So now President Obama plans to stimulate our moribund economy by prodding our manufacturing sector and bringing “outsourced” jobs back home. I have repeatedly warned that our manufacturing sector is not a job creating sector. The basic trend in manufacturing is to mechanise the work place to the point that the only employees are those programming the computers that run the robots.
At the beginning of the 2oth Century about half the American work force was engaged in agriculture which in government statistics includes forestry and fishing. By 2010 less than 3% of the work force, or just over one million, were employed in agriculture. US agriculture produced the largest share of world agricultural output in 1900 and still today. My point is that even with an astonishing decline in the numbers employed agriculture still produces more than we can eat or export.
The manufacturing sector has undergone a less dramatic, but nevertheless similar, trend. At its peak in 1970 the manufacturing sector employed 20 million and now less than 13 million. In spite of this decline the US was the largest manufacturing nation in the world in 1970 and is still so today.
Obviously the rapid mechanization of agriculture led to the astonishing increase in output per worker. Ditto manufacturing.
Let’s get one thing clear, any major increase in employment will be in the service sector of the economy, which now accounts for about 80% of all employment. Believe it or not the largest employer in the service sector is government. Who would have believed that the largest single identifiable group of employees is those who slop at the public trough (full disclosure, I still slop via a government pension).
And why am I so confident that the service sector will be the source of new jobs, simple, it is far harder to replace a teacher, policeman or doctor with a machine, although we are working on it. Futhermore it is far harder to increase productivity in the service sector than in agriculture or manufacturing. A barber can only cut one head of hair at a time. A doctor can only peer down one throat at a time. A policeman can only handle one crime at a time.
Even less promise for increasing jobs comes from the call to bring jobs “outsourced” back home. I am very familiar with ”outsourcing” having actually moved a few companies to this practice and advised many more on how to do it.
I should begin by saying there are basically two types of “outsourcing.” The first is a company that moves its manufacturing out of its home market to produce products at a more competitive price to sell in its home market. The second would be the exporting company that moves its production to its export markets to enjoy advantages that come from being closer to the sale.
The first case can be best exemplified by the Apple corporation. It is now the largest company in the world in terms of market valuation. As a US company its home market is the USA. However, Apple manufactures almost all of its products outside the USA. Good examples of the second case are the large Japanese car makers, Toyota, Nissen and Honda, who moved part of their production capacity to the USA, their main foreign market.
All of this “outsourcing” is done for good economic reasons, principally to reduce costs. And no one would argue with this since all of these are remarkably successful companies. Do you really want Apple to “bring” jobs back home and in the process go out of business? Do you really want Japanese car makers to close their US operations and fire thousands of US workers?
The global economy of the post WWII world has done wonders to promote global welfare. No better example can be found than China, the world’s second largest economy that has risen to that lofty position via full participation in the global economy. I oppose any attempt to dismantle the global economy which allows rationale allocation of resources throughout the world instead of in just one country.