Today there are fewer manufacturing employees than in 1955, and over the past 20 years 3.7 million manufacturing jobs has been lost. These figures are a grim reminder that America can no longer manufacture competitively.
How did this happen? Two causes stand out: low international wage rates in countries like China and Mexico that America will not and can not compete with, and America’s abandonment of capital and knowledge intensive industries.
American workers can not and should not have to compete with third world wage rates. Some Chinese manufacturers are paid 33 cents an hour according to a 2005 AFLCIO report. This cents-an-hour pay in many countries around the world has caused American companies and entire industries to move abroad (see the lost industry list here). It also lead Princeton economist Alan Blinder to estimate 42-56 million jobs could potentially be sent overseas.
Japan has successfully navigated the problem of China’s low wage rates. China is one of Japan’s biggest trading partners and yet Japan maintains a trade surplus with them. The labor in Japan is leveraged; one person operates equipment that can do the work of 100 ordinary laborers. America used to manufacture this way but now produces little by comparison and increasingly depends on imports at a net cost of $1.5 million per minute ($765 billion per year) to maintain our standards of living.
Auto and other manufacturing industries were once proud centers of American productivity, but have since seen their superiority usurped by technology based economies like that of Japan. The Japanese realized the gains of encouraging industrial growth and with hardly any natural resources turned their economy into an economic superpower that last year alone generated an $88 billion trade surplus with America and a $170 billion current account surplus with the rest of the world, the second largest next to China.
Meanwhile, the U.S. has resigned itself to live on increasing debts.
Since 1987 home mortgages have gone from $1.8 trillion to $8.2 trillion, consumer debt from $2.7 trillion to $11 trillion and household debt has quadrupled. Add to that a national debt approaching $9 trillion and you do not have to be an economist to realize the economy may not be as rosy as America’s GDP ranking.
Increasing debt, decreasing savings and exporting America’s biggest asset- wealth producing companies abroad- is not sustainable or responsible long-term economic policy.
America can, and must, do better. How do we get out of this debt-ridden rut? The solution is to copy Japan’s model. Taiwan, Korea and many other Asian countries have adopted the Japanese East Asian economic model and been extremely successful.
What if the economy had always operated as it does today with companies being sold abroad diverting wealth, jobs and production.
Imagine the consequences in WWII if Chrysler had been under its recent 9 year-long German ownership. Chrysler produced the main combat vehicle for troops on the ground the Sherman M-4 tank. German ownership would likely have forced production of tanks for the Axis rather than America. That one acquisition would have deprived America of one of its best on the ground assets and could have greatly changed the course of the war.
The World War II scenario is of course a hypothetical, but it illustrates the potential risk of continuing to sell our best companies from vital industries abroad. Investing in industry turned America into the most productive labor force and strongest country in the world. It’s time to make that investment again.