by Melvyn R. Copen
Sedona AZ (November 22, 2011) – Yes, we are still alive and kicking! There’s a lot of life still left in this Nation, but we are ill, very ill. We face many challenges, not the least of which is a dysfunctional leadership structure that doesn’t seem to understand the nature of the problems and has neither the will nor the integrity nor the common sense to address them in a constructive manner. I want to focus on one aspect – possibly the most critical of all – building positive expectations for the future by creating jobs.
Ours is a consumer based economy. More than 70% of what happens, economically, in this nation, is based on consumer attitudes towards the future. It becomes a self fulfilling prophesy. When consumers feel good, they buy, thereby creating jobs and more optimism for the future. When they do not, the reverse is true, leading us into a downward cycle.
Clearly, there are things government can do in the short run to improve the situation – and there is ample precedent. The Civilian Conservation Corps of the 1930’s was a good illustration. Today, for example, rebuilding our crumbling infrastructure (roads, bridges and the like) would be a quick way to put people to work to increase both psychological and physical confidence in the future.
But that is a temporary solution. Our real concern should be with the future and that can only be solved by rebuilding this nation’s manufacturing base.
We went through an incredible evolution within the workforce during the last century or so. We started as an agrarian nation, with most of the population engaged in some form of farming. During the early 1900’s a major shift to manufacturing began. And now we boast of being a service economy. Today, less than 2% of the workforce is engaged in farming, and less than 10% in manufacturing. But are these statistics symbols of pride and prowess, or of worry and decline? Let’s look more closely.
The shift from agriculture to manufacturing was made possible by enormous increases in productivity in farming. A good deal of this was fueled by government research efforts. Today, that small segment of our population feeds our nation and a good bit of the rest of the world – one might say all to the good. But the shift from manufacturing to services is another matter.
Like agriculture, the learning curve helped us become more proficient in manufacturing. American produced products set the world standard. Productivity increased, freeing workers to move into the service sector. But then something happened – a change driven both by the search for increased profitability and by the preferences of the American consumer.
As nations that were hard hit by the impact of WWII started to rebuild, they did so using the latest technologies while we were still wedded to investments in older methods that had served us well. Emerging nations started to develop production capabilities to mimic those that of the more industrially advanced nations. Opportunities to utilize cheap, young labor (who did not require expensive health and other benefits), fueled by tax incentives both at home and abroad, led US companies to start outsourcing and moving operations abroad. The desire of American consumers to pay less for the products they purchased made this a kind of “perfect storm.”
Initially, we took pride in the fact that we were becoming a “service economy.” The rationalization was that the brainpower would still reside here – developing new technologies, creating new products and retaining a monopoly on intellectual content while the “messy stuff” (including processes that had negative environmental consequences) went abroad.
But several things happened. First, we failed to realize that much of the intellect in this country was not home-grown. Thousands and thousands of the best and the brightest from abroad came to study and learn here. Many went into industry, many into research, and many into academia, replenishing the intellectual supply of the nation. However, as opportunities at home increase both in employment and education, that pattern is changing dramatically. Much of this change has been fueled by the decisions taken inUSboard rooms to move manufacturing abroad. And as the intellectual capabilities of these nations has increased, more and more of the service economy has followed – e.g. service (call) centers, research and engineering facilities have been outsourced in search of skilled workers who will work for less. And as Internet and other communications capabilities have increased, that trend has accelerated.
The behavior of US consumers ignores long term implications in the sense that “cheaper products” are still the mantra. Hidden in all this is the possibility that the savings coming from purchasing a foreign-made product for less may be offset by higher tax burdens (and deficits) to provide for unemployment benefits, welfare programs and the like. We need to educate Americans to realize that a healthy nation requires effort on everyone’s part – not just the government.
Where manufacturing goes, the rest of the high level activity will follow. The interplay between making something and research and technology is too intimate to allow for much separation for very long. Sadly, we are falling behind on preparing our young people in basic areas such as science and mathematics – the cornerstones for the scientific and engineering skills that have gotten us to where we are. As other nations leap forward in these areas, we will find ourselves struggling to catch up. Manufacturing creates a demand for these skills, and with an eroding base, the services we will be able to provide will likely become less and less technology oriented and more menial in nature. And as we become more dependent on other nations for “things” our very independence is likely to be threatened. (If an emergency arose, would we ever be able to mobilize again like we did for WWII?)
This is one of the biggest challenges we face as a nation – rebuilding our manufacturing base. We need government incentives and perhaps “dis-incentives” to make industry see that short term profitability is not the only path. We need to waken consumers to realize the results of their actions. Entire industries that were once the sole provenance of theUShave vanished from our shores, taking the jobs with them. And those that have been created in their place are on shaky ground. If, the switch from manufacturing to service economy had been based upon productivity (like the switch from agriculture to manufacturing) we would be in good shape. Unfortunately, boasting of a service economy has aspects of rationalizing and hiding a nation in decline. We can change things – but we have to start now, before we lose the critical mass to make it happen and before our position in the world has been indelibly claimed by others.
© Mel Copen, November 2011
Mel, you aren’t proposing a Keynesian solution, are you? Government incentives and dis-incentives??? How about the invisible hand?