Manufacturing is shedding jobs but politicians should not interfere

July 31, 2012

Free Market Foundation

Back when people first started complaining about the imminent disappearance of U.S. manufacturing, the proposed solution especially popular among Democrats was an “industrial policy.” The idea was that some government agency, modelled after Japan’s Ministry of International Trade and Industry, would pick industrial winners and losers, nurturing the former with subsidies and trade protection, while humanely killing off the latter.

An industrial policy is unnecessary, says Bruce Bartlett, because a new U.S. Commerce Department report presents ample evidence that manufacturing in the United States is quite healthy:

U.S. manufacturing productivity is rising relative to Germany, France and the United Kingdom after falling for many years.

Manufacturing output is strong and retains its historical share of private economic growth.

It is true that employment is down, but manufacturing’s share of total employment has fallen by a similar percentage in every industrialised country including those with active industrial policies.

The Commerce Department study concludes that manufacturing’s problems, such as they are, stem mainly from two factors:

First is the general macroeconomic environment: When the economy as a whole grows faster, so does manufacturing; hence, the economic recovery will powerfully aid manufacturing.

Second are the burdens that have been disproportionately imposed on manufacturing by an out-of-control tort liability system, government regulations and an international tax system that is woefully outdated (these are not problems that trade protection or government subsidies can fix).

The new Bush industrial policy may be nothing more than minor election year politicking. But it’s still a bad idea, says
Bartlett.

Source: Bruce Bartlett, U.S. Manufacturing is Quite Healthy, National Centre for Policy Analysis, January 20, 2004; based upon: Manufacturing in America: A Comprehensive Strategy to Address the Challenges to U.S. Manufacturers, U.S. Department of Commerce, January 2004.

For text http://www.ncpa.org/edo/bb/2004/bb-20040121.htm

For study text http://www.commerce.gov/DOC_MFG_Report_Complete.pdf

For more on Economic Issues http://www.ncpa.org/iss/eco/

FMF Policy Bulletin\27 January 2004