The Biden administration continues its “build back better” program. In particular, President Joe Biden lobbied for “Made in America” initiatives, including an executive order to increase American-made content in federal purchases. This is a positive step, but much more is needed to restore prosperity across the country. It is time for Washington to make long-term economic growth its primary goal.
The problem facing the nation is that policymakers seem oblivious to the critical importance of manufacturing – especially the lessons learned from America’s dramatic growth in the 20th century. The United States once prioritized manufacturing – and has seen a growing middle class. Today, real income growth in the United States has collapsed, to an average of 1.18% over the past 20 years.
Policymakers simply don’t realize how important manufacturing is to economic growth. Our analysis at the Coalition for a Prosperous America (CPA) – of the most prosperous economies over the past half-century – shows that a robust manufacturing sector is essential for high-level growth.
Take the example of Singapore. In 1975, Singapore was a poor nation struggling to find its way into the post-colonial era. At the time, the average income of Singapore’s five million people was $ 9,674, 61% below the US average of $ 25,120. The island nation also faced an almost complete lack of natural resources.
Singapore’s average income today is $ 59,374. That’s 6% above the US figure of $ 55,886. And over the past 20 years, Singapore has grown at 2.96% annually, two and a half times more than the United States.
How has Singapore grown so rapidly, compared to America’s decline at the same time? The answer: manufacturing growth.
Singapore has astutely pursued policies to revive a manufacturing boom that has generated good jobs and a higher standard of living. Specifically, Singapore has identified the best growth industries and prompted the most successful multinational companies to open new manufacturing plants.
The country has gradually found its way into high value-added industries, including electronics, chemicals, medical devices and biotechnology. Today, our analysis shows that Singapore has double the share of GDP from manufacturing compared to the United States – 19.5% versus 10.9%.
A similar example is Germany, which emerged from the rubble of WWII to become a leading economy. In the post-war era, Germany judiciously pursued heavy manufacturing. In the 1950s, Germany’s GDP grew by almost 8% per year, the fastest in Europe. Today, the German manufacturing sector represents 17.8% of its economy and the country continues to experience strong growth.
Manufacturing is what drives such an impressive expansion. And manufacturing has leverage. Production per manufacturing employee can double in a year and then double again. This helps raise wages, as manufacturing not only pays well, but also supports other jobs in the surrounding economy.
One of the reasons the United States has grown so rapidly over the past century is that workers in auto manufacturing and other key industries earned good wages and spent their income on products made in the United States. , creating a multiplier effect.
Unfortunately, the United States is now gradually losing its industrial base. As the Coalition for a Prosperous America documented in its “Relocation Index”, US manufacturers continue to lose ground in their home market. In 2020 alone, US producers ceded 30% of their domestic market to imports, a loss of more than $ 2 trillion. At the same time, the US trade deficit with the rest of the world continues to grow and is on track to exceed $ 1 trillion this year.
What put American manufacturing in such a free fall? In short: globalization.
In the 1990s, the United States embarked on a “hyperm-globalization” of trade that included the removal of virtually all the safeguards necessary for a national economy. The result has been to put domestic industry and American workers in direct competition with dozens of small, low-wage countries.
As a result, the same United States that achieved the near-miraculous feat of inventing the Internet – the most important new technology since the automobile – saw their productivity growth plunge to 0.6% between 2009 and 2016.
Washington must reverse this trend of deindustrialization and wage stagnation. This will require a strong whole-of-government approach, including tariffs, domestic buying, support for key industries, and a realignment of the overvalued US dollar. Experts can consider this to be a potent drug.
But it’s a proven formula for economic growth – as China, Singapore and Germany have already demonstrated. Otherwise, policymakers will continue to preside over the crumbling American middle class.
Jeff Ferry is chief economist at the Coalition for a Prosperous America.