New Life in the Smokestacks

February 16, 1991

Fears of a "de-industrialized" America have turned out to be exaggerated. Economists who found evidence in manufacturing's rapidly dwindling Gross National Product share are now seeing a different picture.

That is the import of a two-and-a-half-year federal study. Manufacturing had shrunk in the 1980s to as low as 21 percent of GNP, but grew in 1990 to 23.3 percent. Productivity climbed steadily: during the 1970s it increased by only 1.4 percent of the GNP per year -- one-third the pace of the nation's trading partners. By the late '80s it was climbing 3.6 percent a year.

It's easy to see why so many thought manufacturing was dying. Critical industries were closing up shop. In autos alone, Big Three plants slashed more than 250,000 jobs, precipitating an equivalent job loss in supplier industries. Consumer electronics seemed to just die as offshore competition gobbled its markets. Steel contracted rapidly. Factory jobs fell by 2 million.

What was happening was a face-off between markedly different schemes of production. U.S. consumer electronics did get mauled by old-fashioned cartel tricks, but that wasn't the whole story. U.S. manufacturers, in trying to "globalize" production, increased shipping distances, coordination difficulties and costs.

As Japanese and some European firms transplant themselves here, they've gone to areas U.S. companies abandoned. Thus, much of the rebirth is the fruit of foreign enterprise. A report by the MIT magazine Technology Review makes it clear just how much. Japanese electronics, steel and car-producing hybrids co-locate near subcontractors and suppliers whose operations are closely tied to their needs. They are coming not just to evade trade restrictions, but also to hold down costs.

Try this one for size. Sixty-six Japanese-owned or joint-venture steel mills, a $7-billion investment, employ 30,000 U.S. workers. Eight transplant auto plants, 20 rubber and tire works and more than 270 auto-parts suppliers, a more than $25 billion investment, are at the heart of the rebirth. That bears out the prediction that manufacturing could not die in America; either Americans would re-invent it, to pay foreign-exchange bills, or others would. Now it's time to apply those lessons learned.

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