Saturday, March 5, 2011

Review: In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, is the Key to Future Prosperity, by Eamonn Fingleton

Boston: Houghton & Mifflin, 1999, pp. 273.

In 1999, at the height of the "New Economy" hype, business journalist Eamonn Fingleton published In Praise of Hard Industries, a challenge to the conventional wisdom in the United States and Britain, where the tendency has been to view manufacturing as yesteryear's business, safely left to developing nations while the more advanced countries focus on services--and especially "information." This, Fingleton posits, is because the value of a strong manufacturing sector is underappreciated.

In particular, Fingleton points to manufactring's superiority to services in generating high-wage employment at all educational levels (in contrast with the "two-tiered" postindustrial economy of credentialed, specialized professionals and disposable wage-earners), sustaining rapid income growth (services perform less well in this area), and developing exports (a great many services, like legal services, not being easily exportable). Fingleton, notes, too, that capital and knowledge-intensive industries dependent on proprietary know-how "acquired only by dint of many years of learning by doing" (p. 19) are not quite so footloose as one might imagine in the age of globalization--the reason why the production of such high-tech items as semiconductor-grade silicon or steppers remain the business of established, affluent industrial powers. This makes the efficient production of high-end goods in even "declining" lines like ships, textiles and steel likewise remains an area of strength for established industrial powers. And of course, the fact remains that any attempt to raise global living standards to Western levels, let alone do so on an environmentally tolerable basis, will mean that far from stagnating, manufacturing will see revolutionary changes--and massive expansion, in advanced countries as well as developing ones.

Fingleton makes the point all the clearer in his discussion of the vulnerabilities that go along with an overreliance on the activities on which promoters of post-industrialism pin their hopes, like finance, media and software--so often thought of as the glory of the American economy. The personal computer has made software writing a labor-intensive business rather than a capital-intensive one, easily and profitably relocated to low-wage countries (as the tales of offshoring make all too clear). At the same time, linguistic and cultural barriers mean that any one product must be heavily adapted for use elsewhere, while its great susceptibility to piracy eats into sales, as a result of which it is not a great earner of foreign currency. (Indeed, Fingleton notes that popular discussion gave an exaggerated sense of the sales, employment and export profile of Microsoft.)

Fingleton's analysis is a persuasive one, comprehensively reasoned and well-supported by an abundance of concrete examples. Of course, that leaves the question of why, despite the excellence that Germany and Japan demonstrate in the area of manufacturing, they have not been more prosperous (even with the burdens they have borne in the form of German reunification and Japan's banking crisis). Fingleton argues that these countries have in fact done better than advertised, in particular offering an alternative view of Japan's "lost decade" (and of American growth) that may not convince the reader that Japan is poised to overtake the U.S., but which certainly makes enough worthwhile points to show up the simplistic view of the matter that is the norm.

The years since this book's first appearance have offered some substantiation of his outlook. The U.S. has seen its balance-of-payments deficits balloon to 5 percent of its Gross Domestic Product in the past decade (demonstrating the inability of the service sector to make up for rising imports of manufactures), while Germany and Japan, which continue to derive much more of their GDP from manufacturing than the U.S. and Britain, boast impressive trade surpluses.1

Moreover, these same years have brought a renewed willingness to consider such facts. In the wake of oil price shocks and the global financial crisis (strongly connected with American monetary policies that encouraged real estate speculation and the unsustainable consumption that helped widen those same trade deficits)--which incidentally raised American unemployment to European levels--there has been more questioning of the U.S.'s approach (and more bullishness about Germany's position) than at any other time since the early 1990s. Indeed, the last State of the Union address saw the President speak of the U.S. needing to "outinnovate, outeducate and outbuild the rest of the world." Alas, the commitment to such a drive seems likely to prove more rhetorical than real.

1. According to United Nations data, Germany and Japan both get a little over 21 percent of their GDP from manufacturing, compared to a bit under 13 percent in the case of the U.S., and 12 percent in Britain's.

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