News Center
Making it in America
By Horace Cooper
Why should those who support limited government and liberty care about what happens to manufacturing in America? Because manufacturing is a crucial component of who we are as a country. As far back as Alexander Hamilton, our founders understood that America’s merchants and industrialists would shape American society directly by providing jobs and indirectly by enhancing our nation’s economic might. Today manufacturing continues to play that role as part of a maturing and stable manufacturing sector. Additionally this key sector of the economy continues to provide Americans with better jobs and a greater quality of life.
And despite what you may think, manufacturing today isn’t a small part of our economy. It is the key engine. If American manufacturing was its own country, it would have the world’s 8th largest economy. With a manufacturing output nearly as great as the entire GDP of China and more than the economies of Australia, Belgium and Brazil combined, “made in America” is more than a slogan, it’s the American way. Yes, America is the world’s number one manufacturer, its activities accounting for a staggering one-quarter of all manufacturing on the planet as recently as 2004.
As significant as it is worldwide, it is its effects on our economy at home which are more noteworthy. Domestic manufacturing is vital to the rest of our economy. Nearly 14.5 million Americans work directly in the manufacturing industry and another 8 million do so in related industries such as wholesaling and finance. A phenomenon economists refer to as the multiplier effect causes the growth and expansion in the manufacturing sector to generate significant salutary effects on other sectors resulting in more jobs, investment and innovation in those sectors as well.
Today the manufacturing sector is responsible for 70 percent of all U.S. private-sector research and development. And more than half of all U.S. exports stem from domestic manufacturing. Much of America’s energy conservation activity is found here as well as American manufacturing is the center for a range of innovative technologies that reduce energy use and promote a cleaner environment. Letting this powerful engine slip away would be disastrous.
But as the attentive reader knows, all is not well with American manufacturing. Although many claim that it is the manufacturing sector itself which is to blame. The evidence rebuts this argument. U.S. companies are not running away from America. The latest available data indicates that U.S. manufacturers invested about $170 billion in factories and equipment in the United States in 2005 while their foreign investment to the rest of the world was only $39 billion. That’s means more than 80 percent of the investment by American firms stayed here at home.
The truth is that a combination of recessions in the U.S., strikingly high energy prices along with the predatory trading practices of many other countries have significantly eroded American manufacturing influence.
Reaching a high of 53 percent of the economy in 1965, domestic manufacturing accounts for only 9 percent of GDP forty years later. Not since the beginning of the industrial revolution has a lower percentage of Americans worked in American manufacturing as they do today. Tellingly, just since 2000 the manufacturing sector has lost nearly 3 million jobs.
There can be no doubt however that the manufacturing sector is under siege. The losses over time have been quite substantial. Now some in Washington wonder if manufacturing can make it all. Worse they openly speculate that it wouldn’t be missed. The idea that manufacturing can’t make it here in America is wrong-headed and dangerous.
But perhaps greater than the economic disruption in the lives of the workforce and their companies is the incalculable loss of a manufacturing base for our nation as a whole. There are those in Washington who fail to appreciate the attendant decline in our nation’s security and flexibility in foreign affairs that results from the collapse of this sector. The fall of the Berlin Wall and the unipolarity which resulted presents the U.S. far greater responsibilities and concerns than those that existed during the Cold War. Yet, our failure to sustain our domestic manufacturing base and instead pursuing a strategy of relying on other countries for military products and technologies isn’t just short-sided, it’s dangerous.
This decline in our country’s military readiness is a signal to the rest of the world that we may not be capable of defending our interests or allies. And perhaps one of the greatest lessons of the 20th century is that weakness at home is provocative. Essentially we provoke rogue nations into taking ill advised actions that must inevitably be countered by America’s military might.
A policy that results in a diminished security for Americans, fewer jobs, a declining tax base for communities and states and which rejects our nation’s history is a policy that should be reassessed. Supporters of liberty and freedom recognize that American ingenuity and know-how is a core ingredient of our manufacturing sector and has led to much of the high standard of living that we Americans take for granted.
At our country’s founding and for much of its history we’ve recognized the benefits of a strong and robust manufacturing sector. It is the mainstay for our nation’s exports, provides salaries nearly 25 percent higher than other sectors, supports the tax base in communities across the nation, and is essential to our nation’s security needs. It is a sector that should be welcomed and encouraged today.
Horace Cooper is a Senior Fellow and Deputy Director of the Alliance for American Manufacturing.
