Donald Trump will bring ‘millions of manufacturing jobs’ to the US. Ohio – a key swing state – will become ‘a manufacturing behemoth’. Hilary Clinton has promised $10 billion for manufacturing investment, and told her supporters ‘we need to get back to building things’. Theresa May may have sacked George Osborne, who pledged a Britain ‘carried aloft by the march of the makers’, but ‘the makers’ are at the centre of her new industrial strategy. And Jeremy Corbyn has promised that promoting manufacturing will be a priority for his national investment bank.
Steel is the archetypal manufacture, and politicians have long been obsessed by it. The future of Tata Steel, the last remnant of Britain’s steel industry, now owned by the Indian conglomerate, has been a matter of political debate and a dominant issue for the Business Secretary for the last six months. The steel industry, nationalised by Labour in 1951 and 1967, privatised by Conservative governments in 1953 and 1988, was the totemic ‘commanding height’ of the British economy. The central derangement of Mao’s Great Leap Forward was the backyard furnace, with peasants urged to melt down their pots and pans to put the metal at the service of the nation. When the Soviet Union collapsed its steel-making capacity far exceeded that of the United States although Soviet GDP was far less.
I first encountered manufacturing fetishism in 1980, when I wrote an article observing that a decline in UK manufacturing was an inevitable consequence of the growth of North Sea oil output. Since in the long run the trade balance balances, a surge in one category of exports or import substitutes would necessarily squeeze other export sectors, particularly less differentiated commodity products such as steel.
The article received wide publicity, much of it hostile. The nature of the criticism was exemplified by an encounter with the late Lord Kaldor, the architect of the 1960’s Selective Employment Tax, which taxed service sectors in order to subsidise manufacturing employment. ‘I haven’t read your article’, he told me, ‘but it’s rubbish, absolute rubbish.’ The objectors were less concerned to dispute the logic of the argument than to claim that the conclusions ought not to be true, or if they were true ought not to be disseminated. I started to understand that for many people the role of manufacturing industry was an emotional, perhaps even a moral, issue rather than an economic one.
Manufacturing fetishism – the idea that manufacturing is the central economic activity and everything else is somehow subordinate – is deeply ingrained in human thinking. The perception that only tangible objects represent real wealth and only physical labour real work may have been formed in the days when economic activity was a constant search for food, fuel and shelter. Man hunted, fished and made primitive implements. If he was good at these things, his wife and children prospered; if not, they died. The women also worked hard – perhaps harder – but what was seen as economically productive activity was male.
From these primitive times, we have inherited the notion of a hierarchy of needs in which food and shelter rank ahead of chartered accountancy and cosmetic surgery. Along with the hierarchy of household needs comes a perception of a hierarchy of importance for productive activities – agriculture, primary resources and basic manufacturing rank ahead of hairdressing and television programming.
But such thinking ceased to have economic relevance once technology and economic institutions advanced enough for it to be unnecessary to hunt and till all day in order to get enough to eat – a state of affairs which was reached many millennia ago. Once primitive tribes achieved this level of economic progress, they started to add discretionary activities to the fulfilment of their basic needs.
The services they craved then remain representative of the services we buy today. The priest would ward off evil; the political leader would organise the looting of the resources of alien tribes; the repair man would sharpen stones and knives; and eventually the insurance agent would organise a scheme of mutual support for unlucky villagers whose cow died or whose house burnt down. With the rise of this market economy came Adam Smith’s division of labour. Specialist tasks were assigned to those best qualified to fulfil them.
“Surely you don’t think that an economy can survive on hairdressing and hamburger bars.”, my critics raged. No, I didn’t; any more than I thought it could survive on steel and automobile production. Modern economies are necessarily diverse. But the diversity of consumption need not correspond to the diversity of production. As Smith noted, the division of labour was limited by the extent of the market, and the growth in the geographical scope of markets has steadily increased the geographical division of labour. Switzerland and Denmark are among the richest countries in the world but neither has ever manufactured a single automobile.
Along with ever more extensive division of labour has come ever more extensive differentiation of products. You can buy a business suit by George at Asda for £29. It will be practical; ready to wear, polyester blended; ideal for a gangland funeral, and machine washable so that your moll can pop the bloodied trousers in at the laundromat and they will come up as good as new. You can pay ten times as much at Marks and Spencer for Italian tailoring and good quality wool fabric. And you can pay ten times as much again for a bespoke suit from Savile Row. You need to decide whether you want a stylish suit, or just a suit: a customised suit, or just a good-looking suit. You need not pay much for a suit but you will pay a lot for style, and a lot more for personalisation.
You – or your government or insurer – will pay a pound or two for a pill, and many times that for a specialist drug, such as a modern cancer treatment. Generally, the ingredients will cost at most a few pence. You might pay up to £10m for an aircraft engine. Such an engine would fit in a box the size of a small sofa.
The rear cover of the iPhone tells you it is designed in California and assembled in China. The phone sells, in the absence of carrier subsidy, for around $700. Purchased components – clever pieces of design such as the tiny flash drive and the small but high performing camera – may account for as much as $200 of this. The largest supplier of parts is Apple’s principal rival in the smartphone market, Samsung. ‘Assembled in China’ costs around $20. The balance represents the return to ‘designed in California’, which is why Apple is such a profitable company.
When you buy a drug, or an aircraft engine, or an iPhone, you are not paying for the materials. Nor for the manual labour that put it together. You are paying for the research and the design. When you buy the suit, or the aircraft engine, you are paying for some labour – but the highly skilled labour which (at Rolls Royce) controls the machine or (on Saville Row) cannot yet be matched by machine.
Many of those who talk about the central economic importance of manufactured goods do so from concern for the trade balance and employment. Where will exports and jobs come from in a service-based economy, manufacturing fetishists ask? Britain’s leading manufacturing exporters are British Aerospace, Glaxo SmithKline, and Rolls Royce. Jobs in export activities in Britain and America come from doing here the things that cannot be done better elsewhere because of the particularity of the skills they require. The iPhone is a manufactured product, but its value to the user is as a crystallisation of services.
As economies passed beyond the basic and all-consuming requests for food, fuel and shelter, rewards became divorced from the place activities enjoyed in the hierarchy of needs. You only got paid for producing goods that people wanted, but it soon became apparent that insurance and priestly services were among the things people felt they needed. The earnings from different activities reflected the availability or scarcity of the talents needed to produce them, and your position in the power structure of the tribe. The first explains why the insurance and repair men did well, and the second accounted for the prosperity of the political leader and the priest.
Those who are lucky enough to possess these rare talents or occupy positions of authority have often felt embarrassed by earning more than those who work to satisfy more basic elements in the hierarchy of needs. Often, they also enjoy occupations that are less arduous and more fun. Such embarrassment at their good fortune is rarely very great, and does seem to have diminished recently, especially in the finance sector. But emphasising the importance we attach to these other supposedly more necessary, but less well-remunerated activities, is a means of assuaging our guilt.
So where will the jobs come from? The value of the manufactures exported by developed economies is mostly derived from the talents of organisation and design we associate with services. Physical labour incorporated in manufactured goods is a cheap commodity in a globalised world. But the skills and capabilities that turn that labour into products of extraordinary complexity and sophistication are not. Few who work for British Aerospace, GlaxoSmithKline or Rolls Royce are engaged in arduous manual labour, and those few are typically engaged in the provision of ancillary services to the activity of manufacturing rather than the manufacture itself.
But however far globalisation advances there will remain personal services which can only be performed close to home. And low skilled jobs in an advanced economy will mostly be found in these activities. Workers in China can assemble your iPhone, but they cannot serve your lunch, collect your refuse, or bathe your grandmother.
At this point, the manufacturing fetishist denies that these are ‘real jobs’. This is above all, a gender issue; when you ask for a definition of a ‘real job’ it is one that has traditionally been undertaken by a man. Mining and manufacturing are ‘real jobs’; cooking and caring are not. Thus the decline of manufacturing is associated with the emasculation of the work force. The manufacturing sector which employed a majority of women – textiles – was of course the industrial analogue of the traditional female activity of making clothes for the family, and barely acknowledged as a source of ‘real jobs’.
The manufacturing obsession has no economic basis, but considerable social and political significance. Manufacturing was once a principal source of low-skilled male employment. But this can no longer be true in advanced economies. And much manufacturing was undertaken in large plants which dominated their communities, many of which have closed. The few service activities which are undertaken in large institutions which similarly dominate their communities – such as hospitals and universities – have shown more permanence and in any case employ high-skilled professionals. The decline of manufacturing is associated with the emasculation of labour. And the destruction of male social bonds and units of political organisation.
Some of the roots of the white working-class resentment which supports Donald Trump and voted for Brexit are found in these gender-related consequences of the structural consequences of economic globalisation. It would be an absurd response to look back longingly on pictures of men with bare torsos covered in sweat working in the light and heat of rivers of molten iron, or heaving coal as they spent half their day working underground; these may have been real jobs, but they were awful jobs, and our society is better off for no longer needing them. But there is a solidarity and stability that has been lost, and consequences of that loss which will not go away. But I am already past the point at which the economist must pass the baton to the sociologist, the anthropologist – and the politician. But what sort of politician?