Decline of U.S. Manufacturing—Posner

 The only secure ground for the government’s subsidizing a producer is that the goods or services that he sells are likely to confer external benefits, which is to say benefits that, because they are not paid for by the buyers, do not contribute to covering the producer’s costs. The total social benefits, private as well as public, that his production creates may exceed his costs, but he will not produce if the private benefits (the payment he receives from customers) do not cover those costs. 

Some manufactured products, vaccines for example, confer external benefits: when most of the population is vaccinated against some disease, the risk to the rest of the population may be so slight that they stop buying the vaccine: they are benefiting from it but not paying for it. Another example is intellectual property that, in the absence of patent or copyright protection, could easily be copied: the original producer of the intellectual property would be conferring benefits on the copiers for which he would not be paid. 

External benefits are actually rather pervasive in manufacturing as in other sectors of the economy. For example, consumers who value a product much more than its market value derive an external benefit, because (by definition) the manufacturer does not capture this “consumer surplus [value].” But there is no reason to think that manufacturing confers greater external benefits than other sectors. 

There is a general anxiety about becoming dependent on foreign nations for products that are vital to our nation. That is a legitimate concern when one is talking about products that are essential for national security or economic welfare, such as military aircraft; and obviously our military production is heavily and justifiably paid for largely by the government, although some is paid for by foreign buyers. The foreign “products” that might be thought essential to our security and welfare are not manufactured goods at all, but commodities such as oil and rare earth metals. The United States is still the world’s largest manufacturing country, accounting for a fifth of total world industrial output. 

Becker points to the analogy of agriculture. Employment in agriculture has plummeted, leading to anxieties spurred by agricultural companies about the decline of the “family farm” and the loss of the imagined virtues of the independent farmer, to combat which agriculture continues to be heavily subsidized. The subsidies are widely recognized to be a pure social waste, and the same would be true of subsidizing manufacturing. Like manufacturing, American agriculture is thriving with its historically small labor force. 

The decline in agricultural employment is a product of technological advance, and likewise the decline in manufacturing employment. Subsidizing manufacturing will no more increase employment in manufacturing than subsidizing agriculture has prevented the precipitous decline of agricultural employment, for a manufacturing subsidy will be used to speed the automation of manufacturing tasks and so accelerate the decline of manufacturing employment--unless the subsidy is conditioned on increased employment, which would would mean diverting workers from more to less productive work. We would not be better off if 40 percent of the labor force were in farming rather than 2.5 percent, or if 28 percent of the labor force were in manufacturing rather than 9 percent. 

Some concern has been expressed that we need to boost manufacturing in order to reduce our trade imbalance, because many manufactured goods are exported. But a recent article in the New York Times (April 10) points out that the United States is the world’s largest exporter of services—and would be larger still if we took steps, such as loosening visa restrictions that impede international provisions of services and making the same efforts to pry open foreign markets to American services as we do to pry open foreign markets to American goods. 

The politicians know all these things. The push to promote manufacturing is political in origin and may (one hopes will) be abandoned after the election. Its political appeal is related partly to the fact that unions still have a foothold in manufacturing, and partly to the fact that America’s prowess in manufacturing (think of the vast output of munitions in World War II) is associated in the public mind with the epoch of greatest American world power. 

I have no objection to efforts to negotiate with foreign countries trade agreements that facilitate U.S. exports (they also of course facilitate imports—and that’s fine too). Such efforts are the centerpiece of the Administration’s program of stimulating employment in manufacturing. But the efforts should be extended to services. I can think of no rational basis for putting manufacturing ahead of services.

Comments

[TANSTAAFL]

Well reasoned post by Posner. To a great degree America's comparative advantage no longer lies in manufacturing.

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[Christopher Graves]

I do agree that the external benefits to manufacturing are not great enough to justify governmental subsidy. In fact, the factory system itself is inherently dehumanizing even though great improvement in the working conditions of manufacturing employees has been made. Even if the dangers of the working environment in factories have been alleviated to a considerable degree, the social environment still remains what it always has been--a threat to the individual and to civility. I would extend this observation to all forms of the factory system including offices, hospitals, and educational institutions.

The social critiques of the factory system ranging from those of Jefferson and the Southern Agrarians to Dickens to Marx should elicit a consensus to encourage movement away from all forms of the factory system. We can acknowledge the factory as a necessary evil in times past that fostered an increase in the level of wealth in a society as we thankfully move to more humane forms of business and social organization.

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[Howard Knopf]

The Supreme Court has just granted cert in a case that could influence the choice of where many goods are manufactured.

See:
Kirtsaeng v. John Wiley & Sons, Inc. (Granted )
http://www.scotusblog.com/case-files/cases/kirtsaeng-v-john-wiley-sons-inc/
Docket: 11-697
“Issue(s): How do Section 602(a)(1) of the Copyright Act, which prohibits the importation of a work without the authority of the copyright’s owner, and Section 109(a) of the Copyright Act, which allows the owner of a copy “lawfully made under this title” to sell or otherwise dispose of the copy without the copyright owner’s permission, apply to a copy that was made and legally acquired abroad and then imported into the United States?”

Many believe that if the Court takes a too strongly “maximalist” copyright owner view that allows blocking importation of goods manufactured abroad simply because some aspect of the product (perhaps even a minor, incidental aspect of the packaging) is protected by copyright, a lot of IP owners may choose to manufacture abroad so as to be able to block parallel imports into the USA and greatly enhance their ability to price discriminate. This is something that they have effectively been denied under trademark law and runs counter to the basic purpose of free trade.

Parallel imports are, by definition, the “genuine” article – they are not counterfeit. The issue is that they are being imported other than via the so-called “exclusive” or “authorized” channel of trade.

Hopefully, we'll get the right result and clarity that were not given when the Court split 4-4 in the Costco case in 2010.

[West Virginia Vacation]

I completely agree that unlike the agricultural sector, cashing in manufacturing is more likely to decrease the unemployment. This is mostly because of the irreversable process of automation and invasion of machines that seem to more tangibly replace the human workforce for two main reasons their high level of productivity and efficiency.

[Terry Bennett]

In 1904 the poet Carl Sandburg wrote, "Down in southern New Jersey they make glass. By day and by night, the fires burn on in Millville." My mother worked there for decades, and got me a job during college.

Christopher - it was strenuous work, but hardly "dehumanizing". In fact, it was rewarding to produce something, e.g., soda and beer bottles from which perhaps any of you eventually drank. There was an esprit de corps. I watched one of the furnaces a few years ago when the wrecking ball came. Many of the career men cried, a thoroughly human reaction. No doubt there is a personality type that finds authority and regimentation vexing, and I'm a fairly free spirit myself, but most people who live through military service acknowledge in the end that it was a worthwhile learning experience. I think we should not be so quick to condemn uniformity, or the people who use it to accomplish things. If one can be economically self-sufficient without intrusion upon one's individuality for even a minute, go thy way in peace. However, most people benefit by interaction with others, even if it is standardized, and we are hardly less human for it.

[Christopher Graves]

Thanks for your response, Terry. I found your very different take on the collectivism and regimentation inherent in the factory system to be very interesting and stimulating. We apparently have a fundamentally different intuitive visceral reaction to the same social phenomenon.

[NEH]

Chris, "Collectivism and Regimentation inherent in the factory system"? I guess you're not familiar with Engineering, Quality control, Production Process's and the fundamentals of Industrial Engineering and other various requirements to produce a product by adding value to raw materials or conversion of Intermediates to finished products. It also sounds as if you never worked in an Industrial setting or in a truly productive enterprise.

To put it simply, without specialization, organization, discipline and work nothing gets done. This applies equally well outside of the "Industrial Complex" in any Enterprise... ;)

[Social Security Lawyer]

Posner makes an interesting argument, particularly when stating that manufacturing deserves no more preferential treatment that the service industries. Perhaps he would agree that simplifying regulations for both would be in our interest.

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Chris, "Collectivism and Regimentation inherent in the factory system"? I guess you're not familiar with Engineering, Quality control, Production Process's and the fundamentals of Industrial Engineering and other various requirements to produce a product by adding value to raw materials or conversion of Intermediates to finished products.

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[Christopher Graves]

Well, NEH, as I said in my initial post on this topic, I am not focused here on issues of economic efficiency but on the psychological and social effects of the factory system.

As I touched on above, I am concerned about the social and economic pressures that lead to mindless conformity that are continually present in the factory system. The individual is reduced to a cog in a machine as he performs his work without creative engagement with the materials presented to him by nature. Historian Walter Russell Mead describes this problem in the following way:

"By some accounts, too, the quarter century after World War II was a period of stultifying cultural conformity. In this prologue to the end of History, some “last men”, from the Beatniks to Lennie Bruce to Andy Warhol to Lou Reed, were already bored, resenting the pressure to conform that the mass consumption, Fordist era entailed....Fordism was once a term of abuse hurled at the factory system by Marxist critics who, rightly, deplored the alienation and anomie that mass production for mass consumption entailed. Has the Fordist factory system and the big box consumerism that goes with it now become our ideal, the highest form of social life our minds can conceive? Social critics also denounced our school system, justifiably, as a mediocre, conformity inducing, alienating, time wasting system that trained kids to sit still, follow directions and move with the herd. The blue model built big-box schools where the children of factory workers could get the standardized social and intellectual training necessary to enable most of them to graduate into the big-box Ford plant and shop in the big-box store. Maybe that was a huge social advance at one time, but is that something to aspire to or be proud of today? Don’t we want to teach our children to do something smarter than move in large groups by the clock and the bell, follow directions and always color between the lines?" (*The American Interest,* From the March/April 2012 issue)

Conservative commentator Robert Nisbet offered social criticisms along these lines back in the 1950's. His concern was that our social and economic structures were producing what he termed "mass men." What he meant by a mass man was a type of social atomism where people are dislodged from family, community, church, region by mass culture and mass production so that individuals lost their social moorings. This result led, in Nisbet's analysis, to people being more vulnerable to mass political appeals that produced totalitarian and authoritarian regimes. Martin Heidegger and his leftist disciple, Herbert Marcuse, offered similar criticisms of mass production and mass culture.

John Dewey in his insightful book, *Art As Experience,* observed that for life to be lived to the fullest, one must experience life in its fullest contextual form. Time, for example, must be lived as more than a succession of moments on a clock. The natural rhythms build and release energy as people interact with their surroundings. Each moment within a particular context is meaningful as lived within the flow of events just as a musical note is meaningful only within the broader context of a concert. The same can be said of space. As Dewey noticed, space is more than a void for objects to be positioned that simply either appeal to our appetites or pose dangers. Space rather is a scene in which people are immersed within as they move and actively engage other people and nature. The problem with the factory system and mass production is that it de-contextualizes time and space so that everything and every moment becomes an interchangeable part that can be replaced with no noticeable difference. Nothing is sacred. Nothing and no one is special. Everything becomes one-dimensional and flat in every sense of the word.

Finally, people who work in factories tend to be hard-nosed and machine-like, and I believe the factory system inculcates these tendencies in those people. The first word or the second or third and on down the line that comes to my mind in describing factory workers is decidedly not 'genteel' or 'refined' or 'sympathetic'. Adam Smith who systematically described and defended the economic advantages of the factory worried about the dehumanizing and narrowing tendencies of factory work.

I do not see any real question about the dangers of the factory. I do see many social advantages of family farming that are well-documented. It is tragic that the economic developments of the past two centuries have made family farming, for the most part, obsolete.

[Terry Bennett]

Seems we have morphed the topic, from the machinery of economics to the machinery of the cranium.

If one observes the animal kingdom, a common trait is evident: most species spend large amounts of time doing relatively nothing, which is itself a repetitive endeavor. They hunt and eat the same food every day. Going to the beach every day is also repetitive. Buddha sat motionless under a tree for seven years, meditating. One of my friends, an executive, opts to drive to many meetings to which he could fly. He says he needs "windshield time" to let his subconscious sort things out. Mindless tasks do not necessarily require or imply a mindless existence.

Clearly, the thought of a presumptively boring day of cut and dried labor is unappealing to many people, and more likely it is unappealing to people at certain points in their development. Jefferson, Marx, and the other gentlemen mentioned were not famed for their personal discipline. I don't think we should trash the whole system just because certain people aren't comfortable with it. The farthest I will go is to acknowledge that some people are unhappy in such an environment; it clashes with their current outlook. In an age when people are only enslaved by their own choices, those who just can't stomach the thought of being the same as everyone else or living one day very much like the day before and the day after are free to seek alternative experiences and live differently, as long as they can pay for it.

Family farms are in fact still viable; they just aren't economically optimal. You can still work a farm and feed yourself and sell enough to get currency to pay your taxes. The reason fewer people do it is that larger, more organized farms are more productive - economies of scale and such. If you want to forego the additional available profit and live simply and self-sufficiently, you can do that. When talk turns to action, most people decide to put up with a certain amount of tedium and make more money.

[NEH]

Chris, Ok! The "Factory System" is evil and dehumanizes. What's left? The mindlessness and physically exhausting reality of "Subsistence Farming" or trying to run down the day's meal as a "Huntergatherer" with the possiblity of becoming a meal yourself?

I'll take the evil, dehumanizing, "Factory System" any day. At least I can stop at the Market on the way home from work for dinner and then entertain myself when I get home (with all it's modern convienences) with the plethora of entertainment media now available... ;)

[Christopher Graves]

As I said in my first post, NEH, I see the factory system as a necessary evil. If we can move away from it, I think we should do so. I see many social advantages to an agrarian economy, but it is just not economically viable unfortunately.

[NEH]

Chris, As for the "Social Advantages" of an Agrarian Economy, having lived on and worked on a farm I didn't see many "Social Advantges". It was pretty much a case of hard work round the clock, 24-7 from Dawn to Dusk. And any down time, like in the winter, was consumed by maintaining the equipment, so when the weather broke you could get the next crop in. "Social Advantages"? Really?! And as for the livestock, most of it mean, vicious and obnoxious, just waiting to stomp you into the ground or take a huge bite out of you (horses are great at this) or better yet, trying to kick in your head or ribs and break them (btw, don't get stuck in the stall with anything while mucking it out (ahh... livestock perfume!))...

I always find it quite amusing that those who have never spent time on a working farm or ranch are those who are most enamoured with the "Aesthetics and Romance" of Agrarian Societies... ;)

[Terry Bennett]

Are we talking about desocializing or dehumanizing? I'm self-employed, and at this point in my life I'm a classic anhedonic-analgesic: indifferent to pain, indifferent to pleasure. All day long, it's a stream of new experiences as new people come to me on the worst days of their lives, for divorce, injury, bankruptcy, foreclosure, and the rest of the lawyer's bailiwick. Ah, for the predictability of my former work in software engineering...

Even in Victorian times, as hoards left the farms and poured into the city to seek their fortunes, nobody was holding a gun to their heads. They could have gone back home. They chose the rigors and rewards of the factory over the rigors and rewards of the farm, and almost all of them had experienced both and were thus making an informed decision. Before Dickens painted the human toll, Malthus had already figured out that the lines of those farm boys who came hoping for the glories of the city tended to die out within a generation or two and the life of the city was dependent on a new influx. (Manhattan cocktail pianist Bobby Short, everyone's definition of big city elegance, was from the rural IN-IL border - and died childless.)

Christopher, first I would recommend you not enlist. If you feel held back by the environment, there's nothing wrong with seeking a new environment. At the very least, you can test the hypothesis that the environment is the cause. Perhaps you have already done this. Different people have different preferences. No one circumstance is right for everybody. Some people are happier when provided with structure, and others prefer to be their own captain. Most people do well with some measure of both. As Aquinas so wisely counseled, "Everything except beer in moderation..." I wish you and everyone else the best as we each seek the right fit at our respective coordinates of space, time, and lifespan.

[Christopher Graves]

NEH, work in the past was much more toilsome than in the present whether on the farm or in the factory. The question is which way of life flowing from the respective economic structures is most suited to human flourishing. States with a higher percentage of family farms and with more rooted populations have fewer social pathologies such as divorce, violent and property crime, than do states with greater levels of manufacturing and urbanization just as Jefferson observed in his time. In rural areas and small towns where family farming declines, social pathologies such as drug and alcohol abuse increase. Family farming tends to cultivate conservative social attitudes in people. Numerous studies find that people who hold and act on these principles are more likely to be happy. I can supply sources on each of these claims if asked.

Terry, I think you raise a number of interesting and well-taken points. I do not disagree that people need order in their lives in along with a certain degree of personal freedom. I do not disagree that people with different temperaments have different needs in reaching a balance between the Dionysian and Apollonian elements in their make-up. I am questioning whether these goals are most effectively and humanely pursued in a system that is so alienating from the natural social and physical surroundings that people are immersed within. I am also concerned about the dissonant, de-personalized social milieu that results from the inorganic ordering processes that the factory system is based upon. I am also concerned about the inherent collectivization of the working life of people that tends to lead to political collectivization.

I do not see the military in the same light as the factory system. One significant difference is the sobering effect of the immanent prospect of death that drives people to God and to mutual dependence in camaraderie that, in turn, fosters a heart-felt appreciation of principles of traditional religion and morality that I touched on above. Another is the chivalric code of conduct that blunts the coarseness that can emerge as men live together in the harshest of circumstances. Yet another is the limited effect of the military in a person's life and in the life of the greater culture. Most men in the military do not spend all or even most of their working lives in service. Most communities are not entirely organized around the military and those few that are for the most part do not subject their residents to the direct command of military officers. Finally, people in the military are not as divorced from the natural tempos of their surroundings as in a factory.

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According to huffingtonpost, manufacturing jobs contracted by 33.1 percent compared to the Great Depression of the 1930s's 30.9 percent.

[James @ austin-car-accident-lawyer.com]

Manufacturing should be concentrated on because it provides local employment and thus helps lower unemployment rate. Plus, we wouldn't like our country to depend on imports when we can produce our own.