Good Cause for Worry in U.S. Industrial Erosion
Rep. John D. Dingell (D-Mich.), when asked if unrestricted imports of cheap, high-quality goods aren’t good for the U.S. consumer, responded that “a consumer with no money is not a consumer.”
This country, he remarked, has been replacing industrial jobs with “minimum-wage jobs in service industries.” When you earn less, you have less money to spend--whether for goods made here or abroad.
Dingell is from a state that has suffered heavily from imports; his refusal to equate the availability of cheap foreign goods with the national interest is not surprising. The fact is, however, that his concern over the erosion of this country’s industrial base is being heard with increasing frequency from professional economists, too.
Unless the buy-from-abroad trend can be reversed, America faces a bleak future, both in terms of living standards and in the ability to sustain an appropriate level of national defense in a perilous world.
The problem should be clear to anybody who bothers to look at the statistics.
So far this year the economy has grown at an annual rate of only 1%--just a fraction of the level confidently predicted by the Administration early this year. The Reagan team still professes faith that things will pick up significantly in the next six months, and some economists agree. But most don’t.
The big reason for the sluggish performance is the huge deficit in the U.S. balance of trade, which reflects a growing inability--or unwillingness--to do the things necessary to pay our way in the world.
In 1984 this country imported a record $123 billion more than we were able to export--almost double the figure for 1983. This year the imbalance is expected to soar past $150 billion.
The real-world significance of these dry statistics is suggested by the fact that demand for goods grew by 4% in the first quarter, but almost all that extra demand was satisfied by goods manufactured someplace else.
Month by month, manufacturing employment is melting like an ice cube in the sun. In the last five months alone the net shrinkage of factory jobs totaled 221,000.
Fortunately, jobs have been created faster in the service sector--which covers things like banking, insurance, medicine and retailing--than they have been lost in manufacturing. As a result, the unemployment rate is still not much more than 7%.
The fact is, however, that service-sector jobs pay only 70% as much on average as manufacturing jobs do. As Dingell pointed out, smaller paychecks mean less consumer purchasing power--and that spells trouble for the whole economy.
Only a few years ago, trade experts could point reassuringly to some forces for balance in the U.S. foreign-trade picture.
Our big import bills for oil and certain manufactured goods tended to be offset by net export surpluses in farm products, services and high-technology items. Trade surpluses with Europe helped offset deficits in trade with Japan. The disappearance of jobs in autos, steel and other “smokestack” industries was supposed to be balanced by the creation of jobs in the service and high-tech manufacturing sectors.
Things are not working out that way. We still have a favorable trade balance in farm products and high-tech items, but the surplus is shrinking. Services have slipped into deficit. (An example of why: An airline that used to pay $5.50 an hour to workers in Tulsa for key-punching data into computers now gets the same work done in Barbados for $2.50 an hour.)
We now buy more from the Europeans than we sell. High-tech industries, far from absorbing workers displaced from traditional manufacturing jobs, have been laying off thousands of workers themselves. Business lost to foreign competitors is a big part of the reason.
The president of Hewlett-Packard points out that “last year this country had a larger trade deficit with Japan in electronics, $15 billion, than in passenger cars.”
Experts fear that the dramatic boom in service jobs, welcome as it is, won’t last much longer because of what’s happening to manufacturing. If that is the case, unemployment may rise to painful levels.
The manufacturing sector now accounts for only 20% of the non-agricultural work force of the nation, but churns out nearly half the U.S. gross national product and is therefore a massive purchaser of services. As economist Lester C. Thurow of the Massachusetts Institute of Technology told Business Week, “If industrial America is dying out, then those services used by industry will die out, too.”
The reasons for American industry’s seeming inability to hold its own against foreign producers are well known.
The trade barriers maintained by other countries are part of the problem, of course. Although protectionist legislation before Congress may be unwise, this country does have a right to demand that others grant American goods the same access to their markets that their products enjoy here. But this won’t help much unless we deal with the problems that are self-generated.
For example, there is the overvalued dollar, which makes U.S. goods more expensive abroad and foreign goods cheaper here. The huge federal budget deficit, which can be financed only by measures that tend to perpetuate the dollar problem. Inept managers who shirk long-term investments for the sake of short-term profits, and who are insufficiently export-minded. Too little attention to quality. A business hierarchy overpopulated with financial manipulators and underpopulated with executives who know how to make a good product. A tax structure that rewards consumption and punishes saving--the very opposite of what is needed to encourage investment in productive equipment.
The dollar has fallen of late, but not by nearly enough to be of much help to U.S. producers. From the standpoint of U.S. competitiveness, the Administration’s tax-reform bill would do more harm than good. Congress is proving disgracefully incapable of dealing with the budget deficit. With notable exceptions, business is showing no sense of urgency in dealing with managerial shortcomings that inhibit global competitiveness.
Such foot-dragging is unfortunate. It could be downright dangerous to this country’s future.
