Factories Move Abroad, as Does U.S. Power WELL WORTH READING djf

[Dave Farber <dave () farber net>]

> Factories Move Abroad, as Does U.S. Power
>
> August 17, 2003
>  By LOUIS UCHITELLE
>
>
>
>
>
>
> MANUFACTURING is slowly disappearing in the United States.
> That does not mean we should rush to preserve the remaining
> factories as historic landmarks. America will still be a
> manufacturing power in our grandchildren's lifetime, but
> that status is gradually eroding.
>
> Why does this matter? Well, the essence of a great world
> power is its edge in producing not services but
> manufactured products that other people want - Boeing's
> airliners, for example, Intel's semiconductors and
> Caterpillar's earth-moving equipment. To the extent this
> output passes to foreign manufacturers, or even to
> Americans operating abroad, we lose the means to buy what
> we, in turn, want from others.
>
> More than half of the manufactured goods that Americans buy
> are made abroad, up from 31 percent in 1987. If we continue
> on our path of ceasing to make merchandise that others want
> to buy from us, the danger is that these imports will be
> unaffordable for our descendants.
>
> For that to happen, "you have to assume that manufacturing
> will continue to disappear," said David Heuther, chief
> economist at the National Association of Manufacturers. He
> does not make that assumption himself. He contends that
> America's high-tech advantage and its ingenuity will
> sustain the nation's manufacturing base.
>
> Maybe. Right now, however, the exodus continues, at a
> stepped-up pace, government data show. The proportion of
> the work force employed in manufacturing has fallen to 11
> percent from 30 percent in the mid-1960's. Two of the 19
> percentage points disappeared in just the last 28 months.
> On another level, manufacturing's share of real gross
> domestic product - representing all the goods and services
> produced in the United States - has edged down, even
> including in the count the output of foreign manufacturers
> operating here. The share of real G.D.P. has dropped to
> between 16 and 17 percent, from 18 to 19 percent in the
> 1950's.
>
> Given manufacturing's importance in maintaining our status
> as a world power, the downward trends are alarming. The
> public, nevertheless, focuses only occasionally on the
> dismantling. It does so when lots of people are suddenly
> hurt, as they were in the early 1980's, when an onslaught
> of high-quality foreign imports coincided with a severe
> recession. The combination forced plant closings and
> layoffs on a scale not experienced since the Depression.
>
> "Rust belt" and "deindustrialization" were coined in the
> bitter debate that surrounded that frightening national
> experience. Those were the years when wage inequality
> became too persistent to ignore. Blame fell partly on the
> destruction of factory jobs, and the relatively high wages
> earned by those workers.
>
> Two decades later, the shrinking manufacturing sector is
> again a source of public agitation, this time because so
> many American manufacturers are decamping to China and
> India, where they employ increasingly skilled but
> inexpensive workers to make merchandise that is then
> shipped back to the United States, swelling imports and
> subtracting jobs at home.
>
> What's to be done? Many economists bank on the marketplace
> for a solution. They note that the growing volume of
> imported merchandise would not be possible without loans
> from abroad to buy these goods. As this debt balloons,
> foreigners will lose confidence in the United States as a
> place to put their money, these economists reason. As
> foreigners retreat, their demand for dollars to lend to
> America will drop off, and so will the dollar's value.
>
>
> HAT will make imported manufactured goods prohibitively
> expensive, while merchandise exported from the United
> States will fall in price, when sold in yen or euros.
> Responding to this price incentive, manufacturers will
> rebuild in America, says George A. Akerlof, a Nobel
> laureate who is an economist at the University of
> California at Berkeley. "Manufacturing has to come back,"
> he said. No other sector is likely to be as responsive to
> dollar devaluation.
>
> For Mr. Akerlof, retooling is the easy part. Other experts
> disagree. Too many products are no longer manufactured
> here, they argue, and the skill to make them has
> disappeared. Resurrecting that skill is difficult. Dollar
> devaluation does not easily overcome that barrier. Nor does
> it easily woo back American companies that have invested
> huge sums in large, modern facilities abroad. Getting them
> to abandon those facilities and rebuild in the United
> States might require an outsized 60 percent devaluation of
> the dollar as an incentive, says Daniel Luria, an economist
> at the Michigan Manufacturing Technology Center in
> Plymouth.
>
> The fallout would be painful. The Nissan Maxima, made in
> Japan, that I bought in 2000 for $25,000 would cost at
> least $40,000 to replace. That's over my head.
>
>
> http://www.nytimes.com/2003/08/17/business/yourmoney/17VIEW.html?ex=1062158831&ei=1&en=8c8053f86b14c6bb

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