Factory fever
The world must escape the manufacturing delusion
Governments’ obsession with factories is built on myths—and will be self-defeating
Around the world, politicians are fixated on factories.
President Donald Trump wants to bring home everything from steelmaking to drug production, and is putting up tariff barriers to do so.
Britain is considering subsidising manufacturers’ energy bills; Narendra Modi, India’s prime minister, is offering incentives for electric-vehicle-makers, adding to a long-running industrial-subsidy scheme.
Governments from Germany to Indonesia have flirted with inducements for chip- and battery-makers.
However, the global manufacturing push will not succeed.
In fact, it is likely to do more harm than good.
Today’s zeal for homegrown manufacturing has many aims.
In the West politicians want to revive well-paying factory work and restore the lost glory of their industrial heartlands; poorer countries want to foster development as well as jobs.
The war in Ukraine, meanwhile, shows the importance of resilient supply chains, especially for arms and ammunition.
Politicians hope that industrial prowess will somehow translate more broadly into national strength.
Looming over all this is China’s tremendous manufacturing dominance, which inspires fear and envy in equal measure.
Jobs, growth and resilience are all worthy aims.
Unfortunately, however, the idea that promoting manufacturing is the way to achieve them is misguided.
The reason is that it rests on a series of misconceptions about the nature of the modern economy.
One concerns factory jobs.
Politicians hope that boosting manufacturing means decent employment for workers without university degrees or, in developing countries, who have migrated from the countryside.
But factory work has become highly automated.
Globally, it provides 20m, or 6%, fewer jobs than in 2013, even as output has increased 5% by value.
For all countries to take more of a shrinking pie is impossible.
Many of the good jobs created by today’s production lines are for technicians and engineers, not lunch-pail Joes.
Less than a third of American manufacturing jobs today are production roles carried out by workers without a degree.
By one estimate, bringing home enough manufacturing to close America’s trade deficit would create only enough new production jobs to account for an extra 1% of the workforce.
Manufacturing no longer pays those without a degree more than other comparable jobs in industries such as construction.
As productivity growth is lower in manufacturing than it is in service work, wage growth is likely to be disappointing, too.
Another misconception is that manufacturing is essential for economic growth.
India’s manufacturing output, as a share of gdp, languishes about ten percentage points below Mr Modi’s target of 25%.
But that has not stopped India’s economy growing at an impressive rate.
In the past few years China has struggled to meet its growth targets, even as its manufacturers have come to dominate entire sectors, such as renewable energy and electric vehicles.
What about the argument that, given the war in Ukraine and tensions with China, the rich world must reindustrialise for the sake of national security?
It seems dangerous to rely on factories abroad.
And covid-19 caused a supply-chain panic. Some dependencies are indeed chokeholds.
China’s near-monopoly in refining rare earths has recently allowed it to put the brakes on global carmaking, giving it leverage over America.
It is also prudent for the West to build up stocks of weapons and ammunition, to ensure that crucial infrastructure is sourced from allies and to build things with long lead times, like ships, before conflict breaks out.
But in today’s ultra-specialised world, across-the-board subsidies for reindustrialisation will not do much to boost war-readiness.
Making Tomahawks is entirely different from making Teslas.
Far from suggesting that countries at peace must develop the capacity to make lots of drones, the war in Ukraine shows that a wartime economy can innovate and multiply production volumes remarkably fast.
The final part of the manufacturing delusion is the idea that China’s industrial might is a product of its state-led economy—and so must be countered with a similarly extensive industrial policy everywhere else.
China does indeed distort its markets in all kinds of ways, and early in this century it manufactured an unusual amount given its level of development.
But those days are past.
China has not escaped the global shrinkage of factory jobs since 2013.
The share of its workforce in factories corresponds to America’s at a similar level of prosperity; and it is lower than it was in most other rich economies.
China’s 29% share of global manufacturing value-added is a function of its size rather than its strategy.
After years of fast growth, it now has an enormous domestic market to support its manufacturers.
Innovation is begetting innovation; a “low-altitude economy” of drones and flying taxis promises to take flight soon.
Yet, even though China’s goods exports have grown by 70% relative to global GDP since 2006, they have fallen by half as a share of the Chinese economy.
Factory settings
The way to rival the manufacturing heft of China is not through painful decoupling from its economy, but by ensuring that a sufficiently large bloc rivals it in size.
This is best achieved if allies are able to work together and trade in an open and lightly regulated economy; factories in America, Germany, Japan and South Korea together add more value than those in China.
As the pandemic showed, diverse supply chains are a lot more resilient than national ones.
The manufacturing delusion is drawing countries into protecting domestic industry and competing for jobs that no longer exist.
That will only lower wages, worsen productivity and blunt the incentive to innovate, while leaving China unrivalled in its industrial might.
The mania for manufacturing is not just misguided.
It is self-defeating.
0 comments:
Publicar un comentario