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What Scotland's Insurrection Can Tell Us About America's Worst Economic Mistake
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Even in these days of light-speed communication, some information still travels as slowly as in the medieval era.

Take, for instance, the recent history of global manufacturing. In the Anglophone world, many if not most of the more prominent commentators have long held that a first-rank economy no longer needs manufacturing. The Economist magazine in particular has been vociferous in arguing that advanced nations are moving towards postindustrialism. At times some London-based commentators have been so besotted with postindustrialism that they seemed to cheer every British factory closure.

Outside the Anglophone world, however, postindustrialism has always been recognized for the nonsense it is. As anyone who takes a close look discovers, advanced manufacturing scores over advanced services not only in providing a wider range of jobs, but delivering higher wages (weighted for each worker’s innate capabilities) and more exports. (We’ll have more to say about the comparison later.) Across Germany, Austria, Scandinavia, Switzerland, not to mention East Asia, government officials and industrialists rushed to step into the breach. Grabbing market share from the retreating Anglophones, they could not believe their luck. They rarely highlighted their expansion plans, however, let alone overtly challenged the postindustrial theory. They knew that the less attention they drew to themselves, the richer their pickings would be. To speed their rise in manufacturing, nations like Japan and Germany kept their currencies super-low and practiced widespread mercantilism, all the while facing virtually no pressure from benighted Anglophone policymakers, who had bought in postindustrialism.

On the other side of the argument, no nation has suffered more from the postindustrial illusion than Scotland. This helps explain the militant mindset of Scottish voters as they prepare to vote in next Thursday’s British general election. They have finally woken up and, if the opinion polls are to be believed, the insurgent Scottish National Party will enjoy close to a clean sweep. It will thereby gravely weaken the Labor party which had previously dominated Scottish politics for more than a century. Almost as much as the Conservative party, the Labor party has now come — finally — to be blamed for Scotland’s industrial implosion.

It is difficult to exaggerate how hard Scotland has fallen. In the early years after World War II few nations boasted such a strong economic base. Then a half-baked intellectual fashion among London-based commentators decreed that manufacturing could and indeed should be jettisoned. Almost the first to go was the Glasgow shipbuilding industry, which in the early 1950s had built nearly one-third of the world’s ships. The John Brown company alone had been one of the ultimate showcases of British industrial achievement. Although the company’s once glorious name is now almost forgotten, its products are not. They included the Lusitania, HMS Repulse, the Queen Mary, the Queen Elizabeth, and the QE2. Other key Scottish industries were also soon consigned to the junkyard, most notably rail locomotives, machine tools, and textiles. (If you think that rail locomotives are old hat click here for a view of Japan’s latest 370-mile-an-hour version. The manufacture of machine tools and textiles is in many cases similarly leading edge e.g. the so-called steppers needed to make LCD screens and the carbon fiber used in the superlight, superstrong wings of Boeing’s revolutionary 787. Japan leads the world in both categories.)

The most obvious evidence that the elite postindustrial consensus is nonsense is in the remarkable relative economic success of manufacturing-based economies. Although Scottish voters know little about the East Asian nations that have benefited most from the sacrifice of Scotland’s manufacturing base (because of the Anglophone media’s pattern of omitting and distorting facts), they know a little about nations like Finland and Sweden which boast per-capita incomes way above Scottish levels, yet somehow have managed to maintain and indeed increase their market share in industries such as shipbuilding.

Why is manufacturing such a great industry? A book could be written on it – and indeed has. My book, In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Boston: Houghton Mifflin, 1999) laid out the case in detail – and much of what it said about postindustrialism was immediately vindicated with the implosion of the dot.com bubble in the spring of 2000.

One point is worth summarizing here: postindustrial advocates make a fundamental mistake in assuming that manufacturing is labor-intensive (the stereotype often implied in their arguments is a sweatshop where workers work in slave labor conditions manually slotting together consumer products). In reality it is postindustrial services that are labor-intensive. In central and northern Europe as well as Japan and Korea, manufacturing is far removed from the sweatshop stereotype. Modern advanced manufacturing is often very capital-intensive, sometimes with as much as $1 million backing each manufacturing worker. This powerfully boosts each worker’s productivity, enabling employers to pay many times sweated wage rates and still make a handsome profit. (Typically indeed the advantage of operating in an efficiently run First World nation is enough in itself to offset the higher wage bill.)

Advanced manufacturing industries score another advantage in that are knowhow-intensive. The knowhow is often accumulated over years or even decades and typically is known only to a few top engineers who control the settings on vastly expensive production machinery. Even if an industrial spy can gain admission to the factory floor, he or she generally cannot steal such knowhow. By contrast knowhow in postindustrial services is readily available at minimal cost – hence, for instance, the rise of India and Russia in the computer software business, with negative implications for many software engineers in the West.

While few Scottish voters can probably articulate a clear case against the postindustrial consensus, they sense in their bones that the sacrifice of their industrial base was not only misconceived but was one of the greatest tragedies in their nation’s history. They are right.

(Reprinted from Forbes by permission of author or representative)
 
• Category: Economics • Tags: Scotland 
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