Saturday, February 26, 2011

More With Less

In yesterday's WSJ, Mark Perry pokes the latest hole in the canard that "America doesn't make anything anymore" with a piece called The Truth About U.S. Manufacturing:

In 2009, the most recent full year for which international data are available, our manufacturing output was $2.155 trillion (including mining and utilities). That's more than 45% higher than China's, the country we're supposedly losing ground to. Despite recent gains in China and elsewhere, the U.S. still produced more than 20% of global manufacturing output in 2009.

The truth is that America still makes a lot of stuff, and we're making more of it than ever before. We're merely able to do it with a fraction of the workers needed in the past.

Consider the incredible, increasing productivity of America's manufacturing workers: The average U.S. factory worker is responsible today for more than $180,000 of annual manufacturing output, triple the $60,000 in 1972.

These increases are a direct result of capital investments in productivity-enhancing technology, which last year helped boost output to record levels in industries like computers and semiconductors, medical equipment and supplies, pharmaceuticals and medicine, and oil and natural-gas equipment.

Critics view the production of more with less as a net negative—fewer auto plant jobs mean fewer paychecks, they reason. Yet technological improvement is one of the main ingredients of economic growth. It means increasing wages and a higher standard of living for workers and consumers. Displaced workers learn new skill sets, and a new generation of workers finds its skills are put to more productive use.

Our world-class agriculture sector provides a great model for how to think about the evolution of U.S. manufacturing. The U.S. produces more agricultural output today—with only 2.6% of our work force involved in farming—than we did 100 years ago, when farming jobs represented almost 40% of the labor force. Likewise, we're able to produce twice as much manufacturing output today as in the 1970s, with about seven million fewer workers. That means yesterday's farmhands and plant workers can become today's computer engineers, medical doctors and financial managers.

When people bemoan the "decline" of US manufacturing, they're talking about the number of jobs not the output. As Perry and other have noted, the same comparisons could be made with agricultural. Were we really better off with more people in the US farming, but producing less? Of course not. The same is true with manufacturing. Would we really be better with less efficient factories that required more workers to produce fewer goods? Not a chance.