Remember postindustrialism? Not long ago, this catchphrase was supposed to define America’s future: no more grubby hard industries, just a clean bright world of services and high technology. Its most succinct formulation is as follows:
Manufacturing is old hat and America is moving on to better things.
This idea played a large role during the 1980s and 1990s in getting Americans to accept deindustrialization. It was promoted by writers as varied as futurist Alvin Toffler, capitalist romantic George Gilder, techno-libertarian Virginia Postrel, futurist John Naisbitt, and globalist Thomas Friedman. Newt Gingrich seized upon it as the supposed economic basis of his Republican Revolution of 1994.
Unfortunately, postindustrialism is now a blatantly dead letter, as the U.S. economy has ceased generating any net new jobs in internationally traded sectors of any kind: manufacturing or services, industrial or postindustrial.
The comforting myth still lingers that America is shifting from low-tech to high-tech employment, but we are not. We are losing jobs in both and shifting to non-tradable services, which are mostly low value-added, and thus ill-paid, jobs. According to the Commerce Department, all our net new jobs are in categories such as security guards, waitresses, and the like. The vaunted New Economy has not contributed a single net new job to America in this century.
Nevertheless, postindustrialism remains popular in some very important circles. In the 2006 words of the prestigious quasi-official Council on Competitiveness, a group of American business, labor, academic and government leaders:
Services are where the high value is today, not in manufacturing. Manufacturing stuff per se is relatively low value. That is why it is being done in China or Thailand. It’s the service functions of manufacturing that are where the high value is today, and that is what America can excel in.
But the above paragraph is simply not true: manufacturing, which is vital to America’s recovery, is not an obsolescent sector of the economy. Let’s burrow into the details a bit to understand why.
“Screwdriver plant” final-assembly manufacturing can indeed increasingly be done anywhere in the world. This lays it open to labor arbitrage and thus low wages. But this doesn’t mean that this one stage of the long supply chain from raw materials to the consumer has become unimportant. Every link in the chain still matters, albeit in different ways. Manufacturing involves continuous feedback loops where every stage—from the initial idea to the R&D to the prototype to full-scale production to marketing of the final product—is related to every other. Losing control of any one stage can easily lead to the loss of the whole industry, including skill sets needed for moving to the next product or level of industrial sophistication. As Stephen Cohen and John Zysman explain in their book Manufacturing Matters:
America must control the production of those high-tech products it invents and designs—and it must do so in a direct and hands-on way…First, production is where the lion’s share of the value added is realized…This is where the returns needed to finance the next round of research and development are generated. Second and most important, unless [research and development] is tightly tied to manufacturing of the product…R&D will fall behind the cutting edge of incremental innovation…High tech gravitates to the state-of-the-art producers.