Trade and the Honest Candidate
John Kerry may have surrounded himself with Clinton veterans, the technocrats who form the Democratic Party's permanent establishment. But the tone of his convention speech -- nationalistic not just on matters of defense but also on trade and economics -- marked a departure from the Clinton orthodoxy. Kerry attacked the outsourcing of jobs, which he implicitly blamed for a decline in manufacturing and in middle-class living standards. What does it mean, the candidate asked, "when Dave McCune, a steel worker I met in Canton, Ohio, saw his job sent overseas and the equipment in his factory literally unbolted, crated up and shipped thousands of miles away, along with that job?"</br></br>Since Kerry asks this question, perhaps he will be good enough to provide voters with the answer next time he raises the subject.</br></br>As Kerry and his advisers know, trade explains only part of the decline in manufacturing. Between 1970 and 2002, the sector's share of U.S. gross domestic product fell from 24 percent to 14 percent, a drop of 10 percentage points. But the trade deficit in manufactured goods grew by only about 4 percent of GDP over this period. Even though it's true that the deficit has recently grown sharply, deeper historical forces explain manufacturing's attrition.</br></br>What forces? An honest candidate might highlight two. First, Americans are growing richer, and richer people tend to spend less of their money on manufactured goods and more on services. As a result, the composition of production tends to shift. Second, manufacturing productivity has risen fast -- considerably faster, in fact, than the average rate for the economy. That productivity gain explains why manufacturing jobs tend to pay well. But it also allows firms to meet consumers' limited demand with fewer workers, so that manufacturing employment has fallen even faster than manufacturing's share of GDP.</br></br>So here's what Kerry ought to say. "My fellow Americans, I promised in my convention speech to revitalize manufacturing. But this sector's long-term decline is the flip side of our economic progress. Our manufacturing workers are marvelously productive, which is why they are paid well and also why they aren't more numerous."