(What’s Left of) Our Economy: New Peterson Pro-Globalization Study Only Deserves a “Nice Try”

Tags

China, Financial Crisis, Gary C. Hufbauer, Global Imbalances, globalization, Great Recession, Larry Summers, manufacturing, Peterson Institute for International Economics, productivity, secular stagnation, technology, Trade, trade agreements, trade liberalization, trade policy, World Trade Organization, {What's Left of) Our Economy

The Peterson Institute’s new study of the benefits to Americans of globalization apparently leaves no doubt that the nation should promptly forget about any retreat from conventional trade liberalization policies and resume its aggressive pursuit of new trade agreements like the Trans-Pacific Partnership (TPP). Or does it? A close reading of the report reveals gaping holes in these claims.

According to authors Gary C. Hufbauer and Zhiyao Lu, between 1950 and 2016, “trade expansion” has enriched the overall U.S. economy by $2.1 trillion, and boosted America’s output per head and per household by just over $7,000 and $18,000, respectively. Even better, lower-income households probably gained the most (since the greatest trade liberalization progress has been made in the goods that comprise so much of their consumption).

Yet the phrase quoted in that previous paragraph points to the first big hole in the Peterson findings. “Trade expansion’s” benefits, the authors specify, entails much more than either signing new trade deals or otherwise reducing trade barriers. It also includes “technological advances in transportation and communications [that] have drastically slashed the economic distance between countries.”

Of course, there’s been a lot of the latter over the last 66 years. What share of expanded trade’s benefits has come from trade liberalization policy decisions and what share from that technological progress? Darned if the authors know.

The long time frame, in turn, reveals a second major problem with the central argument. Obviously over that last two-thirds of a century, the world economy, and America’s position in it, have changed in numerous and fundamental ways. One prominent example: For the first roughly three post-World War II decades, the United States was the only fully intact developed country. How could trade liberalization not have been a major net benefit? America produced countless products that the rest of the world desperately needed. And none of its important industries faced significant import competition until the 1970s. That doesn’t sound much like current circumstances.

And in fact, Hufbauer and Lu acknowledge this problem, noting, for example, that “compared to previous decades, increased trade since 2003 has not delivered substantial gains.” At this point, however, their analysis gets dicey. For example, they speculate that that low recent payoff resulted partly from “the lack of fresh policy liberalization on a large scale (the failure of the Doha Round)….” But that period actually saw a hugely important liberalization initiative completed – China’s accession to the World Trade Organization. And don’t forget the numerous free trade deals signed by the George W. Bush and Obama administrations, including with South Korea’s very large economy.

Moreover, although Hufbauer and Lu rightly note that the financial crisis and Great Recession also have marked the post-2003 period, they claim that “The decade that experienced the greatest gains from increased trade was 1970 to 1980.” That decade witnessed no less than two recessions (three if you count the 1980 downturn).

Undaunted, the authors contend that returning to the trade liberalization policy course will result in even more American wealth creation. But here’s where their discussion of the post-2003 period fails badly – and unmistakably. They never mention that, thanks largely to that aforementioned boost to incredibly lopsided U.S.-China the first decade of this century produced the greatest U.S. trade deficits and associated global economic imbalances in world history. They ended in the financial crisis and the nation’s worst economic downturn since the Great Recession.

Since America’s main trade partners – including China – seem either just as export-dependent, and/or just as import-and consumption-phobic as ever, it’s difficult to understand why a return to conventional trade diplomacy, combined with the cumulative and often lagged impact of past deals (as noted by Hufbauer and Zu) wouldn’t end in near-catastrophe again.

Another big problem: Former Treasury Secretary and chief Obama economic adviser Larry Summers, along with many others, worry that the United States has fallen into an economic trap they call “secular stagnation.” They speculate that the nation has become so incapable of generating healthy growth that it’s grown dependent on blowing up credit and consumption bubbles to at least produce (misleading) signs of economic life – and that these bubble’s inevitable bursting keeps creating financial crises and serious slumps. Do Hufbauer and Zu believe that the sandbagging of domestic manufacturing (which hasn’t grown in real terms since 2006) due to import competition and offshoring isn’t partly to blame? 

Finally, and similarly, American leaders have finally recognized that the economy is experiencing a major productivity growth slowdown. Can trade liberalization’s real economic impact be measured without considering the effect on productivity of allowing all that trade damage to manufacturing, which historically has led the nation in productivity growth?  

It’s definitely encouraging that a major think tank like the Peterson Institute is looking in detail at globalization’s impact on America’s economy.  Let’s hope that its next effort reflects some actual thinking.  

Im-Politic: A Surprising Source (Unwittingly) Explains Need to Keep Tight Immigration Curbs

Tags

Im-Politic, immigrants, Immigration, labor costs, labor shortages, productivity, Ryan Avent, technology, The Economist

I’ve long argued that one of the main reasons for Americans to oppose mass immigration policies (including sweeping forms of amnesty for the current illegal population) is the devastating impact such labor inflows are likely to have on productivity growth. (Just FYI, here’s my latest take.) One of my main reasons? The relative scarcity of labor throughout American history deserves considerable credit for the nation’s emergence as a global productivity and technology leader. And since robustly improving productivity is a major key to boosting national living standards on a sustainable basis, that’s always struck me as a pretty strong argument to keep labor in short supply by limiting immigration – which of course brings in more workers. 

As a result, imagine my surprise to see that this view has just been supported by a leading writer for the British magazine The Economist – which has long loudly advocated for wider Open Borders.

The case for immigration as a productivity growth killer is solidly grounded in conventional economics. In that 2006 Congressional testimony linked above, I noted “When businesses conclude that the price of scarce labor has become excessive, powerful incentives emerge for them to substitute capital and technology for labor. And that means innovation.”

I then pointed out that “Our country owes much of its longstanding world leadership in most technology areas to this genuinely chronic scarcity and thus relatively high price of labor. Preventing shortages with immigration policy could weaken this proven spur to technological progress and all the benefits it brings.”

If you’re skeptical, here’s a link to the leading scholarly work connecting outstanding U.S. productivity performance and a chronically inadequate American labor supply. In fairness, not everyone agrees. Here’s a link to the most prominent rebuttal.

But I was understandably heartened to see the importance of scarce labor to productivity growth supported in this post by Ryan Avent, a senior editor and economics columnist for The Economist. According to Avent:

“Economic historians often explain divergences in patterns of industrialisation by pointing to differences in labour costs. British workers were expensive relative to workers on the continent and relative to British energy. British firms therefore had an incentive to develop and deploy new technologies that economised on labour and used a lot of energy: industrialisation! There’s more to the story than that, but that’s a pretty big component. Later something similar happened in America, where workers were even more expensive and resources even more abundant, and where the phenomenally productive ‘American system’ of manufacturing therefore emerged.”

Avent doesn’t explicitly make the immigration policy connection. But it’s glaringly obvious to all except the ideologically blinkered (or the hired guns of the American cheap labor lobby). Needless to say, I’ll be awaiting his next offering on the immigration policy debate with more than the usual interest. You should, too.

(What’s Left of) Our Economy: Will Tech Kill Too Many Jobs?

Tags

Alan Turing, artificial intelligence, automation, Financial Times, Gillian Tett, Jobs, Paul Wallace, Reuters, robots, tech, technology, Turing Test, work, {What's Left of) Our Economy

One of the biggest issues facing our whole human species is one that I have (uncharacteristically!) written on little: whether or not the latest and future generations of technology will kill off way more jobs than they will create. One big reason: I’m still trying to bone up on this question, and I’m still very much in the learning phase about the future of work – and especially work that will pay a living wage..

But despite my limited knowledge, I’m pretty sure that two recent articles on the subject are especially valuable for shedding light on dimensions that demand a lot more attention.

The first is a recent column on the Reuters site presenting a case for optimism that the new robots and artificial intelligence will turn out to be big net new jobs creators. Author Paul Wallace, a former editor at The Economist magazine, definitely makes some strong points. For example, he argues that too much of the research underlying the case for pessimism wrongly assumes that all positions in sectors considered highly vulnerable are equally vulnerable.

Indeed, Wallace spotlights a study finding that a focus on tasks rather than occupations can dramatically reduce the numbers of workers at risk – at least, it seems, for the time being. One big reason? Many seemingly vulnerable positions allegedly involve “crucial social interactions” that no hardware or software or combination (on the horizon?) can replicate.

Yet those possible qualifications I just mentioned point to one major potential vulnerability in Wallace’s argument – and in the study he cites. Both seem to assume that the technologies in question won’t advance much more – and possibly that they will never, or not for decades, reach the stage where they can interface adequately with human customers or colleagues. You don’t need to be a science fiction buff to understand the implausibility of that scenario.

In fact, recall that pioneering computer scientist Alan Turing displayed unmistakable confidence that such progress was at least theoretically possible. Why else would he have developed his famous test of whether machines could be genuinely intelligent, and even, by extension, conscious?

“Turing put forward the idea of an ‘imitation game’, in which a human being and a computer would be interrogated under conditions where the interrogator would not know which was which, the communication being entirely by textual messages. Turing argued that if the interrogator could not distinguish them by questioning, then it would be unreasonable not to call the computer intelligent, because we judge other people’s intelligence from external observation in just this way.”

The article also raises big questions about the quality of the jobs that Wallace (and other optimists?) are confident won’t be robot-ized out of existence. Some definitely seem desirable – like “designing smartphone apps that have only just sprung into existence” – although I still wonder whether sooner rather than later apps won’t be designing themselves much more efficiently.

But the other examples of safe jobs sound a lot like dead-end jobs – e.g., restaurant jobs, personal trainer positions, and tour guides. And I continue to struggle understanding why they’re thought to be especially safe, either, over any meaningful stretch of time.

Gillian Tett, the managing editor for U.S. news at the Financial Times, seems fairly upbeat about employment and automation, too, and also cites research purporting to undercut techno-alarmism. Like Wallace’s examples, it’s worth considering. Her summary of the message: “[P]eople are also working with robots in new roles.” But also like Wallace’s examples, it raises the question, “For how much longer?”

Much stronger is this point made by Tett: “[T]here is a burning need for policymakers to obtain much better data on what is really happening in the American workplace. Anthropological studies are small scale, while the macro-level data are surprisingly weak, partly because the Bureau of Labor Statistics tends to collect data through traditional channels.”

My contacts with the Trump transition team convince me that upgrading American government statistics bearing on trade and offshoring are due for a big rethink. The clearly surging importance of the latest actual and potential labor-saving technologies means that their actual and likely impact on the world of work demand the same treatment.

Those Stubborn Facts: About Those Low-Tech Chinese….

Tags

China, Digitimes, semiconductor manufacturing equipment, semiconductors, technology, Those Stubbprn Facts

Number of front-end semiconductor manufacturing facilities forecast to begin operating worldwide 2017-2020: 62

Number forecast to begin operations in China: 26 (c. 42%)

Number forecast to begin operations in “the Americas”: 10 (c. 16%)

(Source: “China to join top-3 semiconductor equipment spenders for first time, says SEMI,” by Jessie Shen, Digitimes, December 14, 2016, http://www.digitimes.com/news/a20161214PR200.html)

(What’s Left of) Our Economy: An All-Too-Convenient “Truth” About Productivity

Tags

An Extraordinary Time, economic history, establishment, living standards, manufacturing, Marc Levinson, per capita GDP, Populism, productivity, Robert J. Barro, technology, The Wall Street Journal, {What's Left of) Our Economy

As a close friend once sagely told me, “If you take the most cynical possible interpretation of something, you’ll rarely be wrong.” He surely would agree, “That goes double for politics and policy.” So I hope you agree that it’s reasonable to predict that Marc Levinson’s upcoming economics book An Extraordinary Time will attract an inordinate amount of establishment attention – including of course from the Mainstream Media – because it so conveniently absolves that establishment of any significant responsibility for the economic mess in which the nation finds itself. And of course, if American (and, to be sure, other leaders) can’t rightly be blamed for sluggish (at best) economic growth, stagnant wages and incomes, or even (presumably) the financial crisis, then there’s no justification whatever for the populist revolt sweeping America and Western Europe.

Although I haven’t read Levinson’s book yet, I’m assuming that the long article-length adaptation published in yesterday’s Wall Street Journal is a representative summary. The author’s main argument is that the American (and other) high income economies don’t “roar anymore” because since the early 1970s, they’ve been experiencing a return to historically normal economic performance that mainly looks terrible because it followed a post-World War II boom that was unique and – most important – irreproduceable.

Worse, the principle reason for this return to normal is a productivity slowdown that’s been inevitable because it results overwhelmingly from the impossibility of recreating that favorable combination of circumstances that era enjoyed. As Levinson writes:

“The workforce everywhere became vastly more educated. As millions of laborers shifted from tending sheep and hoeing potatoes to working in factories and construction sites, they could create far more economic value. New motorways boosted productivity in the transportation sector by letting truck drivers cover longer distances with larger vehicles. Faster ground transportation made it practical, in turn, for farms and factories to expand to sell not just locally but regionally or nationally, abandoning craft methods in favor of machinery that could produce more goods at lower cost. Six rounds of tariff reductions brought a massive increase in cross-border trade, putting even stronger competitive pressure on manufacturers to become more efficient.

“Above all, technological innovation helped to create new products and offered better ways for workers to do their jobs.”

What both politicians and publics refuse to realize, he continues, is that

“Once tens of millions of workers had moved from the farm to the city, they could not do so again. After the drive for universal education in the 1950s and ’60s made it possible for almost everyone in wealthy countries to attend high school and for many to go to university, further improvements in education levels were marginal. Projects to widen and extend expressways didn’t deliver nearly the productivity pop of the initial construction of those roads.”

More fundamentally, however, “Productivity, in historical context, grows in fits and starts. Innovation surely has something to do with it, but we have precious little idea how to stimulate innovation—and no way at all to predict which innovations will lead to higher productivity.

“Moreover, the timetable cannot be foreseen.” And there is no “secret sauce that governments can ladle out to make economies grow faster than the norm.”

Not that Levinson’s theory is devoid of virtues. Especially admirable is his willingness to argue that neither Big Government liberalism nor Small Government conservatism has consistently managed to halt, much less reverse, the productivity deterioration over any length of time.

But at least on the basis of this article, he seems to have overlooked America’s historic economic record. Productivity, as RealityChek regulars know, is the area of economic performance about which economists display the least confidence. But the consensus view appears to be that America’s productivity growth glory days started somewhat earlier than Levinson suggests – according to widely accepted data, 1913. (To be fair, this paper in which they appear also suggests that the boom ended in the 1960s, not the 1970s. Moreover, although Levinson is referring to labor productivity, the data cited here present the broader measure of multi-factor productivity, which looks at a broad range of inputs needed to generate a unit of output.)

Further, what’s astonishing about the data in this study (I’m talking about Table 1) is that the era of peak productivity identified (1928-1950) includes both World War II and the Great Depression. Just as you’d expect unusually strong productivity performance during the former, thanks to the numerous major technological innovations generated by the war effort), you’d expect unusually weak performance during the latter, because all economic activity was slumping at historic rates. And yet the net result was productivity advance that puts that of later decades to shame.

In addition, although the return to peace brought multi-factor productivity growth back down to levels not seen since before the 1880s, the falloff from roughly the 1960s to the 1970s was much greater – even though no comparably epochal change took place.

Even more telling is how America’s economic growth performance contrasts with the framework described by Levinson. A recent report from Harvard University economist Robert J. Barro contains historical data on America’s per capita GDP growth – that is, how quickly or slowly the economy has expanded adjusting for population, and therefore the growth improvement that tends to result simply from greater numbers of workers.

According to Barro’s numbers, the 1939-1979 period does represent the nation’s best stretch of creating wealth per person. So that tracks well with Levinson’s argument. But the dropoff is pretty gradual through 1999 – when it really nosedives. That doesn’t bolster the Levinson view. Nor does the fact that lots of pre-1939 decades saw much faster per capital economic growth than either the 1999-2009 period or the the 2009-2015 period.

Levinson supporters can observe that these trends are roughly consistent with his emphasis on the productivity-enhancing role played by demographic movement (from countryside to city). And as a result, they’re consistent with the idea that productivity has been enhanced by the higher rates of high school and college graduation that have resulted.

But most Americans still don’t graduate college nowadays, and major questions have arisen about the value of a four-year college degree. It’s also widely argued that the typical American high school graduate is more poorly prepared for college than in the past. Isn’t is possible that poor public policies lie behind at least some of these failures? And what about technological progress? Many theories suggest that it should be speeding up, as it feeds on its own momentum. Instead, the opposite seems to be happening, at least in terms of technology’s record in raising living standards. Are there no policy decisions bearing at least some responsibility?

Finally, Levinson pays no attention to a possible explanation for slowing productivity growth that at least deserves some consideration: As I’ve suggested, the problem’s emergence coincides with the American government’s decision to start viewing with at most indifference to major losses suffered by domestic U.S. manufacturing – first due to the predatory trade policies of high-income countries like Germany and Japan, and then due to trade agreements that actually encouraged the offshoring of manufacturing production to super low-cost, low-regulation countries like China and Mexico. Since manufacturing has historically led the economy in productivity growth, is it surprising that official decisions to reduce its domestic footprint has undermined its overall productivity performance?

Levinson is surely right in noting that much about productivity – like much else about the economy – is beyond the control of politicians. As a result, voters should definitely hold realistic expectations about the economic changes that politicians can foster. But can anyone doubt that Levinson’s overarching claim, that the economy’s current overall performance is the best that reasonably can be hoped for, logically lets nearly all of the nation’s leaders off the hook – and will only deepen the despair and cynicism of all those Americans that “ordinary economic performance” is leaving behind?

Making News: Podcast of Last Night’s National Radio Appearance

Tags

China, Making News, protectionism, technology, The John Batchelor Show, Trade

The podcast of my appearance last night on John Batchelor’s nationally syndicated radio show is on-line.  So if you missed last night’s great discussion of China’s intensifying crackdown on U.S. tech companies – and what it means for the future of the U.S. and global economies – just click on this link!  The segment begins at about the 31-minute mark.

Making News: Back on National Radio Tonight Talking China’s Techno-Protectionism

Tags

China, Making News, protectionism, technology, The John Batchelor Show

I’m pleased to announce that I’m scheduled to return to John Batchelor’s nationally syndicated radio show tonight for a segment on China’s intensifying crackdown on big U.S. technology companies — in many cases, the same companies that helped lead the push to expand trade indiscriminately with this economic rogue state.

The segment is slated to begin at 8 PM EST and you can listen live at this link to what’s sure to be a great discussion with John and co-host Gordon Chang.  As always, for those who can’t tune in (or want to re-live the experience), I’ll be posting a podcast here on RealityChek as soon as one is available.

 

(What’s Left of) Our Economy: New Wrinkles in the Manufacturing Jobs Story

Tags

defense, Employment, Jobs, Labor Department, manufacturing, productivity, recessions, Russell Roberts, technology, Trade, World War II, {What's Left of) Our Economy

Just when I thought there wasn’t a heckuva lot more I could learn about the general, long-term (downward) direction of manufacturing employment in America, I just learned something pretty significantly new. Even better, the information bears on the big ongoing national debate about whether most of the blame for U.S. manufacturing job loss should go to trade and trade policy, or to improved productivity and the substitution of technology for labor.

I looked into the matter after watching a recording of a television show about globalization after Brexit. One of the featured guests, economist Russell Roberts, made a statement that I knew is flat wrong: “[M]anufacturing employment has been falling steadily, but long before we had free trade agreements; goes back to the end of World War II.” A few moments later, he (sort of) suggested that he was really talking about a rather different measure – manufacturing jobs as a share of total jobs. In Roberts’ words, this figure has been “falling steadily” for “about 70 years.”

Because I didn’t have the details in my head, I went back to the official statistics, kept by the Labor Department, and saw that I was indeed right on the first score. In addition, even though Roberts (as I knew) was correct on the second, the actual figures tell a much more complicated story than his standard rehash of the conventional wisdom that technology is the main culprit. Here’s what I mean.

When it comes to the absolute numbers of manufacturing jobs in the United States, they are indeed down considerably since 1945. But what’s as important as it is under-appreciated is that between V-J Day (in August, 1945) and June, 1979, American manufacturing employment rose by nearly 38 percent. That’s a period fully half as long as the 70 years Roberts mentioned. In addition, though the June, 1979 level of 19.553 million represented the absolute peak of the U.S. manufacturing workforce, even afterwards, the sector enjoyed periods of job growth. That is, its decline wasn’t all that steady.

For example, between late 1982 – when a deep recession ended – through March, 1989, the economy boosted manufacturing employment by 8.21 percent. From July, 1993 (following another, shallower, recession) to April, 1998, manufacturing increased payrolls by 5.36 percent. And of course, since the employment bottom hit soon after the latest recession ended, through last month, manufacturing employment has rebounded by 7.36 percent.

Manufacturing, as a result, has never come close to that World War II aftermath employment level. But the data also make clear that the start of manufacturing’s jobs decline (mid-1979) coincides almost exactly with the point at which trade – and especially imports – began rapidly rising as a share of the total economy, as this chart illustrates.

The same trends have held in connection with manufacturing’s share of total employment. I compared the December figures going back to 1945, and found that from then through December, 1980, the percentage of all American non-farm workers (the U.S. government’s official employment universe) employed in manufacturing dropped from 32.03 to 20.50. That’s a fall-off of just under 36 percent. Since then, the decline has been much faster – from 20.50 percent to 8.53 percent, or 58.39 percent.

Manufacturing has also managed to raise its share of the national workforce in several stretches since 1945. These periods include 1949 to 1956, and the years 1959, 1961, 1964-1966, 1971 to 1973, 1976, and 1983. But since then – and shortly after trade’s role in the economy began soaring – manufacturing has never repeated this feat.

Yet these statistics are telling us something else crucial about manufacturing employment and where it fits into the national economy. They’ve depended not only on trade and technology/productivity, but on macroeconomic factors (especially whether the economy is growing or shrinking), and on other political and policy factors – such as whether defense buildups are in progress (which gives manufacturing employment a lift) and whether all government employment is strong or weak (which affects its share of all jobs).

At the same time, better trade balances mean faster growth, manufacturing still dominates U.S. trade flows, and the sector is set to record yet another record trade deficit this year. So there can be little reasonable doubt that, although better trade policies are no manufacturing jobs cure-all, they’d make a valuable contribution.

(What’s Left of) Our Economy: A New Wrinkle but Same Old Manufacturing Renaissance Fairy Tale

Tags

Akron, Brain Belt, IndustryWeek, inflation-adjusted growth, Laura Putre, manufacturing, Ohio, plastics, polymers, recession, recovery, rubber, Rust Belt, technology, The Smartest Places on Earth, {What's Left of) Our Economy

Akron, Ohio, has become one of my favorite places in the world – honest to gosh. I’ve made some wonderful friends there over the years, had some great times, and learned lots from area manufacturers I’ve been lucky enough to get to know.

And because I’ve gotten pretty well acquainted with the city, and studied its economy, I was immediately suspicious of the recent IndustryWeek post spotlighting a book touting Akron as a leading example of “how the Rust Belt is turning into the Brain Belt.”

The thesis of The Smartest Places on Earth, by a former leading Dutch financial journalist and a Washington, D.C.-based economic consultant, has the ring of plausibility. For all its obvious struggles, America’s midwestern manufacturing heartland remains blessed with a wealth of engineering and technological talent and skilled workers. Therefore, it seems well positioned to capitalize on the promise of the newest technologies – which often spring in part from older technologies – and all their outsized growth and employment benefits.

Akron is also a plausible example of this transition. As IndustryWeek reporter Laura Putre correctly observes, “Times were dire for years” in this former center of rubber production. (Think “tires.”) But

“gradually, the region began to capitalize on its existing strengths—the material science expertise of its research universities, its workforce of engineers, scientists and tradespeople—and reinvent itself as the center of the polymer industry. According to statistics from the city’s website, upwards of 35,000 people in the Akron area are now employed in approximately 400 polymer-related companies.”

But here’s the problem: Despite making this transformation, at least according to the most authoritative (U.S. government) data available, Akron remains not only an American growth laggard, but an American manufacturing laggard. And P.S., I’m not talking about employment, which is what practically everyone thinks of when gauging manufacturing’s performance. There’s no doubt that, thanks to productivity improvement, industry today can turn out as much or more product than ever with fewer employees. I’m talking about output – the real measure of the sector’s health.

If Akron was getting so successful, why did its inflation-adjusted manufacturing production fall by so much more during the last recession (26.71 percent) than that of America’s cities as a whole (9.71 percent)?

Maybe something about the recession hit Akron harder than the rest of the country’s urban areas, and since the recovery has begun, it’s done much better? The numbers don’t bear out that thesis, either. From 2009 through 2014 (the latest figures available), Akron’s real manufacturing production rose by just 6.70 percent. Overall U.S. manufacturing urban output was up by 10.69 percent.

As a result, as of 2014, manufacturing in America’s cities was just 0.60 percent smaller than the peak it reached in 2007, just before the recession struck. In Akron, industry was still 21.80 percent below that peak.

The Smartest Places on Earth looks right on one point: The plastics and rubber industry (government data don’t separate them) helped prevent Akron manufacturing from performing even worse. During the recession, its after-inflation production dropped by only 6.52 percent, and since 2010, it’s risen by 19.45 percent. (These more detailed data only go up to 2013.)

But that improvement hasn’t been nearly enough to offset subpar performances in other major manufacturing sectors, especially fabricated metal products, machinery, and chemicals. Largely as a result, in real terms, manufacturing’s share of the Akron economy dipped from 15.63 percent in 2009 to 15.45 percent in 2014. (For U.S. metropolitan areas as a whole, it inched up from 11.51 percent to 11.55 percent.)

And that’s not because the rest of Akron’s economy has been killing it, even relatively speaking, during this historically feeble economic recovery. Since 2009, its constant-dollar growth has trailed that of American cities as a whole by 9.04 percent to 10.30 percent.

One of The Smartest Places on Earth‘s authors told Putre in an interview that the results of the kinds of transformations foreseen in the book “start to show up really in ten plus years.” And certainly no one should expect miracles, or anything close, overnight. But in the last year, American manufacturing has gone through an especially tough stretch, and Akron manufacturers told me on a recent trip that their area has been no exception. So just as with claims of a general U.S. Manufacturing renaissance, a heavy burden of proof remains with those insisting that a Brain Belt transformation will be a Rust Belt miracle worker.

(What’s Left of) Our Economy: Are the (Computer) Chips Really Down in Japan?

Tags

DRAMs, EETimes Junko Yoshida, foreign policy, information technology hardware, Japan, SEMI, semiconductor manufacturing equipment, semiconductors, technology, Victor Basiuk, {What's Left of) Our Economy

What a difference a few decades make! Back in early 1983, during my first few months as Associate Editor of FOREIGN POLICY magazine, a technology consultant named Victor Basiuk approached us with a draft article containing terms we’d never heard of – like semiconductors and DRAMs and industrial policy. It warned of a dramatically shrinking U.S. lead in key industrial and high tech sectors crucial to maintaining military strength and superiority, and the main threat to American predominance was Japan – especially in that semiconductor sector.

Although our staff only dimly understood what Victor was writing about, his findings – e.g., that Japan had overtaken America as a producer of what were then the world’s most advanced computer chips (64K RAM memory chips), and was determined to extend their leadership into next generation devices (256K RAM chips) – looked scary enough to justify publishing, and I’m glad we featured it in our Winter 1983-84 issue. (Unfortunately, the piece doesn’t seem to be available for free on-line.)

So a new EETimes article on the demise of the Japanese semiconductor industry couldn’t help but remind me of the trends Victor spotlighted so long ago, and how dramatically differently the world has turned out. Or has it?

To the experts, the woes of Japanese semiconductor makers are nothing new. Even I’ve recognized how, after years of pace-setting performance, they’ve fallen behind many competitors not only in the United States, but in Taiwan and South Korea as well. But the sectoral portrait painted by EETimes chief international correspondent Junko Yoshida, one of the best tech reporters around, is still jaw-dropping.

According to the author, “the single reality facing Japanese semiconductor firms is this: They no longer matter in the global market.” She supports the claim by noting that nowadays, only one of the world’s corporate semiconductor sales leaders is Japanese – Toshiba. And that one-time titan is so strapped with debt that some of its bonds have earned a junk rating. In 1990, by contrast, six of the world’s top ten semiconductor suppliers was Japanese.

Moreover, Yoshida demonstrates that all the steps taken by the Japanese government to reverse the decline have failed – because they were unable to offset the destructive impact of rigid and increasingly outdated Japanese management practices. Indeed, from 2010 to 2015 alone, these firms’ share of the global semiconductor market had been cut in half, from 14 percent to seven percent. As a result, “Japan as a whole has become a niche player” in the sector.

Yet there’s a crucial part of the story that Yoshida neglects: Japan’s continuing prominence in the advanced materials, equipment – and technologies – needed to manufacture semiconductors.

According to figures from the leading (international) association of the semiconductor sector summarized last year in a U.S. Commerce Department report, although the United States controlled the greatest share of the worldwide chip equipment and materials market (44 percent), Japan wasn’t all that far behind, at 32 percent.

Moreover, the Japanese hold a significant lead in many individual products. For example, the world’s only suppliers of large-scale lithography machines – the devices that use incredibly concentrated light beams to etch circuit patterns on semiconductor wafers – Japanese firms and a Dutch company (ASML) are literally the only games in town. In addition, that semiconductor manufacturers’ group (SEMI) ranks Japan as the world’s top supplier of semiconductor manufacturing materials – like silicon wafers themselves and photomasks – with more than half the global market. Indeed, half of the world’s top ten semiconductor manufacturing equipment companies ranked by revenue are still Japanese.

Semiconductors are commonly – and correctly – described as the building blocks of a modern, high tech economy, so Japan’s quarter century’s worth of struggles to remain a force, after years of worries that it might establish lasting supremacy, are certainly noteworthy. Nonetheless, because semiconductor manufacturing equipment and materials represent the building blocks of these building blocks, Japan still seems to have plenty of tech prowess left.