If you want to know the answer to 90% of questions, that answer is 'Follow the Money".
US manufacturing stagnated because US companies offshored their production. Great for the company bosses and their huge bonuses, but .... that led to two main failures: the loss of skilled workers, and the loss of company manufacturing knowledge. NOTE: Company money that gets wasted on huge bonuses is money that is not available to improve the company's future profits.
Take the example of Boeing: The replacing of aviation engineers by accountants means that decisions are made on the basis of cashflows, not on the basis of how to make better planes.
Or take the example of the US space industries: the men who were the skilled workers who knew how to make large and powerful rockets have retired and/or died off. Nobody in the US has the day-to-day working knowledge of those men of the 1960s and 1970s who produced the Apollo systems that put a dozen or so men on the Moon. Today we have men stranded in space because their spacecraft is a piece of garbage, and it's not so long since Americans had to cadge lifts to the ISS from the Russians for more than ten years.
I think "follow the money" is the correct call but not like this. I think having the reserve currency be the USD means there is more demand for the currency than is needed to trade with the USA (because USD is used for all sorts of other international trade as well including things like buying oil). This makes the USD relatively too strong which makes their exports relatively too expensive.
This then has all sorts of flow on impacts throughout the manufacturing process and incentives inside the country.
> Nobody in the US has the day-to-day working knowledge of those men of the 1960s and 1970s who produced the Apollo systems that put a dozen or so men on the Moon.
Funny then that the US has be far the largest space industry, produces the most rockets, launches the most rockets, produces and launches the most sats.
Exactly. Look at the investment in FoxConn (Hon Hai manufacturing) compared to the US. I bet as a % of their GDP the scale of their investments dwarf ours.
My base case is still that the USD being the reserve currency is the problem. There will persistently by more demand for USD than is justified by the need to purchase American exports, so the currency is artificially high. This makes their exports more expensive than they should be relative to others, which hurts manufacturers.
Having a currency that is too strong for your economy always does this, look at the situation in European nations under the Euro.
And this has been a major problem for them since then. Look up the "Triffin Dilemma". If a nation's currency is the reserve currency it pretty much must run a trade deficit and one of the major impacts will be loss of manufacturing prowess. Happened to Great Britain when the Pound was the reserve currency too.
> OK but if that’s the case, how come other countries — Germany, Korea, France, etc. — have managed to increase their manufacturing productivity over the past 13 years? One possibility is that they’re just catching up to the U.S. and Japan, which were the leaders in manufacturing productivity back in the early 1990s. I can’t find a great data set comparing absolute levels of manufacturing productivity across countries over time, but I’ll keep looking.
This is what I wanted to see as I was reading through the whole article. Everything was about the change in growth, but I wanted to know, in absolute terms, the ranking of countries in manufacturing productivity.
Now, I don't really think the US has hit some sort of maximum in productivity, and the growth we see in other countries is just laggards catching up to us. But it's something that needs to be examined, too.
The numbers for Total Factor Productivity presented at the end may shed some light on this, but, as the author admits, the numbers presented might not be trustworthy, and, regardless, it would still be useful to see how it breaks down.
> the growth we see in other countries is just laggards catching up to us. But it's something that needs to be examined, too.
This was documented in the 1990s [0] with a smaller sample of OECD members (OECD only expanded significantly in the 2000s) as well as in the CEE within the EU in the 2010s [1].
And you can see this anecdotally as well in industries ranging from Electronics Assembly to Resource Refining to Pharmaceutical Manufacturing.
The US hasn't gotten poorer - other countries have gotten WAAAAAAY richer and increasingly skilled.
> the ranking of countries in manufacturing productivity
Imo, Calculating Manufacturing productivity has issues. For example, there's a bit of an assumption that it was Chinese factories that took jobs from factories in the Midwest when it was mostly movement to the South and then Mexico in the 80s-90s. Then they left for China, and then the lower value chain producers there began offshoring as well by 2015-16.
I think there are a lot of well read (but not necessarily smart) HNers who think manufacturing is singular and it's easy to train someone used to assembling toys to helping assemble LTO batteries.
Mismanagement, greed, protectionism... The irony of Toyotas whole process coming from an American and not being embraced by Americans is amusing (Demming).
The natural evolution of business is to grow large, and bloated and then fall apart, or decline. The author's article laments manufacturing and looks at services, but fails to look critically at IBM following that same arc.
It's a good read and some interesting data but nothing new to any one in the know.
What should be interesting is the fact that manufacturing is coming back to the US in the small. You can boot strap a manufacturing business in your garage, and the machine(s) to do it (CNC) are cheaper than the giant pickup you would have in there anyway.
It's the first time I've heard of that NUMMI factory and it's ... kind of ironic. Because, pretty sure we taught Japan/Toyota/others all there was to know about Quality re: TQM and TPS ... and now companies are partnering with them to get back some of that lost luster? That's... hilarious. Maybe we need to be obliterated and build all over from Ground Zero like they did.
Cheap money should make investing in machinery easier and make labor productivity go up.
The opioid crisis should make workers and their availability more unreliable. This should also lead to businesses investing in machinery and improving labor productivity.
Lack of universal health care and SS should make workers more expensive and again provide an incentive to improve labor productivity.
All these may or may not be problems but none of them are a reason for productivity to stay low. In fact, quite the opposite.
Cheap money just caused to create a ridiculous amount of billionaires, the fraction of it is invested. One big example is how the chip fabs in the west wanted govt subsidies instead of financing via the market because money markets in the west doesn't have the stomach for it. Same with the auto industry, Tesla being the exception.
Actually this is very similar to the Dutch disease []. Cheap money, like cheap energy, hurts productivity.
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US manufacturing stagnated because US companies offshored their production. Great for the company bosses and their huge bonuses, but .... that led to two main failures: the loss of skilled workers, and the loss of company manufacturing knowledge. NOTE: Company money that gets wasted on huge bonuses is money that is not available to improve the company's future profits.
Take the example of Boeing: The replacing of aviation engineers by accountants means that decisions are made on the basis of cashflows, not on the basis of how to make better planes.
Or take the example of the US space industries: the men who were the skilled workers who knew how to make large and powerful rockets have retired and/or died off. Nobody in the US has the day-to-day working knowledge of those men of the 1960s and 1970s who produced the Apollo systems that put a dozen or so men on the Moon. Today we have men stranded in space because their spacecraft is a piece of garbage, and it's not so long since Americans had to cadge lifts to the ISS from the Russians for more than ten years.
This then has all sorts of flow on impacts throughout the manufacturing process and incentives inside the country.
Funny then that the US has be far the largest space industry, produces the most rockets, launches the most rockets, produces and launches the most sats.
Deleted Comment
Having a currency that is too strong for your economy always does this, look at the situation in European nations under the Euro.
Dead Comment
This is what I wanted to see as I was reading through the whole article. Everything was about the change in growth, but I wanted to know, in absolute terms, the ranking of countries in manufacturing productivity.
Now, I don't really think the US has hit some sort of maximum in productivity, and the growth we see in other countries is just laggards catching up to us. But it's something that needs to be examined, too.
The numbers for Total Factor Productivity presented at the end may shed some light on this, but, as the author admits, the numbers presented might not be trustworthy, and, regardless, it would still be useful to see how it breaks down.
This was documented in the 1990s [0] with a smaller sample of OECD members (OECD only expanded significantly in the 2000s) as well as in the CEE within the EU in the 2010s [1].
And you can see this anecdotally as well in industries ranging from Electronics Assembly to Resource Refining to Pharmaceutical Manufacturing.
The US hasn't gotten poorer - other countries have gotten WAAAAAAY richer and increasingly skilled.
> the ranking of countries in manufacturing productivity
Imo, Calculating Manufacturing productivity has issues. For example, there's a bit of an assumption that it was Chinese factories that took jobs from factories in the Midwest when it was mostly movement to the South and then Mexico in the 80s-90s. Then they left for China, and then the lower value chain producers there began offshoring as well by 2015-16.
I think there are a lot of well read (but not necessarily smart) HNers who think manufacturing is singular and it's easy to train someone used to assembling toys to helping assemble LTO batteries.
[0] - https://www.commerce.gov/sites/default/files/migrated/report...
[1] - https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp992.pdf
https://www.construction-physics.com/p/no-inventions-no-inno...
https://en.wikipedia.org/wiki/NUMMI
Mismanagement, greed, protectionism... The irony of Toyotas whole process coming from an American and not being embraced by Americans is amusing (Demming).
The natural evolution of business is to grow large, and bloated and then fall apart, or decline. The author's article laments manufacturing and looks at services, but fails to look critically at IBM following that same arc.
It's a good read and some interesting data but nothing new to any one in the know.
What should be interesting is the fact that manufacturing is coming back to the US in the small. You can boot strap a manufacturing business in your garage, and the machine(s) to do it (CNC) are cheaper than the giant pickup you would have in there anyway.
The opioid crisis should make workers and their availability more unreliable. This should also lead to businesses investing in machinery and improving labor productivity.
Lack of universal health care and SS should make workers more expensive and again provide an incentive to improve labor productivity.
All these may or may not be problems but none of them are a reason for productivity to stay low. In fact, quite the opposite.
Cheap money just caused to create a ridiculous amount of billionaires, the fraction of it is invested. One big example is how the chip fabs in the west wanted govt subsidies instead of financing via the market because money markets in the west doesn't have the stomach for it. Same with the auto industry, Tesla being the exception.
Actually this is very similar to the Dutch disease []. Cheap money, like cheap energy, hurts productivity.
[] https://en.m.wikipedia.org/wiki/Dutch_disease