Monday, July 16, 2012

The Post Industrial Society Has Real Problems

Manufacturing output in the US has been in steady decline in recent decades.  We seem to have a preference for a services economy.  There are problems with a services economy, however, that are not well understood.  Nation's pay for their imports with exports.  If they can't pay for their imports with exports, they must borrow from the countries whose products they import.  Countries that export to the US have been willing to sell us products at low prices, and lend us the money to pay for them.  There are lots of problems with this arrangement.  One of the problems is that the manufacturing sector becomes less competitive over time.  The other problem is that we can't pay for our imports of manufactured products by exporting services. That means that we are dependent upon the willingness of others to lend us the money that we need to pay for the manufactured products that we will continue to demand.  Our manufacturing capabilities will continue to erode, and our dependency on borrowing to pay for our imports of manufactured products may become permanent.

The solution described in this article is that the US dollar should decline in value so that we can export manufactured products to pay for our imports.  That is highly unlikely. Even if a cheaper dollar makes US manufactured products less expensive in overseas markets, we may not be able to compete.  The consumer electronics industry provides a good example. The US cannot compete with the supply chains that have been developed in Asia to manufacture the high tech products that we consume.  We are also importing more services as other nations become more able to provide those services at lower cost.

While this seems to be a common problem in many industrialized countries, it is not a problem for multinational corporations.  Many of the products that we consume are imported by multinational corporations for resale in the US.  Moreover, multinationals are better positioned to sell their products in countries where they have located manufacturing and R&D facilities.  Our current arrangement provides the best of all possible worlds for multinational corporations, but it comes at greater cost to the nation states that have been forced to deal with the dislocations to their economies.  The Post Industrial Society will not be easily replaced by services economy that seems to be in favor.

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