“For a quarter-century,” write Alan Tonelson and Kevin L. Kearns in an op-ed published over the weekend in the New York Times, “American economic policy has assumed that the keys to durable national prosperity are deregulation, free trade and a swift transition to a post-industrial, services-dominated future.” I don’t know if that’s all true.
It seems to me that economic policy since the Reagan Administration has been a tug-of-war between idealists who propose agreements to open up trade with as many other nations as possible — NAFTA being the most obvious and controversial example; and idealists who portray the viability of a self-sustaining domestic market, in which domestic products always get tax and regulatory benefits to ensure the viability of the organizations that produce them, regardless of the value of that enterprise, or of the cost to the consumer.
But, that’s not the point of the column, which is illuminating. It should be read and understood, because Tonelson and Kearns are sharp observers of manufacturing and global economy. As representatives of the U.S. Business and Industry Council, an association of small manufacturers, they have influence in the debates over national economic policy.
The writers’ point is to highlight what they see as a deception in economic analyses, specifically those measuring growth in terms of “productivity.” They observe that the U.S. Dept. of Labor measures an organization’s productivity by counting hours worked by domestic workers, even if the organization includes workers overseas. For example (my example, not the writers), an organization that imports semi-finished products for final assembly in the U.S. would be credited for the total value of the finished product but only the labor of the domestic workers would be factored into the production cost.
“The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change,” Tonelson and Kearns write.
They contend that this method leads economists and analysts “to assume that recorded productivity gains always signify greater efficiency, rather than simple offshoring-generated cost cuts — leaving the rest of us scratching our heads over stagnating wages.”
I trust they’re facts are correct, but it seems to me they overlook the enormous influence of technology. For metalcasters, the productivity-enhancing effect of automation and process control has been tremendous. Adding an automated pouring line, for example, allows a foundry to produce castings for hours at a time without interruption, reducing total labor costs obviously but also increasing the total output of high-quality finished goods.
Understood this way, it’s clearer that “productivity” has been the reason that the domestic metalcasting industry has endured significant declines in the total number of operations (and, of course, total employment) without a parallel decline in output.
It’s also illustrates why “stimulus” spending in many industries has not and will not reverse chronic unemployment in manufacturing. Manufacturers don’t have to hire lots of workers to achieve productivity. Discounting the impact of "productivty," or reevaluting the cost of achieving it, will not change the way manufacturers conduct their businesses.
The federal stimulus is not the target for Tonelson and Kearns in their column, but it is another dimension in the broad discussion of how manufacturing is understood, and misunderstood, in federal economic policymaking.