If the polls are any guide, Donald Trump should romp home in tomorrow’s New York State primary. Besides a home-state advantage, he will have key economic issues working for him. The fact is that in few regions of the United States does his case against the decline of American manufacturing resonate so powerfully.
As the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Boston: Houghton Mifflin, 1999), I have often wondered how long it would take for the manufacturing issue to catch fire. It finally seems to have done so — and certainly few thoughtful residents of upstate New York are any longer prepared to hold their peace as mainstream GOP bigwigs implicitly or explicitly suggest that “manufacturing doesn’t matter anymore.”
As America’s most advanced overseas competitors know to their great advantage, complacency about the death pangs of US manufacturing has been at the root of the U.S. economic malaise that so many American voters are now beginning to wise up to.
The American establishment seems unaware that three key points can be made for manufacturing:
1. It creates jobs for everyone, from top managers down to the least educated shop-floor workers. By contrast the new “information age” that the American policymaking establishment has bet the house on has been creating jobs mainly for a narrow-gauge intellectual elite.
2. Manufacturing — at least leading-edge manufacturing of the sort that America used to specialize in — creates the potential for high wages. This is because it is not only generally extremely capital-intensive but extremely knowhow-intensive, in the sense that workers benefit from highly efficient, often secret, production systems carefully evolved over years or even decades of learning-by-doing by top production engineers.
3. Leading-edge manufacturers are disproportionately strong exporters. The reason is that manufactured products, particularly high-end items such as producers’ goods, generally need little adaptation to sell around the world and cannot be easily reverse-engineered by foreign rivals. By contrast, information-age companies such as those of the American software industry create products that have to be extensively adapted to sell in foreign markets and are often copied by foreign rivals. The adaptation is generally done in the overseas markets concerned and counts as a large deduction from the export revenues flowing back to the United States. Japan’s emphasis on manufacturing helps to explain why, even with a declining workforce (due to a population reduction programme initiated by Eugenic Protection Act of 1948), it continues to earn healthy current account surpluses even as the United States has become inured to current account deficits reaching as high as $500 billion a year or more.
Why has it taken Americans so long to wake up to the continuing importance of manufacturing? A key illusion, constantly propagated in the press, is that latter-day manufacturing consists merely of the assembly of consumer products. Such manufacturing is, of course, self-evidently labor-intensive and has rightly migrated to the Second and Third Worlds. But it is only the final stage of manufacturing and many of the earlier stages are vastly more sophisticated.
Consider the sort of products Japan specializes in these days. Here are some examples:
Laser diodes. These are the crucial drivers of optical fiber communication and Sony is the world’s leading supplier.
Semiconductor grade silicon. If you think that silicon chips are merely made of sand, you are a little behind the times. Each new generation of chip requires a higher degree of chemical purity in the silicon. Things have developed to the point where even infinitesimally small impurities can sabotage a chip’s workings. Japanese companies, led by Shin-Etsu Chemical, enjoy a world monopoly on state-of-the-art semiconductor silicon.
LCD steppers. LCDs are the most important components in iPhones and similar devices. But how do you make an LCD? Answer: you need super-precise machines known as steppers, which create each screen’s highly miniaturized circuitry. The Japanese optics industry monopolizes the manufacture of such machines.
Back to Trump. Although the press has rarely given him much air time to make his case, the manufacturing theme is clearly one of his biggest winners — not only as an immediate vote-getter but as a fundamental contribution to the contemporary history of the United States.