Wednesday, August 10, 2011

How to Hollow Out an Economy

Here is a bit from an article by Dani Rodrik, a Turkish economist and Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University. He addresses the fact that the US has lost its manufacturing jobs:
... the manufacturing sector is also where the world’s middle classes take shape and grow. Without a vibrant manufacturing base, societies tend to divide between rich and poor – those who have access to steady, well-paying jobs, and those whose jobs are less secure and lives more precarious. Manufacturing may ultimately be central to the vigor of a nation’s democracy.

The United States has experienced steady de-industrialization in recent decades, partly due to global competition and partly due to technological changes. Since 1990, manufacturing’s share of employment has fallen by nearly five percentage points. This would not necessarily have been a bad thing if labor productivity (and earnings) were not substantially higher in manufacturing than in the rest of the economy – 75% higher, in fact.
I find it really discouraging that politicians don't address this issue. They are happy to talk about trade liberalization which does lower costs for consumers, but they don't talk about the hollowing out of the manufacturing sector which destroys the middle class. And it isn't just the loss of manufacturing jobs. The loss of unions and the loss of jobs in the service sector that support these good paying manufacturing jobs. This loss really does mean that you move your country to third world status, i.e. a two-class system of 99% poor and 1% astronomically, unbelievably wealthy.

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