[lbo-talk] Manufacturing fetish?

Wojtek S wsoko52 at gmail.com
Mon Aug 16 08:13:38 PDT 2010


[WS:] Marv, you seem to be missing the 800-pound gorilla in the room - profitability. There has been a secular decline in mfg profit rates, due mainly to foreign competition. It so, because mfg goods can be easily shipped worldwide, thanks in a large part to free trade policies. On the other hand, services cannot be shipped as easily, so the domestic suppliers can jack up the prices without fearing cheaper competition. Hence, profit rates in services tend to be higher (in fact, sky is the limit for marketing gimmick jacking up service prices,) and that seems to be attract new investment, and consequently produce growth. I would go as far as saying that US mfg sector tends to look more like the service sector - i.e. assembly of parts manufactured elsewhere and "branding" the final product.

Excess capacity is the main problem facing global capitalism, and this problem has been "solved," or rather put off, in a typical imperialist fashion - by "exporting" the less profitable activities (e.g. mfg) to the third world, and "developing" more profitable ones (services) in the first world. I used parentheses because these processes are not willed by some conspiracy, but systemic outcomes of capitalism i.e. its relentless pursuit of profits.

So the bottom line is that mfg will continue moving from the first world to the third, and the parasitic service sector will continue to grow like cancer in the first world - until there is no more room for expansion and the whole system collapses like a house of card, in which case we will have a very major depression, a major war, a revolution, or all of the above.

PS. This is not to imply that all services are parasitic, but rather than most of them have a parasitic element to a varying degree. For example, health care or education per se certainly are not parasitic, but certain "add-ons" such as expensive life style drugs, deluxe hospital rooms, or exclusive private schools are.

Wojtek

On Mon, Aug 16, 2010 at 10:12 AM, Marv Gandall <marvgandall at videotron.ca>wrote:


> (His detractors would call Bhagwati a free trade festishist…)
>
> ‘Made in America’ is not the way out
> By Jagdish Bhagwati
> Financial Times
> August 9 2010
>
> President Barack Obama, addressing car workers recently at a GM plant in
> Michigan, defended his administration’s motor industry bail-out, saying that
> it had rescued “the heart and soul” of American manufacturing, that “has
> been a symbol of our economic power”. Mr Obama’s words are only the latest
> in a new movement embraced by manufacturing chiefs and politicians alike –
> the new fetish for manufacturing.
>
> Thus Jeffrey Immelt, the otherwise thoughtful chief executive of General
> Electric (a predominantly manufacturing company), proposed in July that the
> US have a new national goal to ensure “manufacturing jobs be no less than 20
> per cent of total employment, about twice what it is today”. Congressional
> Democrats recently launched their “make it in America” agenda, passed a
> manufacturing enhancement act and set up a commission to promote
> manufacturing.
>
> This new fascination with manufacturing is a direct consequence of the
> financial crisis. The crisis began on Wall Street, so many conclude that the
> financial services sector is socially harmful or over-expanded and needs to
> be restricted. By contrast, it seems logical that manufacturing is both
> socially useful and ought to be larger.
>
> But even if it were true that the financial sector must be curbed, it would
> not follow that manufacturing must be expanded. There are justifiable
> controversies regarding how to measure the value of the financial services
> sector. Paul Volcker, the former Federal Reserve chairman, famously remarked
> that the only socially productive financial innovation has been the ATM. But
> this is a witticism, not the truth. Certainly, some financial innovations,
> such as credit default swaps, can cause huge downside. This does not tend to
> happen with non-financial innovation. But non-financial services that are
> also non-industrial – Fedex, for example – should be equally prominent
> claimants for expansion.
>
> In framing policy, we need to take into account that, in the US, all states
> compete to attract manufacturing industries by offering lucrative tax
> holidays, free land and other subsidies. Hardly any states – except New
> York, which is a financial centre and wants to keep it that way vis-à-vis a
> potential competitor such as New Jersey – compete to attract financial
> groups. Yet these huge subsidies to manufacturers are rarely added to the
> social cost of industrial bail-outs, such as those that Mr Obama praised for
> GM and Chrysler even though Chrysler had been bailed out twice already in
> its recent history. If you do add them, and compare their sum to the total
> social cost of the financial crisis, the picture is no longer one of
> unabashed mollycoddling of the financial sector and neglect of the
> manufacturing sector.
>
> The flawed case for manufacturing is embellished by several subsidiary
> fallacies. Richard McCormack, editor of Manufacturing & Technology News,
> wrote at the beginning of the crisis: “Without an industrial base, an
> increase in consumer spending ... will not put Americans back to work.” Yet
> why should the composition of output in favour of manufacturing industries
> matter so critically for employment creation? Increasing demand for those
> non-tradeable services that need suppliers and users to be close together –
> as, for example, with nursing and retirement homes – should have just the
> same effect on employment.
>
> Underlying the current prejudice is the unwarranted presumption that
> manufacturing industries are technically more innovative than both services
> and agriculture. Yet agriculture had hybrid corn, the seeds that (at the
> time of the green revolution) helped growth in developing countries, while
> genetically modified seeds hold the same promise today. Equally, in
> services, innovation has transformed the retail and communications sectors –
> whether at DHL or Tesco.
>
> In policy, sometimes Gresham’s Law operates – with bad policies driving
> away good ones. With no good argument in its favour, a preoccupation with
> manufacturing industries threatens yet one more example of such a perverse
> outcome. By promoting manufacturing of all kinds (as can be expected as the
> sector’s lobbies get down to work) at the expense of more innovative and
> dynamic service sectors, precisely when America is faltering in its recovery
> from the crisis, this unhelpful fascination promises to inflict gratuitous
> damage on an economy that can ill afford new wounds.
>
> The writer is university professor of economics and law at Columbia
> University
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