The Misconception Of Manufacturing Decline
IMPO Magazine recently had the opportunity to talk with Joe Atikian, the author of Industrial Shift: The Structure of the New World Economy. Atikian has a professional background in utilities and automotive engineering, and now writes books on economics and development. In his latest literary venture, Atikian grapples with some of the largest trends facing industry globally – from the decline of manufacturing, to the rise of China, to jobs and the service sector in the age of outsourcing.
He argues that even in our turbulent global economy, the popular idea of declining farms and factories is largely unfounded. As cited in his work, UN and World Bank data show that food and manufacturing output are growing everywhere, but remain hidden by the faster-growing services sector.
In this interview, Atikian addresses how these misconceptions began, American as a viable manufacturing hub in the future, and why we can't overlook Mexico.
Nowack: What are the major trends that you cover in your book, Industrial Shift?
Atikian: The main focus is on the continuing shift between industry sectors: agriculture, manufacturing, and services. The lines are blurry, but the trends are clear. In the most advanced economies, the share of agriculture has stabilised, the manufacturing share is declining, and the services share is rising. The biggest surprise to most people will likely be that all three sectors have always been growing and continue to grow today. It is only the relative proportions that shift.
The book also maps out where industry is shifting to and from. All over the world, very little action is seen in the North-South axis, whereas the East-West shift is earth shaking. It’s no surprise that China and the US dominate the discussion, but China is not immune to the same economic forces that shaped the rest of the world. For example, factory employment in China peaked years ago as productivity went up and wages followed. The best predictions of coming industrial shifts in the 1950s failed to come true because technologies advanced so quickly. Likewise, today’s predictions should be treated with caution. Is it possible for the US to become the world’s predominant services provider instead of its manufacturer?
Nowack: In the book description, it says that “the popular idea of declining farms and factories is largely unfounded.” Why do you think these misconceptions began, and do you think they are changing?
Atikian: The source of our current misconceptions seems clear. In the 1940s, economists made comparisons of the world’s largest economies and their sector shares (farms, factories, services). They found that services peaked at about 45% of GDP, and concluded that it would be impossible to grow the sector any further. Why not? Because services could not be traded without a ridiculous cost. Imagine a doctor or engineer sailing from New York to Shanghai to consult clients. Of course we know that by the 1960s, jet aircraft and orbiting satellites enabled a global torrent of business travel and data transmission. Services took off, and the US now has a multi-billion dollar trade surplus in services with China. The prediction was proved completely false within twenty years, and an enormous economic gain was generated in medicine, engineering, tourism, and many other fields. The perception that factories killed the farmer had long faded, but we still cling to a similar error, namely that services cannot grow without impoverishing a manufacturing based economy. We still cling to the 1950s notion that services are second best.
I don’t see a change in our general perception of industrial sectors. There is still a far greater emotional response to a factory closing than to an engineering firm opening. It’s not that plant closings are trivial, or that engineering is somehow superior. But there may be a problem with our focus on factories in that it takes energy away from aggressively developing more advanced services. After all, there is nothing to prevent India from becoming the world’s dominant services provider.
Nowack: Do you think the off-shoring trend will continue, or do you think reshoring trends will expand? Is America a viable manufacturing hub anymore?