The Followed News-article initially appeared in
The New York Times was reappeared in the
 Business Review page No. 16, a daily Newspaper
THE HINDU, Monday, August 18, 2003

Factories move abroad, As does U.S. power:
New York Times
So many American manufacturers are decamping to China and India, where they employ increasingly skilled but inexpensive workers to make merchandise that is then shipped back to the U.S., swelling imports and subtracting from jobs in the country.

MANUFACTURING is slowly disappearing in the U.S. That does not means Americans should rush to preserve the remaining factories as a historic landmarks. The U.S. will still be a manufacturing Power, but that status is gradually eroding. Why does this matter? Well the essence of this great world power is its edge in producing not services but manufactured, products that other people want- Boeing’s airliners, for example, Intel’s semiconductors and caterpillar’s earthmoving equipment. To the extent this output passes to foreign manufacturers, or even to Americans operating abroad, the country lose the means to buy what American, in turn, want from others.

More than half of the manufactured goods that Americans buy are made abroad, up from 31 per cent in 1987. If they continue on the path of ceasing to make merchandise that others want to buy from U.S., the danger is that these Imports will be unaffordable for future generations of Americans.

For that to happen, “you have to assume that manufacturing will continue to disappear”, said David Heuther, chief economist at the National Association of Manufacturers. He does not make that assumption himself. He contends that America’s High-tech advantage and its ingenuity will sustain the nation’s manufacturing base.

Maybe. Right now, however, exodus continues, at a stepped-up pace, Govt. data show. The proportion of the workforce employed in manufacturing has fallen to 11 per cent from 30 per cent in the mid 1960s. Two of the 19 percentage points disappeared in just the last 28 months.
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On another level, manufacturing’s share of real gross domestic product—representing all the goods and services produced in the U.S.—has edged down, even including in the count the output of the foreign manufacturers operating here. The share of real G.D.P. has dropped to between 16 and 17 per cent, from 18 to 19 per cent in the 1950s.

Given manufacturing’s importance in maintaining U.S. status as a world power, the downward trends are alarming. The U.S. public, nevertheless, focuses only occasionally on the dismantling. It does so when lots of people are suddenly hurt, as they were in the early 1980s, when an onslaught of high-quality foreign imports coincided with a severe recession. The combination forced plant closings and layoffs on a scale not experienced since the Depression.

”Rust belt” and “de-industrialization” were coined in the better debate that surrounded that frightening national experience. Those were the years when wage become inequality became too persistent to ignore to ignore.  Blame felt partly on the destruction of factory jobs, and relatively high wages earned by those workers. Two decades latter, the shrinking manufacturing sector is again a source of public agitation, this time because so many of American Manufacturers are decamping to China and India, where they employ increasingly skilled but inexpensive workers to make merchandise that is then shipped back to The U.S., swelling imports and subtracting from jobs in the  country.

What’s to be done? Many economists bank on the marketplace for a solution. They note that the growing volume of imported merchandise would not be possible without loans from abroad to buy these goods. As this debt balloons, foreigners will lose confidence in the United States as a place to put their money, their demands for Dollars to lend to  America will drop off, and so will the Dollar’s value. What will make Imported manufactured goods prohibitively expensive, while merchandise exported from the U.S. will fall in price, when sold in yen or euros. Responding to this price incentive, manufacturers will rebuild in America, says George A. Akerlof, a Nobel laureate who is an  economist at the University of California at Berkely. “ Manufacturing has to come back”, he said. No other sector is likely to be as responsible to Dollar devaluation.

For Mr. Akerlof, retooling is the easy part. Others experts disagree. Too many products are no longer manufactured here, they argue, and the skill to make them has disappeared. Resurrecting that skill is difficult. Dollar Devaluation does not overcome that barrier. Nor does it easily woo back American companies that have invested huge sums in large, modern facilities abroad. Getting them to abandon, those facilities are rebuild in U.S. might require an outsized 60 per cent devaluation of the Dollar as an incentive, says Daniel Luria, an Economist at the Michigan Manufacturing Technologies center in Plymouth. The fallout will be painful.

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