Free Markets: Cheaper Goods, Greater Wealth, Better Jobs
The question arose on one of the forums regarding the future of manufacturing in the United States.
To begin to assess the answer, let us look at a chart of manufacturing throughout the world. This is not just the United States; this is Western Europe, Japan, and the whole world. As you can see, the percentage contribution of manufacturing to total economic production has declined steadily over the last 40 years. If the chart went back another 40 years, the same kind of slope would persist. This is a worldwide phenomenon. This is an irreversible phenomenon. This has accompanied the extension of world economic growth to the third world, including especially Asia.
There are people who complain about the declining share of gross domestic product that is contributed by manufacturing in the United States. This is because they are completely unfamiliar with the worldwide phenomenon. They do not understand that economic growth accompanies a declining percentage of manufacturing to a national economy.
THE HEART OF MODERN WEALTH
The heart of wealth is not manufacturing; the heart of wealth is the knowledge applied to reduce the total percentage of manufacturing in the overall economy, and to increase the wealth of the masses through services. These services may be digital. They may be personal. But they are not based on manufacturing.
My friend Bill Myers has this phrase: "Sell electrons, not atoms." It's a great phrase. Don't sell pieces of stuff; sell ideas, entertainment, efficiency, and anything that will reduce the cost of raw materials, the cost of capital, and the cost of output. Cut costs; cut prices; get rich.
This is why manufacturing will more and more be run by machines that are controlled by computer programs. This frees up mankind from the hard lifting of life.
Parents for centuries and even millennia have attempted to get their children into some guild, so that they will not have to do hard physical labor. What virtually all parents want for their children is exactly what the free market has provided around the world. Yet there are people who complain about the decline of manufacturing as a percentage of the overall economy. This decline has been one of the greatest blessings of the modern world, an answer to parents' prayers for millennia, and yet there are people who honestly believe that America is falling behind because the percentage of the American economy that is provided by manufacturing is constantly declining.
What individuals want for their children, they sometimes lament for the economy overall. Somebody who wants his children to get out of hard manual labor, and who then complains about the decline of the number of jobs for hard manual laborers, is suffering from cognitive dissonance.
All over the world, industrial nations have outsourced manufacturing to foreign nations that are poverty-stricken, and to machines and computer programs that do not care about hard lifting. The jobs are being performed better than ever by poor people in foreign countries and by robots that are becoming ever more efficient as a result of better manufacturing techniques and better computer programming.
At every stage in this process, there have been Luddites who have complained about the replacement of human labor by machines. The phrase "sabotage" comes from the French word for shoe. Laborers who were losing their jobs to machines tossed shoes into the machines, in order to break them. It was the use of coercion against business owners.
Every stage over the last 200 years in which machines have replaced human labor has been marked by an extraordinary increase of output, and also by an equally extraordinary increase in per capita wealth. Our world is completely different from the world of 1800, and the reason for this has been the displacement of workers with minimal capital by workers with a rising quantity of capital. They been replaced by workers with better tools. These tools are getting even better, and ever more workers are being displaced. They move on to new areas of service. This has been the story of the transformation of the world to a better place over the last 200 years. Why, at this late date, are people worrying about the fact that machines and computer programs are going to continue to replace workers in many fields? That is what has been going on for two centuries. Why should we expect it to stop now?
THE EXPONENTIAL ECONOMIC CURVE
What is different now is this: the growth process is becoming exponential. The question now is this: can the social arrangements that have prevailed for the last 200 years continue to prevail for the next 200 years? In other words, can the social institutions that have been forced to change on a massive scale over the last two centuries survive the transition to a completely different world over the next two centuries?
The speed of economic change is accelerating, as always happens when you are dealing with the later stages of an exponential curve. Moore's law and Metcalfe's law have combined to transform the world over the last 40 years. This shows no signs of reversal. On the contrary, it is accelerating. We are viewing the law of accelerating returns. Moore's law tells us that that the number of circuits on a chip doubles every year or -- at most -- 18 months. The heart of this is the declining cost of digital information. Metcalfe's law refers to the increasing value of information as the number of participants increases in a communications system. Think "FAX machine." Then think "Facebook."
It is not that this compound growth process is new. It has been going on for over two centuries. What is new is the arrival of exponential economic growth. The percentage rate of change may stay the same, or even decline a little, but because of the massive economic base that this rate of change now applies to, the social change necessary to keep pace with the economic change appears to be falling behind. There is no equivalent of Moore's law in the field of social relations. Traditions die hard; companies that don't keep up with technological change die quite easily.
It should be obvious by now that the institution that is going to be changed the most radically is the Western nation-state. It is bureaucratic. It is not efficient. It has made enormous economic promises to the voters that cannot possibly be fulfilled. It will suffer a massive decline in legitimacy. Yet legitimacy is the foundation of modern politics. It is the foundation of all politics throughout history. As the legitimacy of the modern nation-state declines, along with the economic performance of the nation-state, there will be new institutional arrangements that replace it. The trouble is, we do not know what these will be. The fundamental fact of social institutions is this: they cannot be designed successfully from the top down. They always arise out of the competition and exchange that prevail within the overall society. They are not developed through committees.
CONCLUSION
There is no question in my mind that manufacturing as we have known is going to be radically transformed by 3-D printing. There is no way to change this. There is no way to reverse this. This is going to accelerate. It is going to lead to massive decentralization. There is going to be an era of creativity in the field of manufacturing the likes of which we have never seen before. That will be the result of decentralization, computerization, and 3-D printing.
There is only one social arrangement that can cope with this: the free market. It relies on price signals to coordinate efforts. The profit-and-loss feedback system in a money economy is what mobilizes the best information that is available. No government committee can compete in an open market with the decentralized information that the lure of profit coaxes out of individuals.
Anyone who wants to go into manufacturing is going into a field in which skilled workers will be increasingly well paid, but they will be pressured to keep up with the pace of technology. Those who do not will be eliminated by competition.