Countries like the US and the UK are badly in need of trade and industrial policies to rebuild manufacturing. Very large trade deficits are potentially unsustainable. Such deficits often make a country dependent on foreign investment for the capital account surpluses needed to pay for current account deficits.
The crucial factor now, however, is that technology must be used to increase manufacturing productivity and cut costs.
If we want to decrease the trade deficits of the US or the UK, I would suggest an industrial policy to domestically manufacture things imported from China and East Asia.
Strong use of automation and technology to increase productivity and to lower price is necessary. This process can be made faster and more efficient through public R&D programs, and state transfer of new technology to domestic manufacturers.
In an earlier post, I drew attention to a very interesting initiative in the US called the “Save Your Factory movement,” launched by a company called Fanuc Robotics America Inc.
There is an absolutely excellent analysis of this in a 2005 issue of Manufacturing Engineering magazine. It shows how automation can cut costs and even beat low wage countries like China::
Rick Schneider, “Robotic Automation can cut costs,” Manufacturing Engineering 135.6 (December 2005): 65–72.The US federal government needs to take up these ideas and implement this sort of policy at a federal level – which would make it more effective.
Moreover, the article cited above points out that from 1995 to 2002 the global labour force actually lost 22 million manufacturing jobs because of labour-reducing productivity gains through automation and robotics.
I would argue that it is extremely likely that the 21st century will see manufacturing employment as a percentage of the world labour force decline to a level as low as agricultural employment in most developed nations (2 or 3%).
Will this be a bad thing? Not necessarily. If output massively increases, prices are much lower and Western current account deficits fall or go into surplus, this will be a very good thing, and we will have an abundance of cheap goods.
But we will have to face the fact that, because of automation and technology, employment in tradable goods and services in many countries will probably fall dramatically. Our employment future will probably be mainly in services, education, and most probably in government-sector jobs or employment programs funded by government. There will probably be a great reduction in the hours that people need to work as well.
No doubt additional jobs will be created in new private industries as well, but government can step in and provide employment for those who are unemployed. It might well be that much of the government-funded labour force will be in education (e.g., universities), research or other services. A much greater labour force working in basic sciences and applied R&D in physics, chemistry, geology, biology, genetics, engineering and medicine would mean a much more rapid advancement of science and technology too – a virtuous circle.
In other words, in the face of massive productivity and output gains and cost reductions in many goods and services through technology, the government must use policies for full employment to maintain demand for such goods. The point is that should production go down the route of radical automation in the course of this century, then equally radical Keynesian demand management will be necessary to maintain demand for goods and services and ensure continuing rises in living standards.