For PA and U.S. Manufacturing to Flourish, Policymakers Need to Be Beholden to Some Different Defunct Economists

This past Tuesday, Keystone Research Center co-sponsored “Manufacturing a Better Paying Pennsylvania” with the D.C.-based Century Foundation, the Steel Valley Authority, and others. The event laid out the case for the U.S. and Pennsylvania to implement comprehensive strategies for growing high-wage manufacturing. This Pittsburgh Post-Gazette op ed lays out the basic argument. This Pennsylvania manufacturing agenda developed by KRC with business, labor, and non-profit partners fleshes out how Pennsylvania could "ride the reshoring wave." Additional documents released by The Century Foundation in conjunction with this event can be found here.

Here’s the text of my opening remarks at the event, which make an argument about the need for national and state policymakers to use a different economic framework to guide manufacturing policy than the ones that have dominated policy in the past several decades.

 “John Maynard Keynes once said: ‘Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.’

Part of my message here today is that Pennsylvanians that want to revitalize our state’s high-wage manufacturing sector need to get themselves a new defunct economist: they need to think about the economy in a way that is more grounded, more humane, and more capable of capitalizing on opportunities to reshore manufacturing jobs and grow new ones.

For several decades American and Pennsylvania manufacturing policy have been shaped most by the free-market and free trade – or neoliberal – views of Milton Friedman. As disruptive technological innovation has become more prominent, there’s also been a dose of the economist Josef Schumpeter in our national dialogue about manufacturing and trade. Schumpeter wrote about capitalism’s ‘creative destruction’ or, as another economist (Lester Thurow of MIT) – also now passed away – put it around the time of the NAFTA debate ‘to make an omelet you have to break a few eggs.’ One’s perspective on this idea rather depends on whether you are the omelet or the egg (as my friend Harley Shaiken once responsed to Thurow). This difference in perspective also speaks to the disconnect between some elites and working families about manufacturing job loss.

Neither the free market nor the creative destruction view of the economy wrestle adequately with the human and community devastation associated with the loss of manufacturing jobs. Western Pennsylvanians know this all too well.

  • In the Pittsburgh area, the median wage dropped by over $3.50 per hour in today’s dollars from 1979 to 1989, with larger drops for men with no more than a high-school education, and larger drops still for African-American men.
  • Workers experiencing layoffs during the first half of the 1980s experienced losses of $11,000-$14,500 annually 10 and 20 years later. That’s on average – some families experienced much larger plunges in earnings and family income.

Since those disastrous 1980s, Pennsylvania, particularly its western half, has been waiting for a comeback. The economy has stabilized, thanks in part to the growth of eds and meds. The stars are also aligning in ways that could allow manufacturing to broaden and strengthen the revitalization of Western Pennsylvania’s economy.

  • Some companies are having second thoughts about the benefits of distant sourcing from low-wage platforms.
  • As the Brookings Institution recently reported,   
    • Pittsburgh ranks 9th out of 100 cities for the amount of University R&D relative to the size of its economy and is a powerhouse in fields like robotics, artificial intelligence, software, and several bio-medical and health care segments.
    • Growth in the city’s startup support systems—mentorship, flexible workspaces, capital, and talent attraction—are fueling a new generation of high-value firms.

Yet for Pittsburgh and for Pennsylvania, the potential for a manufacturing renaissance remains unrealized.

  • Pennsylvania has fewer manufacturing jobs than in the first quarter of 2010, 54,000 fewer than it would have if it had kept pace with the national pace of manufacturing job growth since then.
  • Pittsburgh also has tens of thousands fewer jobs in high-tech manufacturing than if its employment matched its research strength.

The Pennsylvania manufacturing agenda released in conjunction with this event outlines how Pennsylvania could ride the reshoring wave and grow advanced manufacturing jobs – with benefits for struggling urban neighborhoods and rural areas alike. We lay out specific ideas for (2) promoting reshoring and retaining existing manufacturing jobs; (3) expanding financing for manufacturing and innovation; (4) building skills for 21st century making; and (5) boosting demand for Made-in-Pennsylvania manufactured goods and products, with a strategy overseen by a new statewide Manufacturing Council.

Our agenda was developed in partnership with the Manufacturers Association of SC Pennsylvania – the business voice for manufacturing in Harrisburg – the United Steelworkers, PA AFL-CIO, Alliance for American Manufacturing, and the Steel Valley Authority. There is broad consensus among Pennsylvania manufacturing stakeholders in the need for a state strategy.

Most of the public-private cooperation and investments we recommend would make sense to two less-well-known defunct economists: Alfred Marshall – an economist in the late 1800s and early 1990s famous for studying what we now call industry clusters; and John Commons, an institutional economist prominent in the early 20th century. Commons made the common-sense but vital distinction between “constructive” and “destructive” competition – competition that supports our values (higher living standards, widespread opportunity, environmental sustainability) and competition that undermines our values (driving down wages and despoiling the environment). Simply by making the distinction, Commons suggested that public policy should be guided by what would result in “constructive competition,” a very different proposition than the neoliberal or Schumpeterian views.

For 35 years, Pennsylvania, Pittsburgh, and the United States have been guided by economists deaf to the destructiveness that their theories have wrought and blind to the pervasiveness of market failures and the importance to economic prosperity of government investment and public-private cooperation. If today’s event can catalyze bipartisan and business-labor-community cooperation to manufacturing informed by a more powerful economic approach, we may yet achieve a more prosperous and a more just Pennsylvania and Pittsburgh in the not-to-distant future.”

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