What Manufacturing Renaissance?

January 12, 2012 | Devon Swezey,

In a Wall Street Journal column, David Wessel provides a good reality check to reporters and analysts that believe manufacturing is on the up and up in America. In the past two years, Wessel notes, manufacturing has added 334,000 jobs, a positive sign. But that growth pales in comparison to the massive loss of manufacturing jobs over the last decade:
 

Manufacturing is up lately in part because it was pushed down so far during the recession. That 334,000 increase in factory payrolls follows a decline of 2.3 million in the two years before that. Only two million jobs to go before manufacturing employs as many as it did four years ago.


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In the past 10 years, in fact, manufacturing lost 5.5 million jobs. As the Information Technology and Innovation Foundation's Rob Atkinson notes at the Innovation Policy Blog, the loss of manufacturing jobs in this recession, at 15 percent of all manufacturing jobs, was the largest ever, so it makes sense that those jobs would rebound somewhat.

Wessel also makes the important point that in an era of steadily advancing automation and technological sophistication, manufacturing may never generate the same amount of jobs on the factory floor as it did in prior decades, certainly not as a percentage of GDP. But that doesn't mean that manufacturing is less important to the U.S. economy. Indeed, as we wrote in "Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy," even as manufacturing's share of employment and GDP has declined, manufacturing has become even more important to sustaining America prosperity.

This is because manufacturing is the most capital-intensive and productive sector of the economy, and is key to developing and commercializing new technologies. As Wessel writes, "Research and development--the key to maintaining the U.S. edge in innovation--sometimes migrate abroad when production does, a good reason to strive to keep production at home." Manufacturing also has the largest employment and output multipliers of any sector of the economy, creating many indirect jobs and making it a key catalyst of broad economic growth. Lastly, a healthy manufacturing sector is central to the United States' ability to reduce its large and persistent trade deficit. And as Atkinson notes, our massive trade deficit in goods production has increased since the end of the recession.

For these reasons, its imperative that the United States embark on a proactive effort to strengthen the international competitiveness of its manufacturing sector, in particular by helping manufactures adopt new productivity-enhancing process technologies. As ITIF has documented, other nations such as Germany and Japan invest much more in manufacturing technology acceleration programs to boost productivity. For more information on what kinds of policies are needed to improve U.S. advanced manufacturing competitiveness see this "Charter for Revitalizing American Manufacturing," created by leading innovation and manufacturing experts.