find work.” That barrier is really high no matter how much education you have.
Steve Pomeranz: Well, I’m so glad you brought it to such great detail because that is the real conundrum for these individuals. It’s not quite so easy for us to say, “Hey, just retrain. Have them retrained,” or, “Hey, let’s put tariffs on the Chinese or from Mexico and stop jobs going away,” because those jobs, based on this data, it’s not the culprit. The culprit is that the world is changing and it’s moving more towards more automation and the need for fewer workers in those kinds of factory floor-type jobs. As you just said, even if you have all the certifications, even going far afield and maybe driving a truck and doing other things to support your family, maybe the jobs are not there. It also occurs to me, Ylan…
By the way, I’m speaking with Ylan Mui from The Washington Post and we’re discussing this idea that America’s no longer a key manufacturing country, which we’re discussing in great detail. It occurs to me that during the ’05, ’06 housing crisis that so many people’s homes were underwater that they owed more than their house was worth. Even if they wanted to move to an area where there were jobs, they were pretty much stuck. I think that lack of mobility also would lead to hurting those individuals and their ability to cope with these changes. Now, luckily that seems to be changing with housing prices are within range of four percent back to where they were back in 2006, so there’s a lot more capability of people to move around. Maybe that could be an added benefit.
The bottom line here for my listeners to understand is not to be so sure that the candidates are really addressing the heart of these problems as much as they’re really just trying to tell you sound bites to get you riled up to vote for them. Final words there, Ylan?
Ylan Mui: Well, I would just say that it’s very hard to stop the march of technology.
Steve Pomeranz: I guess we’ve seen that and it’s going to continue no matter what. Listen, all of Silicon Valley is in existence to disrupt, so almost none of our jobs are safe anymore. Your industry, journalism industry has been disrupted terribly. My investment advisory is in the beginnings of being disrupted as well. We’re all targets in some way to technology. We’ll have to figure it out. Ylan Mui from The Washington Post, thank you so much for joining me today.
Ylan Mui: Thank you for having me.
Steve Pomeranz: All right, that was fun.
