The Manufactured ‘Decline’ of Manufacturing

We are awash in rhetoric about the supposed decline of U.S. manufacturing. It’s not just the far-right nationalist conservatives. New York Times columnist David Brooks, an ostensibly sensible moderate, recently wailed about the “hollowing out of American industry,” with the result that “we don’t make things anymore.” This is presented as a sign of the decline of America itself.

If you listen to the manufacturing doomers, reversing this decline would require drastic measures—like trade wars, giving massive new powers of economic regulation to the Commerce Department or electing a human wrecking ball to a second term as president.

But none of this is true. U.S. manufacturing is not in decline and never has been. We are still one of the greatest industrial powers in the world. The story of U.S. manufacturing and its alleged demise is actually a story about deceptive political narratives of decline and how they distort our view of the world.

The Eighth-Largest Economy in the World

Manufacturing output in the United States is somewhere around $2.5 trillion per year, bouncing back to approach its all-time (inflation-adjusted) high in 2007 after recovering from the shocks of the financial crisis and the COVID pandemic. This follows decades of steady increases in output, even during the years people were singing songs about “closing all the factories down” and moaning about the Rust Belt. The term “Rust Belt” itself dates, by some accounts, to then-presidential candidate Walter Mondale complaining about the declining state of the economy—in 1984, during the middle of the Reagan boom.

Just like other sectors of the economy, manufacturing has suffered temporary declines during recessions. But it has always bounced back to new heights. A recent must-read analysis by the Cato Institute’s Colin Grabow sums it up: “In 2021, [the U.S.] ranked second in the share of global manufacturing output at 15.92 percent—greater than Japan, Germany, and South Korea combined—and the sector by itself would constitute the world’s eighth‐​largest economy.” Remember when Japan was going to pass us by?

These days, of course, it’s the U.S. versus China. Yes, China now has a bigger share of global manufacturing—but that’s because China has more than four times our population. On a per capita basis, we have more than twice their industrial output. China sounds less impressive when you put it that way, doesn’t it?

And would we want the kind of manufacturing industry China has? It is still a poor country, on average, and its manufacturing has been mostly low-end, inefficient and driven by cheap labor. China’s per capita GDP is one-sixth that of the U.S.—which is to say that most Chinese live below what Americans would consider the poverty line. So we could definitely have their manufacturing—if we were fine being as poor as they are.

As it is, the total U.S. economy is significantly larger than China’s and likely to remain so. So why the narrative of decline?

The ‘Collapse’ of American Agriculture

Aside from a few sectors considered important to national security, like ship building, most stories about the decline of U.S. manufacturing have little to do with actual manufacturing output, even though people will insist on claiming we “don’t make things anymore.” If you look at the evidence they cite for decline, you will see that it’s mostly about manufacturing employment. It’s not about how much we’re making, but about how many people are making it.

It’s true that the absolute number of Americans employed in manufacturing has decreased since its peak, though not as far as you might think. In terms of absolute numbers, we’ve fallen from the highest point in 1979, when just under 20 million Americans were employed in manufacturing, to about 13 million today. That may sound precipitous, but it brings us back down to roughly the number of people employed in manufacturing between 1940 and 1950 (with the exception of a few peak years in the middle of World War II). The absolute numbers right now are a little above those of 1920, twice as many as at the turn of the 20th century, and many times more than in the 19th century, when the U.S. population was much smaller and agricultural workers greatly outnumbered industrial workers.

But that’s in absolute numbers. The real “decline” is in relative numbers. A few more people are employed in manufacturing today than there were 100 years ago—but the population of the United States is much larger than it was 100 years ago, and with the mass entry of women into the workforce, the working population is larger still. So while the percentage of the working population employed in manufacturing peaked between 30% and 40% (by some estimates) in the middle of the 20th century, it is about 10% now.

But remember that this “decline” is only relative. Manufacturing output has gone up and up. Manufacturing employment has declined a bit but is still at the same absolute level it was when America was an acknowledged manufacturing powerhouse. What has actually happened is that as our population continues to grow, more and more people are going into other fields instead of manufacturing.

Once you see this pattern, you won’t be able to unsee it. Look at everything people are saying about the “decline” of manufacturing, and they never talk about manufacturing output, the value of what we’re actually making. Even when they talk about manufacturing employment, they tend not to talk about absolute numbers but about percentages, about what proportion of the workforce is in manufacturing.

When you think about it, this is a crazy way to measure the state of an industry or an economy. Suppose we applied this to agriculture. If you asked someone about the state of agriculture in the United States, they could tell you that in 1800, almost three-quarters of the population worked on farms, while today it is less than 2%. Agriculture has collapsed, you would conclude, and therefore we all must be starving. But agricultural output has continually increased, nearly tripling just between 1948 and 2015. The cost of food has gone down, and Americans rather conspicuously struggle with obesity, not starvation.

The Future Is Not About Making Washing Machines

The comparison to agriculture is a useful one, because agricultural employment lost its dominance for the same reason manufacturing employment has lost its dominance: It became massively more efficient and productive. A farmer with a tractor could do more work than 100 farmers with mules. Much the same thing has happened in manufacturing. The kind of manufacturing that dominates in the United States tends to be high-tech, automated, skilled and highly productive. We aren’t making as many of the big and simple machines and instead are making more complex electronics. We aren’t making as high a proportion of goods manufactured for the consumer market—which is perhaps why it seems to the average person that America doesn’t make things—but we are making more machines and materials that are crucial for businesses. Here is Grabow: “In 2020, for example, the United States was the world’s leading exporter of medical instruments, gas turbines, and aircraft parts—goods not often found on retail store shelves.”

This is an example of how the way we encounter information can distort our grasp of the facts. In the middle of the past century, people could see big manufactured goods showing up in their houses. There were cars in the driveways, dishwashers in the kitchens, air conditioners in the windows and TVs in the living rooms. It was big and visible. But then we reached a point where everybody had these things. Graphs showing adoption of consumer appliances all level out at 100%. The market for big, visible consumer machines was saturated and no longer a source of growth. The future is not about who can make the most washing machines.

Much of the economic progress we’re experiencing right now, by contrast, is not in the form of more or bigger stuff, but in stuff that can do new and different things. Consider all the objects that used to sit on someone’s desktop as a way of organizing daily life and communicating with other people: a typewriter, a telephone, a calendar, a Rolodex, dictionaries, encyclopedias, a radio, a fax machine and so on. Now all of them are in one device you carry around in your pocket. This process of innovation is going to produce a lot of lucrative new jobs writing software and fewer jobs making physical objects.

The overall pattern is that not that manufacturing is declining, but that other stuff is growing—more sophisticated stuff, requiring new and higher-level skills, and yielding bigger rewards. Which is a good thing, right? For all the lament about the loss of “good jobs” in manufacturing, Grabow notes that “a 2022 paper found that the wage premium for manufacturing jobs has disappeared and noted that manufacturing wages rank in the bottom half of all jobs in the United States.” Even as factory jobs have been a declining percentage of employment, America is rapidly becoming an upper-middle-class nation. Why? Because the other jobs we’re doing pay better.

The only way in which this signifies “decline” is that manufacturing is no longer dominant. It is no longer the default or expected way for someone to make a living.

The Pursuit of Stasis

This pattern doesn’t just apply to manufacturing. It also is driving a lot of our culture war politics. As I’ve pointed out before, it’s not that you can’t actually have the male-breadwinner lifestyle of the 1950s; you can, and it’s actually more affordable now than it was then. It’s that people today have many other options, and given those options, they don’t choose the traditional lifestyle. People are not upset because something like manufacturing employment is actually shrinking or has become impossible to get or to do. They are upset because it is no longer dominant; it is no longer the norm.

One of the more intriguing theories about our current politics is Noah Smith’s hypothesis that the main benefit many of us now expect our politicians to deliver is stasis.

In many dysfunctional societies, the government’s guarantee of economic inclusion comes in the form of a specific physical good—usually, cheap fuel. In the United States, the in-kind subsidy we provide our people is the option to keep their world from changing.

We want our neighborhood, our jobs and our social roles to remain as we remember them in whatever era is locked into our brains as the norm: maybe when we were kids, or when we were in our prime working years. Or worse, we want the world to be the way we imagine it used to be. After all, you have to be well over 50 for your childhood to have coincided with the great era of industrial dominance. But there is no nostalgia more unconquerable than nostalgia for an era in which you never lived. Most of us, if we try, can remember the downsides of the world of our youth, which provides some balance for the good memories. But if you’re nostalgic for your parents’ childhoods, it’s easier to imagine only the good parts.

The grand irony is that this is how you actually get decline—by chasing after the past, instead of pursuing the future. If we want growth and progress, we need to stop longing for what we once had and start embracing the amazing new things we can have in the future.