It’s not uncommon in economic policy debates to hear people rending their garments over the supposed decline of America’s “manufacturing base.” There has never been much factual basis for these concerns; our manufacturing output has been steadily rising for decades. But Ryan Avent makes the more fundamental point:
Economic activity isn’t about satisfying the demand for objects, it’s about satisfying demand, period, and people demand many things that have little to do with assembly lines and smokestacks — hair-cuts, mixed drinks, financial advice, dentistry, and so on. These activities are important. If they weren’t important, people wouldn’t be willing to pay lots of money for them. Economic growth, meanwhile, is about figuring out how to do more with less. There’s no reason why “doing more with less” ought to be associated with manufacturing rather than services. It’s true that some service sectors that are among the fastest growing in terms of employment — like education and health services — have experienced slow productivity growth. But I think people are far too quick to conclude that this has something to do with the nature of the services provided, rather than with the institutional environment of those sectors and simple cost constraints.
Goods and services are, to a large extent, interchangeable. They constantly replace each other. A whole range of household tasks — services, fundamentally — that used to fall to family or hired help was replaced by manufacturing — off laundry machines, dishwashers, and so on. An entire range of a clerking and administrative services has been replaced by manufacturing — of computers and related hardware. And then there’s the programming; is that production of a good or a service? These days, some of my work finds its way into physical form in the weekly print edition of The Economist. Am I a manufacturer? No, you’ll say, but the printer is. The internet threatens that printer’s job, but it increases the value of my writing (while also making it more difficult for a private firm to capture). In this world, the idea that “manufacturing” is something worth protecting for its own sake makes little sense.
This is exactly right. Matt Yglesias has more.