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Is Manufacturing Disappearing?

Is the manufacturing industry in crisis — and what does it harbor for the future?

October 7, 2003

Is the manufacturing industry in crisis — and what does it harbor for the future?

Production of real stuff — like steel and beer — is being replaced by production of ephemeral services like banking and advertising.

In short, once muscular economies are becoming flabby. The shift of workers out of manufacturing has an interesting precedent.

In 1790, according to the U.S. Department of Agriculture, 90% of the U.S. labor force was employed in agriculture.

Today that figure is less than 3%. Moreover, the decline in the proportion of the labor force in agriculture has been continuous, although the absolute number of workers in U.S. agriculture peaked early in the 20th century.

This overall pattern is hardly unique to the United States. In 1750, every country in the world was overwhelmingly agricultural.

Today more than 95% of every rich country's work force is employed outside agriculture. And, believe it or not, but as the industrial revolution spread, scholars were concerned about the “hollowing out” of agriculture.

In fact, the French Physiocrats asserted that only agricultural production contributed to the economy. Manufacturing and commerce were unproductive.

For reasons that are obscure to modern perception, agriculture added fundamental value while manufacturing and commerce simply manipulated what was already there.

This metaphysical preference for agriculture that was prevalent in 18th century France was echoed in the 20th century by Soviet preference for manufacturing. In the Communist national income accounts, most "services" were actually excluded as unproductive.

Even consumer goods were considered of lesser value than producer goods. "Steel is the final product, bread the intermediate product." And urban services were a capitalist frivolity — not a product at all.

Of course, the hollowing out of agriculture did not represent a decline in agricultural output — nor of economic activity and the size of the economy, for that matter.

Indeed, in dramatic contrast to what Malthus predicted in his pessimistic assessment of the world's ability to feed itself, agricultural production has grown so fast that the same rich countries that almost lost all their agricultural jobs today suffer from chronic problems of agricultural surpluses that depress prices.

What happened? In a word, productivity happened. With new seeds, new equipment and new knowledge, agricultural output per worker grew so fast that one worker could produce what it had taken 50 workers to produce a few generations earlier.

But one can hardly argue that all those former agricultural workers never had a job again. Today, they have other work. I venture that few long to be field laborers, like their ancestors.

Is something similar happening in manufacturing? Yes. In 1947, 35% of the U.S. labor force was employed within that field. That figure was down to 12% at the end of 2002. Some of the decline certainly is due to an increase in manufactured imports.

But the worker hours needed to produce a ton of steel, an automobile or a sheet of glass is so much lower today — that even without international trade — America would need vastly less than 35% of its labor force to produce what it consumes.

The figure below shows how service employment is dominating the high-income economies. Note that “Industry” — which includes construction and mining as well as manufacturing — is a declining employer in all high-income economies, as is agriculture.

Even more intriguingly, women — a growing share of the labor force — are ahead of men in this transformation.

Women Leading the Way?
Data Sources: World Bank, World Development Indicators 2002. Concept and copyright © 2003 by The Globalist

Manufacturing output continues to grow rapidly in the rich countries of the world. Yet, fewer and fewer workers are employed in manufacturing. Indeed, fewer and fewer workers are employed in producing any sort of goods, in agriculture or industry.

In 1790, if you had been able to speak with any leading citizen, it is hard to imagine how he might have reacted to the claim that in 2000, almost nobody would be working in agriculture.

"What are you saying," the burgher might have asked, "that there will be mass unemployment and mass starvation?" What can workers possibly do? How will people eat?

Today, we must try to imagine the society of 2100. It is likely that in Europe, Japan, the United States and, dare we hope, most of East Asia, only 5% of workers will be producing goods.

What will the rest be doing? Not banking. That industry, too, is experiencing rapid productivity growth.

Perhaps people will be employed doing what only people do best: interacting with other people, teaching, learning, inventing and adding to our cultural assets.