• Strategy
  • The Economist

The Misery of Manufacturing

Why there is a new panic over manufacturing in the rich world.

Rich-country manufacturing has supposedly been in decline for so long that it is surprising that the politicians, unions and journalists who leap so nobly to its defence find much left to save. But they do: after years of silence on this hoariest of economic fallacies — that manufacturing is something special — the alarm bells are now ringing louder than ever. American politicians are rushing to aid the manufacturing lobby. In Britain the rebranded engineering workers union, Amicus, is raising the issue to embarrass the government at the Labour Party conference next week; it is asking for a minister for manufacturing and loads of government help.

Politicians love manufacturing because it provides lots of visible, reasonably well-paid jobs. That is why American states fight each other with subsidies to land each new Japanese car-assembly plant, and central European countries do the same, knowing that no new car factories will be built in western Europe.

In Japan, politicians decry the “hollowing out” of Japanese manufacturing, as large-firm production seems to flee offshore. In Europe, the French are normally stoutest in defence of their national champions. But Germany is newly fierce; its chancellor, Gerhard Schröder, has picked a fight with the European Commission, denouncing its “anti-industrial bias” as it seeks to stop subsidised state loans and other favours for German industry.

Maybe this onslaught on the commission explains why its president, Romano Prodi, wrote plaintively in Le Monde this week of the “deindustrialisation of Europe”. But at least another Italian economist, the competition commissioner Mario Monti, is questioning yet another French bail-out, this time of an engineering giant, Alstom, where around 100,000 French jobs are at risk.

Made (Too Much of) in America

But the clamour is loudest in America. In the 1980s, the enemy was Japan: now it is China. “Walk around Wal-Mart,” says Jack Smith, until this spring chairman of General Motors, “and it looks as if everything is made in China.” This week, America’s National Association of Manufacturers (NAM) resolved to press Congress to sanction China for “manipulating” its currency markets (ie, keeping its exchange rate low).

Protectionist bills may begin to proliferate in Washington, D.C. John Snow, the treasury secretary, jawbones the Chinese about the yuan. George Bush has a raft of initiatives to keep manufacturers afloat, including a new office at the Commerce Department to monitor unfair trade, and an assistant secretary to co-ordinate manufacturing policies. The anti-Japan campaign in the 1980s wreaked havoc on international trade relations and currency markets. What will happen in the China row?

One minor obstacle, then as now, is the awkwardness of facts. Manufacturing has only recently, and with unusual lethargy, emerged from a global recession. (From a peak in June 2000 to a trough in December 2001, manufacturing output shrank by 7.6 percent in America.) But, on a longer view, rich-world manufacturing is in terrific shape (see chart). Amicus may have a point that Britain under-performs its peers in manufacturing. But that is only because Britain’s competitors — particularly America — have done so well. Since 1970, America’s manufacturing output has more than doubled. Even after the recession, American manufacturing output is almost 50 percent higher than in 1992.

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