How industry matters — past, present and future

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Industry and manufacturing have long made up a shrinking share of rich economies. Yet the sector still plays a big role in shaping our political and economic reality. Here is how, in three tenses: past, present and future.

First, the past. The picture tracing the slide in US factory jobs has been called the single most important chart (see below) to explain US politics, the rise of Donald Trump and the backlash against liberal politics and globalisation. The number of factory workers in the US hit a peak of about 19.5m in the late 1970s, and has been on a downward, if bumpy, slide since then.

But the jobs did not disappear because manufacturing production did. As the next chart shows, the volume of US manufacturing output is as big as ever, even though it took a big hit during the global financial crisis. (The composition of output has changed markedly — largely in the direction of more sophisticated sectors displacing less advanced ones.)

And this was largely true for all the big rich economies. Below, we chart the trajectory of manufacturing output volumes for the other G7 countries. While not all have recovered from the last crisis, production held up well into the 2000s, despite factory jobs disappearing since the 1970s, just like in the US.

What lessons can we draw from this? In part, that increased productivity through automation and other technological changes was a bigger cause of falling factory employment than globalisation. From which it follows that turning the dial back on globalisation is not going to do much good for those angry about the factory jobs having gone.

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Next, the present. Look at the current economic weakness in the rich economies, and it is, above all, a story of an industrial recession. In both the US and Europe, manufacturing output has been falling, as the next chart shows. In Europe, factory production peaked at the end of 2017 (apart from a short-term rise in the UK probably linked to stockpiling ahead of the original date for leaving the EU). In the US it peaked one year later. On either side of the Atlantic, the current rate of production is several per cent below the peak, with recent months showing stagnation at best.

Even after all this deindustrialisation (in employment terms at least), manufacturing weakness clearly has the ability to hold the whole economy back.

Finally, the future. As we pointed out last week, so far indicators of industrial activity have worsened without seeming to spill over into the broader service economy — and there was hope that the manufacturing contraction had bottomed out. But I fear this is mostly wishful thinking. Discouraging signs keep coming. 

As my colleagues Delphine Strauss and Valentina Romei have recently reported, global car sales and international trade volumes are both shrinking, which bodes ill for manufacturing production. 

Services are now sufficiently weak in Europe that their growth cannot outweigh the manufacturing slump. The purchasing managers’ index for the eurozone in November showed the total economy stagnating. The UK index was even worse, with the whole economy and both manufacturing and services separately, in contraction. US indicators are more ambiguous.

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The upshot is that half a century on from its heyday, we still live in the shadow of industrial society. The future, no doubt, belongs to high-knowledge services. But the past is still with us. 

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  • In my latest FT column, on the EU’s China policy, I argue that “for the first time in the history of the European project, the EU has to go on the offensive in order to defend its interests. What this means is restoring itself as a pole of attraction for third countries and projecting its influence with them just as much as China does and as the US has done in the past.” I propose seven steps for doing this.

Numbers news

  • The new European Commission has now been confirmed and is ready to start work. On cue, a pan-EU opinion poll has measured what EU citizens’ biggest priorities are — by some margin they care most about the environment and about jobs.



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