Automation causes trade
By Scott Sumner
David Levey pointed me to a Samuel Hammond review of a book by Oren Cass, who is a conservative critic of neoliberalism:
Accelerating productivity and automation aren’t to blame for working class woes, either. On the contrary, despite prophecies of robots rendering work obsolete, Cass marshals convincing data to show U.S. manufacturing productivity has essentially stagnated. More importantly, whether job destruction is from automation and globalization has very different implications. When a factory automates a process, output per worker rises and local labor demand may even increase. But when a worker is dislocated by trade, Cass notes, “the facility in which he once worked is likely gone, and the production now occurs somewhere else,” shunting less-skilled workers into lower paying service jobs or onto public assistance.
This is misleading in several different ways. While manufacturing productivity has recently stagnated, over the past 30 years it has been very rapid, and is the primary cause of job loss in manufacturing:
Output has nearly doubled, even as employment in manufacturing has fallen from 17.5 million to 12.4 million.
Cass also misunderstands the nature of technological progress, much of which is every bit as disruptive as trade. Consider three prominent examples:
1. Over the past 100 years, employment in coal mining has plunged to just a tiny fraction of its previous levels. This is not due to trade—the US is a net exporter of coal—rather it’s due to rapid technological improvements. This has been associated with a shift in coal production from the eastern US to western states where coal seams near the surface are mined by huge machines using relatively little labor. Many jobs were lost in West Virginia, only a few were created in Wyoming.
2. In the auto industry, productivity improvements have also reduced employment. More importantly, car companies have opened new plants in states like Tennessee, Alabama, and South Carolina, while closing older plants in Michigan and other Rust Belt states.
3. In the steel industry, productivity gains have sharply boosted productivity and reduced employment. More importantly, many of the older big integrated steel mills in urban areas have shut down, while newer companies like Nucor have thrived with plants using electric arc furnaces built in rural areas.
Automation is not just adding robots to existing factories (although that happens on occasion)—it’s closing down older obsolete plants and building new plants with state of the art technology in entirely new locations.
Protectionists who talk about “trade” generally mean international trade. But domestic “trade” is every bit as disruptive, as newer technologies cause firms to relocate to new areas, reflecting changes in comparative advantage.
Furthermore, even if countries like China did not exist, the working class would have suffered a major loss of manufacturing jobs. Indeed that massive job loss is a global phenomenon, and last time I look the planet Earth was not trading with Mars.
On the other hand, I strongly agree with this:
Rather than debate “the future of work,” Cass contends we should focus on the future for work; a future in which technological trends like additive manufacturing and e-commerce spur the creation of well-paying blue collar jobs within the country’s interior. Capitalizing on these trends will require adopting an orientation toward “productive pluralism” in which “people of diverse abilities, priorities, and geographies, pursuing varied life paths, can form self-sufficient families and become contributors to their communities.” That includes ditching the monomaniacal focus on one or two high-prestige career paths in favor of a culture (and multi-track education system) that confers equal legitimacy to a wide variety of modes of work and life, from the journeyman to the stay-at-home mother.
Cass is right that the elites in big cities have a snobbish attitude toward manual labor, which denigrates those who did not attend college. We need to emphasize that technical jobs often pay well, and are deserving of more respect. In addition, we need to do a better job of educating young people (especially boys) who are not well suited for college. I recently paid a plumber $145 for 15 minutes work. I don’t have all the answers, but I recall reading that the German educational system does a better job training less skilled students to do technical work, and they often end up with good jobs in manufacturing. Germany has a significantly higher share of industrial workers than the US, and yet they have all the handicaps that protectionists claim cause the US to be unable to compete with China. (I.e. they have high wages, a relatively open economy, etc.) On the other hand, countries that close themselves off from the world economy tend to do poorly.
This is also incorrect:
While the remarkable growth of countries like Japan, Taiwan, and South Korea would have been impossible without trade liberalization, it is now widely accepted that their success depended on rejecting the laissez-faire model in favor of industrial policies that promoted investment in secondary industries and moved them up the value chain.
Not only is that claim not widely accepted, it’s false. These countries did well despite some government intervention, and would have grown even faster with a more laissez-faire policy regime. Indeed if one looks around the world, the more open economies tend to do better than the less open economies, and that’s just as true in East Asia as in Europe or the Americas.
Volvo just opened this brand new plant in Charleston, South Carolina, which will eventually employ 4000 workers. It did not provide jobs for unemployed Detroit residents:
There’s also a big new Mercedes factory in South Carolina, as well as the world’s largest BMW facility.
Meanwhile, the Financial Times reports that the global trade war is causing GM to cease production at a number of plants in the Rustbelt:
General Motors will stop production at seven plants next year as it seeks $6bn in cost savings to bolster the carmaker against a downturn in its home market and the impact of the global trade war.
GM on Monday outlined plans to cease production at three assembly plants and two engine plants in the US and Canada, and two sites internationally, and slim product offerings in a bid to save costs. . . .
GM offered buyouts to 18,000 staff last month, aiming to reduce its US salaried headcount.
On Monday, the company said it would issue no fresh work to three assembly plants — Oshawa in Ontario, Canada, Detroit-Hamtramck in Detroit, and Lordstown Assembly in Warren, Ohio — as well as two engine plants, Baltimore in White Marsh, Maryland, and one in Warren, Michigan.
Protectionism is not the answer.