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Manufacturing and the Market System

May 30, 2012 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Economic Thinkers, Environment, International Trade and Finance, Labor, Macroeconomic Measurement, Uncategorized • 90 Views    No Comments

Adam Smith might look at recent increases in manufacturing and say, “The market works.” Here are some stories.

One furniture manufacturer decided it could make consumers happier by moving back from China. Yes, it would mean paying a sander $10 an hour instead of the Asian 63 cents an hour rate and charging $700 for a crib instead of $400. But also, they could emphasize the quality, safety, color variety and “green” certification that new parents and grandparents (who help to pay) look for in a crib.

Other manufacturers are returning to the US because wages for certain less skilled manufacturing jobs are falling. After it negotiated lower wages for new hires,GE moved an electric water heater plant from Mexico to Louisville, Kentucky. Elsewhere, workers are accepting $10 an hour instead of the $15 to $18 that prevailed 5 or 6 years ago.

Also, US manufacturers have been encouraged by the 13% productivity boost during the past 5 years. An example? At a Leechburg, Pennsylvania machine shop with computer controlled machines that produce metal parts, orders are increasing, employment is up to 37 from 22 and so too are wages by about 20%.

So where are we? Let’s go back to Adam Smith.

On the demand side, self-interest propels expansion. Here, self-interested manufacturers are figuring out how to lure consumers away from China’s bargains with more safety, higher quality, and better design.

As for the supply side, Adam Smith said that during a contraction falling wages would eventually stimulate expansion. Some outsourced business is returning to the US as wages fall or rise more slowly than other sectors. With a more attractive wage structure and the productivity that automation generates, supply is increasing and manufacturing jobs are up 4.3% since 2010.

For more details, you might enjoy these 2 WSJ articles, here and here, that were my sources while this recent post on US and Belgian twin steel factories tells a similar story.

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