Is Manufacturing’s Future All Used Up?

Public Domain

When Los Angeles had decently-paid workers: Vultee Aviation plant in World War II. In later years, the factory worked on NASA's Apollo and Space Shuttle projects, then closed.  

Making It: Why Manufacturing Still Matters
By Louis Uchitelle
The New Press

This article appears in the Winter 2018 issue of The American Prospect magazine. Subscribe here

Of all the titans of our new Gilded Age, the only one to attain the status of culture hero was—and still is—Steve Jobs. This wasn’t simply a function of his personal magnetism, though he certainly outshone such apparently amiable schlubs as Bill Gates and Mark Zuckerberg, and the cipher that is Jeff Bezos. It was also because, unlike his fellow creators of cyberspace, Jobs produced the tactile, palpable portals into cyberspace. He made things—handheld objects that changed people’s lives.

And yet, few of his fans think of Jobs as a manufacturer. Certainly, his biographer, Water Isaacson, doesn’t. In his lengthy 2011 biography of Jobs, there’s only one glancing reference to the massive Chinese factories where iPhones and other Apple products are assembled—a stray remark that Jobs once made to President Obama, saying that “Apple had 700,000 factory workers employed in China.”

If those 700,000 were employed directly by Apple, of course, then Apple would be the world’s largest manufacturer. Instead, Apple conceals its factories—and responsibility for the working conditions there—behind two Chinese walls. First, it subcontracts its production work to Foxconn, a Taiwan-based company. Second, as Joshua Freeman notes in Behemoth, his fascinating history of factories from 18th-century Lancashire to 21st-century Guangdong, the massive factories of Foxconn City in Southern China are off-limits to journalists and other prying eyes. It was only the wave of worker suicides there in 2010 (many committed by workers hurling themselves from the roofs of their dormitories, which Foxconn sought to counter by installing nets beneath the roofs) that brought, however briefly, this immense complex of factories to public notice.

Isaacson didn’t consider any of this worthy of mention in his account of Jobs’s life. He recounts the iPhone’s developmental odyssey, from a Jobs brainstorm, surmounting all manner of design and tech hurdles, to the consumer’s hand, omitting only the stuff about the manufacturing.

The decision to offshore, the amassing of half a million or more Chinese workers, their workdays, their housing, their lives—these just weren’t part of the Jobs story, of the chronicle of our bright tech future. These were stories of an industrial era that had long been receding in history’s rearview mirror, at least in the West, and certainly in the United States. Manufacturing didn’t matter—even though one of the things that set Jobs apart from his tech-titan peers was that he created products that were not merely wonderful, but tangible.

It would be an exaggeration, if only slight, to say that it took Donald Trump’s election to make America’s opinion-making elites (of which Isaacson is a member in good standing) realize the cost of their indifference to American manufacturing’s decline. Even without Trump, at least some of those elites now recognize, however belatedly, that the role such industrial erosion has played in the shrinkage of the nation’s middle class has been causal.

In November, the McKinsey Global Institute tallied up the damage that had been apparent to so many Rust Belt residents for decades. Fully two-thirds of the decline in labor’s share of the gross domestic product, Mc-Kinsey calculated, was the result of the declining level of American manufacturing. As for any new investment in manufacturing—well, in 1980, wrote McKinsey, the average U.S. factory was 16 years old, while in 2017, it was 25 years old.

 

NONE OF THIS CAME as news to Louis Uchitelle, who began documenting the winnowing of American manufacturing in the 1980s, when he covered the economics and labor beat for The New York Times. He’s still at it, authoring a cri de coeur this year that makes the case for manufacturing’s resurrection.

In Making It, Uchitelle not only dissects the mournful numbers of manufacturing’s decline, but also presents a nostalgic, if telegraphic, memoir of two cities that once hosted thriving manufacturing cultures—New York (where he grew up) and St. Louis (where he frequently visited his grandparents) in the 1940s and 1950s. He reports on the hollowing-out of St. Louis, as its factories moved to less-unionized regions, and the decline of clothing manufacturing in New York (where his father was a middleman, buying and selling cloth) as the plants went south and, eventually, overseas.

In the past couple of years, analyses of deindustrialization (such as the work of the Economic Innovation Group) have focused on the devastation wrought by factory closures in disproportionately white small cities and towns across the once-industrial Midwest. Uchitelle focuses on an earlier economic catastrophe, whose consequences are still very much with us: the plant closures in major Eastern and Midwestern cities that short-circuited the economic advancement of working-class African Americans. Citing numbers from sociologist William Julius Wilson’s seminal study of inner-city decay, When Work Disappears, Uchitelle notes that between 1967 and 1987, Philadelphia lost 64 percent of its manufacturing jobs; Chicago, 60 percent; New York, 58 percent; and Detroit, 51 percent. Many of the jobs lost were unionized, with good pay and benefits, offering a path to economic stability for working-class blacks. No comparable working-class path exists today.

Nor is it only black and white non-college graduates who’ve lost this once-common opportunity for economic advancement. Deindustrialization has also locked many of the millions of Latino immigrants who’ve come here since 1980 into low-paying service-sector jobs. In the 1970s, when California had more automobile factories than any state but Michigan, and when huge Los Angeles aircraft factories were the state’s largest employers, their workforces were becoming increasingly Latino, and Latinos headed the United Auto Worker locals at several of those plants. But the auto plants were all shuttered by the mid-1980s, and aerospace production was decimated by the end of the Cold War, just as millions of immigrants were streaming into California. The traditional mode of upward mobility for working-class immigrants—factory work—contracted catastrophically in the last two decades of the century, and has continued to dwindle since (California has lost an additional 585,000 manufacturing jobs since the turn of the century, according to a Century Foundation study). That California has a higher rate of poverty, when the cost of living is factored in, than any other state is in large part the result of its deindustrialization—though the levels of poverty are more commonly blamed on “low-skilled” immigrants.

Uchitelle makes a persuasive case that the “skills gap” that so many businesses blame for their failure to expand is actually one part myth and one part a supply-side problem of their own making. Most corporations that once trained their new hires have sloughed off that responsibility, while school districts that once offered vocational education no longer do. (Cincinnati’s five vocational high schools, Uchitelle notes, were all shuttered years ago.) He also rises to the defense of manual labor—describing the myriad skills he witnessed, in the years before, during, and after his time on the labor beat, while observing workers on factory floors. The expert cutters he saw as a child, when his father took him along on his visits to Manhattan’s high-end clothing plants, loom large in his memory.

Perhaps it’s because these memories of mid–20th century Eastern and Midwestern cities and their vibrant working classes are so deeply felt that Uchitelle’s proposals for boosting manufacturing seem at times intended to resurrect a now largely vanished urban manufacturing world. The government, he writes, must enact laws that require manufacturing’s share of the GDP to rise from its current 12.5 percent to something closer to the norm for OECD nations—somewhere between 17 percent and 19 percent. Such laws, he writes, would correspondingly grow the share of manufacturing workers well above its current 8.5 percent (it hit an all-time low of 8.47 percent this past summer).

Such a changeover, Uchitelle acknowledges, would require the enactment of steep tariffs, of domestic content standards far stricter than any now on the books, and perhaps a trade war with China and other nations. It would require treating manufacturing as we’ve treated agriculture since the 1930s. “The political maneuvering involved in authorizing the annual farm subsidy once drew headlines and controversy, but now rarely does.” (Of course, that’s partly because the handful of agribusiness giants can lobby behind closed doors.) “We accept that farming is a federally subsidized market activity,” he continues. “Manufacturing must proceed along a similar path.”

But Uchitelle is far too good a reporter to think that it will. “My fear,” he writes, is “that we will acquiesce to manufacturing’s shrunken role in the American economy.” The number of manufacturing workers able to raise a row if the sector continues to shrivel has fallen well below the critical mass required to mandate greater investment in industry. “Too many horses,” he concludes, “are gone from the barn.”

The problem isn’t simply one of numbers. (Though the numbers matter: Multiply the 8.5 percent of the workforce that’s employed in manufacturing by the 8.8 percent of manufacturing workers who are union members—those most likely to lobby for more investment in manufacturing—and you come up with just 0.74 percent of the workforce). It’s also one of ideology, of the American refusal to understand how much of manufacturing is already publicly subsidized. Adding all the purchases of U.S.-made products by the federal, state, and local governments to the subsidies and tax abatements that state and local governments deploy to induce manufacturers to set up shop or stay put in their localities, Uchitelle calculates that roughly 20 percent of American manufacturing is already paid for by our tax dollars. States and cities have industrial policies that they’re willing to shell out for, though the American economy experiences no gains when a factory relocates from East Paducah to West Paducah. In other nations, it’s the national government that subsidizes industry, which is one major reason why China has industrialized so quickly and massively. Unfortunately, ours is a system in which it’s considered fine for West Paducah to spend to attract industry from East Paducah, but not fine for the United States to spend to promote domestic industrial investment rather than see it move to Asia.

 

IN RECENT YEARS, despite the ideological obstacles, several initiatives have come forth to mobilize government purchasing power to promote domestic manufacturing (which is a more effective and plausible way to revive manufacturing than tariffs and GDP targets). Perhaps the most notable is Jobs to Move America—a program that allows transit districts to favor domestic manufacturers when purchasing trains and buses. Founded and directed by Madeline Janis (who, as the longtime head of the Los Angeles Alliance for a New Economy, first crafted and promoted the living-wage and local-hiring ordinances that have spread to more than 100 cities and counties), the program effectively enabled the transit districts of Los Angeles and Chicago, with help from the Obama administration’s Department of Transportation, to fund new, local rail factories.

If more cities and states were to follow L.A.’s and Chicago’s examples, if the federal government were to insist on more domestic content in its purchases and invest more in infrastructure and such growth sectors as green energy, could the long-term decline in manufacturing actually be reversed? McKinsey estimates that such pro-manufacturing policies as greater worker training and more efficient-energy use, as well as growing global markets, could increase the number of workers in the sector by roughly two million by 2025. McKinsey thereby takes issue with the analysts who predict a wave of robots will further decimate industrial employment.

But the crisis of manufacturing jobs isn’t just quantitative; it’s qualitative, too. As the rate of unionization in manufacturing has fallen from 22 percent in 1990 to 8.8 percent today, the pay and benefits manufacturing workers have been able to claim have diminished as well. In the 1960s and 1970s, when well over one-third of factory workers were unionized, their wages and benefits came to roughly 75 percent of their employers’ gross income. Today, their share has shrunk to less than 55 percent. In the seven states of the industrial Midwest, according to a report from the Century Foundation, the share of unionized manufacturing workers has declined from 28.4 percent in 1992 to 14.5 percent today, and the advantage in weekly wages that these workers have enjoyed over non-manufacturing workers has declined accordingly during that time, from $220 to $170.

While it’s true that manufacturing’s share of GDP and the overall workforce has declined in every industrialized Western nation in recent decades, the decline in the two nations most dominated by finance during that time—the United Kingdom and the United States—has been the most precipitous. In 2015, for instance, investment in manufacturing plants and equipment in the U.S. and the U.K. came to just 2.8 percent and 2.1 percent, respectively, of these nations’ GDP, while in Germany it came to 3.9 percent and in Sweden, 4.7 percent.

Indeed, that Germany has successfully retained its manufacturing sector isn’t simply due to the excellence of its products. It’s also because Germany has, by Anglo-American standards, an underdeveloped financial sector—no real equivalent of Wall Street or the City. Instead, Germany has hundreds of local savings banks whose investments and loans, restricted by law to residents and institutions in their localities, have helped fund the Mittelstand—the nation’s fabled small- and medium-size manufacturers. To bolster this sector, Germany’s Fraunhofer Society has a staff of 22,000 devoted to helping these manufacturers find partners, train workers in new technology and production techniques, and develop new markets. The Fraunhofer’s semi-equivalent in the United States, the Manufacturing Extension Partnership, has a staff of just 1,300, in a nation with a population four times the size of Germany’s. By law, all sizable German companies are also required to split their boards between management and worker directors.

For all these reasons—notwithstanding the largely unsuccessful efforts of U.S. bankers and public officials to persuade the Germans to downsize their industrial sector and place greater emphasis on profit growth in the years between German unification and the crash of 2008—Germany still retains a vibrant middle class.

Is re-growing manufacturing one way the United States can restore its own middle class? Certainly, the multiplier effect of manufacturing—its capacity to generate jobs in other sectors—is greater than that of those other sectors. The lion’s share of research and development also occurs within manufacturing. Whether what’s good for the nation as a whole is also good for its individual citizens, however, is largely a matter of distribution—and that relies on enhancing worker power.

At least some manufacturing is also good for workers’ psyches. Deindustrialization is almost invariably accompanied—and justified—by the devaluation, often tacit but always obvious, of manual labor, of the skills that so impressed the young Lou Uchitelle. That devaluation is one of the roots of the rage that swirls through our politics today. Yet one more reason why manufacturing matters.  

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