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America's Disappearing Industrial Base

Many Americans will be watching this week to see whether the Bush administration decides to bail out the ailing auto industry as one of its last official acts. Loren Thompson, a defense expert at the Lexington Institute, has written a number of important briefs in the last few weeks warning about the disappearance of American manufacturing and the potential long term implications that would have on this country’s future.

Thompson lists some deeply troubling data on the decline of American manufacturing. When Ronald Reagan took office in 1981, manufacturing made up nearly 25 percent of the economy, compared to 12 percent today. Today, one third of our manufactured goods come from overseas, versus a tenth in the 1970s. In the past eight years of the Bush administration, the U.S. share of global economic output dropped from 31 percent to 27 percent, while our merchandise trade deficit doubled to $800 billion. Those trends are driven by the erosion of domestic manufacturing and the auto industry is biggest component of that sector.

Thompson, who is no liberal, chides devotees to the Republican economic model that goes something like this: “deregulate everything and then stand back so the market can work its magic.” That model has presided over decline of the U.S. shipbuilding, electronics and steel industries and it’s about to work its magic on the auto industry. “We are destroying the foundation of our economy, not to mention the arsenal of democracy. If America loses what’s left of its auto industry, or its aerospace industry, or its chemical industry, our superpower status will ebb away,” Thompson writes.

America’s aerospace industry remains a global leader because the government shovels money into it to maintain the huge U.S. arsenal. “It gets a lot more money from taxpayers in a typical year than the auto industry is going to get from any federal bailout, and much of the aerospace sector would cease to exist in the absence of government support.” Its not that foreigners are better at manufacturing than we are, they’re just better at protecting their manufacturing base, Thompson says. In 1981, Reagan cancelled subsidies to commercial shipbuilders, by the end of his second term the industry had collapsed, now U.S. trade moves on foreign built ships.

The long term implication is that soon the U.S. will no longer build anything. Most U.S. job growth in this decade has been to provide services to consumers. If the country is ever to get out of this economic mess, it will need an industrial base that can provide goods for a global marketplace. Wall Street has been kneecapped and the consumer is shriveling as jobs and wages are cut. At some point the U.S. must go back to actually making things of value.

As Thompson says, the U.S. needs leaders who grasp that “economic growth generated by making world-class products is more sustainable than growth generated by having lots of lawyers.”

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