Manufacturing and America's Wealth
What is the greatest single indicator of increasing national wealth in a middle-class society?
The answer to this is not intuitive. In fact, it is counter-intuitive.
The greatest single indicator of increasing per capita wealth in a middle-class society is the decline in the percentage of people employed in manufacturing. The fewer people who are employed in manufacturing, the greater is national per capita wealth.
In the United States today, only about 12% of America's GDP is involved in manufacturing. Put differently, 88% of the GDP of this country's output is not involved in manufacturing. This is not something new. This has been going on since about 1953.
We have seen an extraordinary increase in per capita wealth in the United States since 1953. That was the first year of the Eisenhower administration. Anyone who would say that manufacturing has been the basis of America's wealth since 1953 needs to deal with the reality of the declining percentage of manufacturing in the American economy. There is no cogent way to argue that America's wealth is dependent upon the manufacturing sector. On the contrary, the proper way to argue is that America's wealth has been tied to a decrease in the importance of manufacturing.
The reason why Asia has had a huge increase in manufacturing is simple: China abandoned communism as an economic mode of production in 1979. As the Chinese economy has moved out of communism and into mercantilism, it has grown more wealthy. That is because communism was the worst economic system ever invented. Keynesianism and mercantilism are vastly more productive than communism. So, there has been a move out of agriculture and into manufacturing. China has reproduced what took place in the West in the 19th century. It has done so in approximately 35 years.
China's increase in per capita wealth has been based on the adoption of manufacturing and the abandonment of collective agriculture. For China, manufacturing has been a tremendous factor in the increase in per capita wealth. But that is because China began with collective agriculture. China was kept in poverty from 1948, when the Communists took over, until around 1980. It was mired in traditional agriculture, which was made even worse because the Communists collectivized the old family plots.
So, as the West has substituted services for manufacturing, Asia has substituted manufacturing for low-output agriculture. The transfer of manufacturing from Western Europe, the United States, Australia, and New Zealand to China has been part of the process of the international division of labor. Greater freedom of trade and greater mobility of capital have combined to create increasing per capita wealth around the world. The transfer of manufacturing to the Third World was inherent in this process of the increased division of labor internationally.
There are still people in the United States who do not understand this process. They do not favor international trade. They favor tariffs and import quotas. In other words, they favor the government sending out agents with badges and guns, and sticking guns in the bellies of Americans who want to trade with foreigners. They think the basis of wealth is a government agent with a gun, and the barrel of the gun pointed at the belly of an American resident. They believe in coercion. They love the state. They love sales taxes on imported goods. They are mercantilists. They suffer from the same economic ignorance that drives central bankers. They have never accepted Adam Smith's analysis of mercantilism. They are still stuck mentally in the early 18th century. They think big government is the solution to poverty.
I get tired of the high-tariff, gun-in-my-belly advocates. These people always are in favor of manufacturing rather than services. They want to use state coercion to keep the manufacturing sector expanding in the United States. In other words, they do not believe in liberty. They do not believe in free exchange across borders. They believe in coercion as the basis of wealth. As tariffs have fallen, international trade has increased. The manufacturing sector has decreased as a percentage of America's GDP. They wail in despair at the fact that the manufacturing sector has declined. They are basically labor union promoters. The labor unions maximized their percentage in the American workforce at exactly the time that manufacturing peaked: in the early 1950's. Ever since then, the percentage of union members in the American work force has declined.
Anybody who likes freedom should rejoice when there is greater mobility of capital and greater international trade. Both of these phenomena move manufacturing to backward nations that live in abject poverty. People without much education can be trained to be productive in the manufacturing sectors. Their increased productivity raises their nations' per capita wealth. Their increased productivity also lowers the cost of manufactured goods, which is good for people who live in developed nations. They can buy more goods at lower prices. But this of course makes it more difficult for the manufacturing sectors in their own countries. These sectors have to become more efficient, which means they have to innovate production techniques.
One of the reasons why the robotics revolution is going to be a benefit for Americans is the fact that there are not that many Americans who are employed in manufacturing. Robotics is mainly a threat in manufacturing, although not entirely. The percentage of Americans threatened by robotics is a lot less than the percentage of Chinese urban workers who are threatened by robotics.
Moore's law, announced in 1965 by Gordon Moore, says that the density of computer chips will double every 18 months to two years. It was an observation, but it has proven true ever since 1965. This law operates relentlessly to reduce the costs of manufacturing. It does so by making low-output workers unemployable in manufacturing. We can be certain that the percentage of the American workforce that is involved in manufacturing is going to decline over the next 20 or 30 years. The robots are going to steadily replace floor workers. The robots do the work cheaper and more efficiently. The people who are freed up will have to learn new skills. They will move into the service industries. This will be a sign of increasing per capita wealth. There is always a need for more people to help us get done those things that we want to get done. It is more difficult to mechanize services than it is to mechanize manufacturing processes.
I hope that members of this website understand this process. It is an easy thing to understand, but the general public probably doesn't understand it. The general public still thinks that manufacturing is the way to wealth. It is in a Third World nation. It is not in the United States.