Why We Should Care About Manufacturing

Matt Yglesias, who’s unhappy with our “unfortunate bias against the food service industry,” says that we make too much fuss over the difference between manufacturing and services:

To understand this problem, you need to start with the fact that if I build a factory where people take fresh peas and put them in cans that’s a “manufacturing” facility full of manufacturing jobs and people who “make things.” But if I build a facility where people take fresh peas, mix them with some basil and a touch of mint, plus olive oil, parmigiano reggiano, and pine nuts then purée them to serve you a delicious pea pesto that’s a lowly service sector employment cite that couldn’t possibly generate good jobs….It’s really a gap between putting things in boxes and not putting them in boxes.

….None of this is to say that we should be complacent about the state of the American labor market! Wages for working class men have been stagnating forever, and over the past decade women and college graduates have been getting squeezed too. The employment:population ratio is pathetic. We have huge problems. But the problem is not, as such, that we need more boxes of dried pasta and cans of peas and fewer restaurants.

Actually, in a broad sense, that’s exactly our problem. There really are some good reasons to care about manufacturing jobs. Here are three:

  • The manufacturing sector is generally more capital intensive than the service sector. Because of this, a pea canning factory can afford to pay higher wages for unskilled and semi-skilled labor than a restaurant can.
  • On a related note, manufacturing facilities are generally more scalable and more amenable to technological improvements. This improves productivity, and improved productivity is key to improved wages. By contrast, the restaurant business doesn’t have a lot of scope for automation or productivity improvements.
  • Manufacturing is part of the tradable sector, while service industries generally aren’t (though there are exceptions). A pea canning factory can ship its products overseas and help maintain our balance of payments. A restaurant can’t.

There are good reasons that the food prep industry isn’t held in high esteem, economically speaking. It’s labor intensive, not especially productive, and not tradable. No country will ever get rich by employing armies of workers to flip burgers for each other. This doesn’t mean that we have to have a huge manufacturing sector per se, but we certainly need industries that have a lot of the same qualities. Sectors that are capital intensive, scalable, and tradable are the future of any healthy economy.

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