[OPE-L] Explaining the "decline" of US manufacturing

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Fri Jan 04 2008 - 16:41:09 EST

If you surf to BEA, you can get a table there of the composition of US GDP by major type of net output produced (goods, services and structures). You can calculate that the change in the proportion of "service outputs" vis-a-vis "goods & structures outputs" across 1980-2007 has declined by only 3%. (The general BEA definition of "services" is "Products that cannot be stored and are consumed at the place and time of their purchase", thus the "goods" in included net output are products which can be so stored, and are not consumed at the time of their purchase. An economic statistican knows this distinction is problematic, but okay that is what we have to work with).

I find that, on this indicator, the value of total US "production of goods" has not significantly "declined" in that interval of time. In real terms, the annual value of total net output of "goods" produced increased by 2.6 times during that 1980-2007 interval, whereas the annual net output of "services" produced only doubled, for structures it's about an 1.6 x increase (Table 1.2.6). The total physical output of goods (physical units) has increased much more, but this is difficult to prove other than with anecdotal evidence from particular industries. 

However, the contribution of US manufacturing to "total private industry income" (gross of CCA) was about 13.7% in 2006 as against 26.3% in 1980, so from this accounting point of view manufacturing directly generates proportionally half of the income that it used to contribute to total private industry income. 

Also, in 2006, US manufacturing represented only 10.2% of total persons engaged in domestic production, as against 21% in 1980. (In terms of fulltime equivalent employees, the percentages are 10.8% in 2006 and  22% in 1980, i.e. about the same). So the manufacturing workforce was basically halved across that time.  


So here is what you have to explain: how can the total net output value (and physical volume) of "US goods produced" per annum strongly increase, with its proportional contribution to GDP staying fairly stable, even although private manufacturing income and employment declined by half? This is what Marxists don't do.


You can explain that statistical result probably īn the following terms, I think. 

- Firstly, quite simply a lot more goods were produced with a lot fewer workers as such, implying a strongly rising S/V and OCC. Roughly speaking, one hour of US manufacturing labour now yields four times as much net output as it did in 1950. 

- Secondly, an organisational change of corporate production (property relations, financial structure, etc.), which means that intermediaries between producer and consumer get more income from domestically produced manufactured goods, and the actual direct manufacturers get less direct income from them (in other words, there is a hefty markup on the producers' sale price in the financial intermediation between producer and consumer). In general, production income external to manufacturing increased much more strongly than within manufacturing. Ideologically, it seems that rising manufacturing productivity "raises real wages and living standards for American families, so that US. workers can buy more for every hour of work" but this claim distorts reality (see the OPE-L discussion on the "value of labour power") .  

- Thirdly, the value of output of "goods produced" external to manufacturing strongly increased, both due to other goods-producing industries (e.g. farming, mining, construction etc.), and possibly to the modification of manufactured goods external to manufacturing. 

The overall effect is that, in terms of value relations, actual manufacturing activity has been "devalued" in the economy relatively and absolutely.

So yes, you can validly say that US manufacturing has "declined" qua income and employment. But in reality, the total physical volume and total value of goods production has strongly increased. All this doesn't make US manufacturing less competitive in the world, but more competitive. What has changed is its organisational structure, its relative economic weight, and that internationally, it has more competitors. 

Even so, structurally nothing much has changed in terms of the foreign trade position, except that total foreign trade in goods has increased somewhat, and that proportionally, far more foreign goods are imported. 

Combining Census and NIPA data, we can for instance calculate that:

In 1980, the US exported $225 billion worth of goods (=about 20% of the value of all goods produced domestically)  and imported $250 billion worth of goods (=9% of GDP), an export/import ratio of 9:10   
In 2006, the US exported $1023 billion worth of goods (=about 25% of the value of all goods produced domestically) and imported $1,861 billion worth of goods (=14% of GDP), an export/import ratio of 5.5:10

In summary, the ideology of the "decline of US manufacturing" has mainly to do with 

- that it now employs half the workers it did in 1980, 
- that it directly receives half the income that it used to in 1980
- that its relative economic weight has declined

but NOT with its actual output, which hasn't declined but increased. For comparison, China lost 15% of all its manufacturing jobs since 1995, even as output strongly grew.

Hopkins and Wallerstein (1986), define a "commodity chain" sociologistically as the "network of labor and production processes whose end result is a finished commodity". It sounds very Marxist.  But this definition is dead wrong, because it leaves out financial intermediation between producers and consumers. Gereffi and Korzeniewicz therefore expand this definition to include "the post production marketing and sale of the product" included in what Michael Porter (1990) refers to as a product's "value system". That is a much better idea, because if we look at the cost composition of final prices, the actual material production cost is growing less, while the markup of intermediaries is strongly increasing on average. Let's recall here that GDP outputs are valued at producers' output prices, not at the final selling prices to the final consumer. 

How does all that relate to the LTV? Basically, a lot more of the final value of commodities (not the producer's price) nowadays consists not of material production costs in making them (including physical transport and physical storage) but of "circulation costs". These circulation costs also involve labour-time, there's no doubt about that, but it is the labour-time of financial intermediation. This labour is not "unproductive" since it generates profit. But it is unproductive, in the sense that it does not make any net addition to the total amount of goods being circulated.


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