The China Connection

The Asian giant isn't stealing our manufacturing jobs. The jobs, themselves, are evaporating.
June 2006
William Fulton
By William Fulton  |  Columnist
Director of the Kinder Institute for Urban Research at Rice University and former mayor of Ventura, Calif.

In the midst of the urban decay of the 1960s, Cleveland's planning director, Norman Krumholz, came up with a radical idea about the role urban planners should play in declining communities. Rather than trying to create more growth, planners should simply assume that their job was to manage decline. Cities would continue to empty out, and planners should help provide a soft landing for those left behind and for the communities where they lived, rather than maintaining the fiction that the fate of urban communities could be turned around completely.

The Krumholz approach came to mind recently because of the sobering statistics on worldwide manufacturing employment provided by William A. Ward, director of the Center for International Trade at Clemson University. Examining the trends in factory jobs across the globe, Ward concludes that American communities shouldn't focus on keeping as many manufacturing jobs as they can. Rather, cities and regions should be clear-eyed about which components of the manufacturing chain they should shed in order to stay competitive and which components they should try to retain. In other words, when it comes to manufacturing, America should learn how to manage decline.

Underlying Ward's conclusions is statistical information that turns our popular understanding of manufacturing trends on its head. We in America usually assume that our industrial heritage is slipping away from us because other countries--principally China--are stealing our manufacturing jobs. But the reality is somewhat different: Everybody is losing manufacturing jobs, because of both productivity increases and global shifts in demand from goods to services.

Although worldwide data must be cobbled together, Ward's best guess is that a decade ago approximately 172 million manufacturing jobs existed worldwide. Almost 60 percent of them--100 million factory jobs--were in China. Ten percent of them--17.2 million--were in the United States. So in 1995, China had six manufacturing jobs for every one job in the United States.

By 2002, Ward concludes, the world had seen a startling change. Globally, manufacturing jobs had declined by 12 percent to about 150 million. China had actually experienced a bigger decline than the rest of the world, losing 15 million to 20 million jobs. The U.S. experienced a proportional decline, from 17 million to 15 million.

But Ward's analysis goes one step further. He conducts a "job-shift analysis"--a measure of how many jobs should have been lost through productivity gains and how many should have been added through expansion of the economy. The United States, he concludes, lost around 40 percent of its manufacturing jobs due to productivity increases and 60 percent to foreign competition. China, on the other hand, should have added 5 million jobs; instead it was a huge loser. "China lost as many manufacturing jobs in those years as the U.S. possessed," Ward wrote in one recent article.

So, the reality is far different from our perception. Half of our manufacturing jobs are being lost because our economy is not growing as fast as our productivity increases. China isn't trying to steal our jobs. Rather, it is engaged in an effort to keep the manufacturing base it already has--because, despite China's stupendous economic expansion (8 percent in recent years), this expansion is being outstripped by even more stupendous increases in productivity.

What this means, from our point of view, is that a decline in manufacturing employment is inevitable, at least in the short run. We will never be able to keep up with China--not because China's workers are so cheap but because China is engaged in a desperate effort to expand the economy faster than productivity increases.

We can and should hang on to a manufacturing base, but it has to be the right manufacturing base, one that creates high-value-added products that can support U.S. wages and also takes advantage of clusters of suppliers, markets, labor force and so forth. In other words, we must accept decline and manage it strategically.

To those of us who grew up in the factory towns of the Northeast, this is no surprise. We stopped squawking long ago about the loss of jobs to other parts of the United States. We knew those jobs would drift from the South to Latin America to Asia. But now, the rest of the country--including the once-booming manufacturing areas in the South and Southwest--has to face this same reality. In that sense, all of America has become one big Rust Belt. And we can't bring back the golden days of manufacturing, whether it's the '40s in Detroit, the '70s in South Carolina, or the '90s in Arizona. It's time to move on.