With a sociopathic insouciance that I strongly approve of, Matt Yglesias suggests that the essence of manufacturing (vs services) is putting stuff in boxes and that’s not really something anyone should care about.
Kevin Drum disagrees
There really are some good reasons to care about manufacturing jobs. Here are three:
- The manufacturing sector is generally more capital intensive than the service sector. Because of this, a pea canning factory can afford to pay higher wages for unskilled and semi-skilled labor than a restaurant can.
- On a related note, manufacturing facilities are generally more scalable and more amenable to technological improvements. This improves productivity, and improved productivity is key to improved wages. By contrast, the restaurant business doesn’t have a lot of scope for automation or productivity improvements.
- Manufacturing is part of the tradable sector, while service industries generally aren’t (though there are exceptions). A pea canning factory can ship its products overseas and help maintain our balance of payments. A restaurant can’t.
So, none of these things are necessarily true.
Sweatshops tend to be highly labor intensive. A radiologist’s office is highly capital intensive.
The West Edmonton Mall is about 3.8 million square feet. That’s about the size of GM’s largest facility, Arlington Assembly. Though, admittedly both are dwarfed by River Rouge, which at its peak claimed 16 million square feet of floor space and was a thing of beauty:
Still, the Abarj Al Bait Towers in Mecca claims 16.7 million in floor space. Though, it contains residential as well as shopping and hotel, so its not really pure “service” facility in the same sense.
Virtually all services are tradable. You just need to move the customers rather than moving the goods. When Euro hit highs just before the crisis New York stores experienced an influx of European shoppers.
What is important, however, is this: putting things in boxes raises the catchment area for most facilities. The fact that there is a box involved means that I can service customers all over the world. That in turn means that a manufacturing facility can benefit from the type of agglomeration effects that services often depend on cities to achieve.
This is also why hotels tend to be the largest and most capital intensive consumer service facilities. They are catching tourists from all over the world. Clearly, that’s also why it makes sense that the very largest of them all is in Mecca.
The decline of manufacturing is the fundamental reason why some economists predicted the rise of the city. To achieve the same scale affects people would have to be in close proximity to one another.
In the near term they seem to be right, though I still hold on to the notion that cheap energy and telecommunications will reverse the trend and allow services to be provided from anywhere.
In any case the key question, as it has been for hundreds of years, is the extent of the market and how much specialization and capital intensity that allows. Putting things in boxes gives manufacturing an advantage but not an insurmountable one.