Saturday, December 19, 2009


Upper Mismanagement: Why can't Americans make things? Two words: business school

Hmm, to read this article U.S. manufacturing is in a parlous state, as evidenced by the fact that it "... has shed almost one-third of its manpower over the last eight years..." Apparently this is due to a dearth of good managerial talent, since starting in 1965 business school graduates increasingly opted for the consulting and financial industries; fewer managers came from production backgrounds; and business schools tended to "reflect and reinforce" these trends. Also, business schools started to get better students, but apparently this was a bad thing because they were "over-achievers" and "... motivated primarily by salary rather than some lifelong ambition to run a steel mill..."

Towards the end, the article generously opines that "... it would be ludicrous to suggest that simply changing the culture of business schools would single-handedly revive U.S. manufacturing..." Ludicrous... an excellent word... which perhaps should also be applied to the title and the entire article, it's thesis as well as its ending i.e. "... it’s hard to believe that American manufacturing has a chance of recovering unless business schools start producing people who can run industrial companies, not just buy and sell their assets..."

What a load of drivel. The underlying contention appears to be that the decline in U.S. manufacturing employment is symptomatic of a decline in manufacturing is risible. U.S. manufacturing output accounts for about a quarter of global manufacturing output. In 2009 it is valued at around $2.7 trillion, which would be equivalent to the sixth largest economy in the world.

The decrease in manufacturing employment has many causes. Chief among them is the fact that manufacturing productivity has soared, so that manufacturing output has greatly increased even while manufacturing employment has simultaneously decreased (see graphs above). Other reasons include the effects of foreign competition, the declining share of consumer spending dedicated to manufactured goods, and the increasing use of temporary, part-time workers, and contracted labor. And the trend of reductions in manufacturing employment has occurred across the world... Robert Reich's 'The Future of Manufacturing, GM, and American Workers' illustrates this point: "... Economists at Alliance Capital Management took a look at employment trends in twenty large economies and found that between 1995 and 2002--before the asset bubble and subsequent bust--twenty-two million manufacturing jobs disappeared. The United States wasn't even the biggest loser. We lost about 11% of our manufacturing jobs in that period, but the Japanese lost 16% of theirs. Even developing nations lost factory jobs: Brazil suffered a 20% decline, and China had a 15% drop..."

The article also uses the example of agriculture to point out the frivolity of gauging the health of an industry by its historical employment trends, "... In this, manufacturing is following the same trend as agriculture. A century ago, almost 30% of adult Americans worked on a farm. Nowadays, fewer than 5% do. That doesn't mean the U.S. failed at agriculture. Quite the opposite. American agriculture is a huge success story..." Should the U.S. government be supporting a return to the farm? Well then why should it attempt to "revive" manufacturing employment?

OK, in sum, a silly article, embellished with an equally silly and superficial analysis...

What Accounts for the Decline in Manufacturing Employment? CBO