Can the U.S. Economy Thrive in Absence of Manufacturing Innovation?
Prior to 2008, and starting with development of the internet into a somewhat viable platform in the 1990s, outsourcing of production activities became the in-thing, the new evidence for presence of managerial acumen in corporations. First, it was Mexico and the Tijuana Triangle. Later, it would be China, Indonesia, and the rest of the East Asian Tigers. The way the story went, production of goods eventually would shift to developing and emerging countries, with outcome developed countries would specialize in financial services and virtual technology.
Right from the onset, the Mathematics of the supposed evolution did not add up, was, for the following reason, suspect. The expectation that all physical production could be shipped to developing (or emerging) countries assumes developing (or emerging) countries can expand physical capital indefinitely, that is, ad infinitum.
This assumption easily is shown to constitute an economic fallacy.
If developing (or emerging) countries are able to expand their physical capital indefinitely, but yet with goods produced targeted significantly at developed countries, this is possible only if, absent simultaneous accumulation of physical capital, developed countries also are able to expand their economies indefinitely.
But how exactly does a country, absent accumulation of physical capital, expand it’s economy indefinitely?
In order for a country to expand it’s economy indefinitely, but yet not expand physical capital (physical assets, such as factories, machines, bridges, roads etc.), newly created virtual (financial & technological) assets are built on existing virtual assets, with outcome we arrive at a pyramid of virtual assets.
Absent presence of some physical assets at base of a pyramid of virtual assets, arrival at a pyramid of virtual assets normatively is impossible. At end of the day, there must be at the very least, some virtual assets that produce physical assets. It further must be the case that absent expansion of physical assets for generation of new streams of income, expansion of virtual assets becomes inherently difficult, becomes non-tractable.
For illustration, regardless of how much of technology is infused into agriculture, the agriculture industry ultimately must produce food for consumption. We have then that all virtual innovation that transpires within the agriculture industry can be supported, that is, is profitable only in context of aggregate revenues and profitability of food that is produced by the industry.
Unless new virtual innovation improves productivity of existing physical assets, or creates new physical assets, building of new virtual assets on existing virtual assets is nothing but a sophisticated Ponzi game.
The financial meltdown of 2008, which was predicated on highlighted imbalance, which is, building of economy of developed countries on virtual assets, and economies of developing or emerging countries on physical assets, was supposed to induce a rethinking of structure of economic activities around the world that generates stability of economic interactions between nations.
Rather than learn lessons of the meltdown, which is, no matter how sophisticated, an economy cannot be built in entirety on virtual assets, developed countries, most especially the U.S. are right back on exactly the same path.
Again, we find ourselves in a situation within which the political establishment is discouraging investments in new physical assets, is discouraging investments in new productive capacity. The political establishment actively is trying to sell U.S. polity on progression to a virtual economy. The political candidate, Andrew Yang is representative of this sort of push for virtualization of economies of developed countries.
Just about every new innovation today is an ‘app’ based innovation, an investment in progression to a virtual economy.
If none of these app innovations generate new productive capacity, or induce creation of new physical assets, the American economy once again becomes a house of cards that eventually will come toppling down.
But is manufacturing inimical to maintenance of economic development and technological sophistication of a society? True, a society within which some work in sophisticated lighting environments that are characteristic of companies, such as Google, and within which others find themselves in soot darkened factory halls seems too disparate, seems highly unbalanced.
But is this not merely statement of a technological challenge, which is, “how to redesign existing production facilities,” or “how to come up with competitively priced new products,” production of which requires factory facilities whose lighting and sophistication rival those of companies, such as Google?”
Part of the rationale for transition of the U.S. economy to a gig economy is a glut of virtual skills. In the push for virtualization of the economy, young people have been pushed en mass into acquiring of degrees fit only for virtual work. Absent accumulation of new physical capital, however, the economy eventually hits a saturation point for such skills. In absence of new physical capital that enables generation of new income, the amount of money available for devotion to acquisition of virtual skills is fixed. Andrew Yang’s solution? US$1,000.00 a month for all residents of the U.S. who invest US$100,000 in formal education for acquisition of virtual skills, but who subsequently are unable to secure jobs. Is it not better to diversify the economy into sophisticated manufacturing innovation, such that people are employed productively?
Mathematics that is done right does not lie. It is impossible to build a stable, progressive, and vibrant world economy within which economies of developed countries are, for the most part virtual, and those of developing countries are, for the most part, made up of physical assets.
In a world within which production of physical assets is deemed unintellectual, and production of virtual assets, intellectual, progression of developed countries to virtual economies seems desirable.
Consider, however, that building of a bridge over water is an extremely intellectual exercise, as is development of a new technological innovation that solves a physical, as opposed to a virtual problem.
If developed countries act as if production of physical assets is beneath their people, make their people feel such jobs are lacking in dignity, the Mathematics predicts continuity of imbalance within such economies, continuity of booms that never really emancipate people, but still yet are followed by busts or recessions.
There is not any evidence that the current protracted economic boom, which is predicted to end in 2020, has generated any real emancipation within the U.S. economy.
Consider the argument that manufacturing jobs are made up of actions or routines that are extremely repetitive, with outcome they can be regarded to be non-demanding on the intellect.
But is there any job that does not have any repetitive components?
If a university professor specializes in teaching of a course, he or she teaches that course over and over and over again. If he or she has two sections of the same course (two different classes for the same course that run simultaneously — a course can be split into two classes for maintenance of target ‘teacher:student’ ratios, for ensuring students feel they are getting value for money), he or she has to teach, within the very same week, exactly the same material. Clearly, teaching the same material within the same week is repetitive.
How about coding? If a coder is responsible for management of an app or website, he or she does the same thing over and over again, which is, manage the code that ensures well functioning of the app or website. Again, we find that a job that seemingly is intellectual is characterized by components that are repetitive.
By the way, think about this, which is, can we say that driving for Uber is less repetitive than participation, via well paying jobs in production of some new and technologically sophisticated manufacturing innovation?
If the argument is that manufacturing jobs tend to be more repetitive than jobs that have to do with virtual assets, the challenge of dulling of repetitiveness of manufacturing jobs is a challenge that can be addressed in many different ways — technological, social, and managerial. This again is a problem that can be addressed, that can be mitigated.
Arguments against investments in physical assets — repetitiveness of tasks, and quality of work environment — are bad arguments, do not have any real merits.
It appears there is a school of thought that is hell bent on attempts at transformation of America into a virtual economy.
The Mathematics is clear, however, that transformation of developed countries into virtual economies only can benefit the already-rich, not the general body polity.
It is time that economists and financial economists speak the truth to developed countries, warn that transformation of developed countries into virtual economies inherently is lacking in mathematical feasibility.
It is time for policy makers in developed countries to consciously abandon any experimentation targeted at transformation of developed countries into virtual economies. If the Mathematics declares that an experiment has zero probability of success, embarking on such an experiment is an exercise in subjection of the future to futility. We all together deserve better than futility, deserve a vibrant progressive future both for ourselves, and future generations.