Manufacturing Matters: THE MYTH OF THE POST-INDUSTRIAL ECONOMY by Stephen S. Cohen and John Zysman (Basic: $19.95; 320 pp.)
In economics, an “inexact science” in which theory can never be proven in a laboratory, conventional wisdom, professional consensus--and perhaps even peer pressure among specialists--often seem to crowd out really controversial debates about fundamental issues. It’s almost as if most economists don’t want to challenge the basic tenets of their profession for fear of letting the rest of the world see that economics is frequently more inexact than it is a science.
That’s why “Manufacturing Matters” by Stephen S. Cohen and John Zysman is so unusual--and so refreshing.
Here, two highly respectable economists from a major university--Berkeley, no less--bash a few of their profession’s biggest sacred cows.
The long list of cherished bovine targeted by Cohen and Zysman include the concept, taken as gospel by virtually all American economists, that free and open international trade is America’s best path to growth; the idea that America is somehow evolving into a service-based economy; and the widely held notion that prowess in basic industries is not necessary for an advanced, information-based society.
They challenge these accepted truths in layman’s terms, without the econometric math that makes so many modern economic works unintelligible to non-professionals. Their clear intent is to change the course of public debate on trade and industrial policy issues, by making their work accessible to corporate executives and governmental policy makers.
They may have gone overboard in that direction--"Manufacturing Matters” is often repetitive, and sometimes reads more like a briefing paper than a full-fledged book. Still, that’s usually just the kind of work that gets noticed in Washington.
Cohen and Zysman get off to a fast start by tearing into the prevailing notion in their profession that America is undergoing a natural transformation from an industrial society to a “post-industrial” or service society, an inevitable transition supposedly patterned after our earlier move from agriculture to manufacturing. Mainstream economists and many editorial writers have argued that we shouldn’t even worry about such changes, that in fact they signal progress; America is becoming more advanced, they claim, by moving out of manufacturing and heavy industry and into cleaner, “knowledge-based” services and high technologies.
But Cohen and Zysman say that such transitions are neither natural nor inevitable, and indeed may not even take place at all. They note, for instance, that America hasn’t moved out of agriculture; farming has just become more productive, and thus less labor intensive.
The authors take up the position long held by the American labor movement, but dismissed by most economists, that America must protect its base in traditional heavy industries if it is to compete in the international arena. The service sector, Cohen and Zysman note, is tightly linked to manufacturing; it is not a successor to industrial production.
While American manufacturing has stagnated at a time when service employment is on the rise, Cohen and Zysman argue that is at least in part an outgrowth of the fact that productivity improvements in industry over the years have led to greater job specialization, frequently masking the indirect but real ties between newly created service jobs and the manufacture of tangible products. As a result, if the manufacture of an end-product is moved overseas, those distantly related, high-wage service jobs, in fields like product engineering and research and development, will eventually move offshore, too.
The United States will then be left with the low-paying service jobs that really are unrelated to industrial production, and the labor movement’s nightmare of laid-off steelworkers and laid-off semiconducter workers standing in line for jobs at Burger King will come true.
More important for Cohen and Zysman, without manufacturing prowess, America will soon lose the goods-producing base on which to try out new technologies; it will then cede the technological edge to nations that continue to make things. Ultimately, the United States will be unable to compete in the new manufacturing industries that grow up in the wake of technical innovations.
They note that Japan’s dominance in television production, for example, gave its television makers the base upon which to move into video-cassette-recorders and other advanced consumer electronics. That sophisticated production platform in turn gave many of those same firms a leg up when they moved in on semiconductors.
When it comes to figuring out how Japan originally got that manufacturing edge that today enables it to dominate worldwide markets, Cohen and Zysman are at their most controversial. They argue that Japan has moved ahead not because of any “natural comparative advantage,” nor because of some cultural trait that allows them to organize work more efficiently.
Japan is ahead primarily because its government has, since World War II, offered its industries effective protection in the Japanese home market from foreign competition. Complementary policies to promote domestic demand and create easy financing made the insulated Japanese industries even stronger. That insulation has given Japanese firms in a dazzling array of manufacturing sectors the strength to take on all comers overseas.
Japan’s striking ability to produce consumer goods thus did “not emerge from the mists of Japanese history,” Cohen and Zysman insist, but from the kind of raw protectionism so widely eschewed by American economists. And today, they add, Japanese protectionism, not American openness, is the model being copied by developing nations.
Thus, Cohen and Zysman seem to argue, free trade exists today only in the minds of American economists and leading members of the Reagan Administration.
Unfortunately, the authors seem frightened in the end by the radical direction in which their logic leads them. While they tentatively support selective protection for key industries, they back away from advocating the kind of strict, all-purpose barriers that they say have made Japan great.
Still, that final weakness doesn’t detract from the fact that “Manufacturing Matters” performs an important service, by challenging the defeatist nostrum that the decline of American manufacturing is somehow natural and inevitable, and thus cannot--and should not --be stopped.