Dr. Tassey began his presentation by observing that while most people agree that manufacturing is essential to the U.S. economy, no such agreement exists in explaining why this may be true. He said also that many economists saw no special importance in what products are manufactured; he repeated the quip that it does not matter whether we’re manufacturing potato chips or semiconductor chips, “as long as we’re manufacturing something.” Still other economists, he said, argue against producing a product in the United States if the relative prices of the world economy favor production offshore. To dispute such arguments, and the inference that the United States would do equally well as a service-based economy, he said he would propose four major rationales in favor of a strong onshore manufacturing base.22
Rationales for Strong Onshore Manufacturing
The first was diversification, which was seldom discussed in the debates over manufacturing. The United States is a large economy, and “putting too many eggs in one basket is a risky strategy. Manufacturing contributes $1.6 trillion to GDP, and employs 11 million workers. If you’re going to replace all of them with service jobs,” Dr. Tassey said, “you have to make some very convincing arguments that services can drive this economy at the rates that we want.” He said that many economists believe that services are not tradable, which is an argument that pertains to a time when a typical service was very labor intensive and needed to be produced on site. In other words, one would not send the laundry to China every Monday morning to benefit from lower wages. In fact, he said, many services are now tradable, such as customer assistance, engineering, and accounting, and some 30 countries have an explicit agenda to encourage service exports. “So if we became a service economy, we would end up having to compete just as vigorously as we are forced to do in manufacturing,” he said.
A second argument in favor of on-shore manufacturing is that it accounts for 67 percent of business and industry R&D, which represents a contribution of 11 percent of GDP. It also supports a 57 percent share of the nation’s industrial scientists and engineers. “If you remove manufacturing, you
22For a more detailed presentation of Dr. Tassey’s discussion, see Gregory Tassey, “Rationales and Mechanisms for Revitalizing U.S. R&D Manufacturing Strategies,” Journal of Technology Transfer 35: 283-333, 2010.