Sacrificing growth in exchange for manufacturing jobs would make the U.S. less safe, and copying Germany is a fool’s errand.
I wrote the Morning Jolt today about U.S. manufacturing employment and the development of China’s manufacturing sector. A lot of the popular narratives about manufacturing employment decline are out of date: U.S. manufacturing employment has been growing for much of the past 15 years, and the decades-long decline in manufacturing as a percentage of the workforce has basically stopped.
The thing we really should care about is not the level of manufacturing employment, though. As I explain in the Jolt, the bigger concern is that the rise in employment has come as manufacturing labor productivity has stagnated. I conclude, “American manufacturing needs more automation and technological advancement to increase worker productivity, which is ultimately what increases worker pay and quality of life.”
One of the alternative models that is supposed to have worked better at preserving manufacturing jobs is Germany. It’s true that Germany has a much higher share of its employment in manufacturing than the U.S. does. According to U.N. data, 19 percent of German workers are in manufacturing, compared to 10 percent of U.S. workers.
The first thing to keep in mind is that Germany is slightly poorer than the U.S., in terms of GDP per capita, so we should expect it to have a slightly higher share of its workforce in manufacturing. As I explain in the Jolt, as already-rich countries become even richer, the share of their workforce in manufacturing declines, and the U.S. is further along this trend than Germany is.
But Germany’s manufacturing workforce share is still higher than other similarly rich countries. That is the result of intentional policy decisions Germany made. The question should be: Has that delivered good results for Germany?
As I wrote in January, Germany’s post–Great Recession alternative to American capitalism was supposed to be superior, according to many of the experts, and beefing up manufactured exports was a big part of the reason why. Now we know how it actually turned out: poorly.
Germany has basically had no GDP growth since 2019, before the pandemic. And the U.S. has been pulling away in GDP per capita since 2011. The U.S. was about $6,000 per person ahead of Germany in 2012 and is about $11,000 ahead today, adjusted for inflation.
Part of the reason is that Germany focused on preserving the jobs of the past instead of facilitating the growth-enhancing jobs of the present. Despite having the world’s third-largest economy, Germany is home to only two of the top 100 most valuable technology companies, and neither of them was founded this century.
Maybe you think all of that is beside the point because manufacturing is special and worth sacrificing the rest of the economy for. But despite all the industrial policy and all the people working in Germany’s manufacturing sector, the U.S. has still pulled away from Germany since the Great Recession in manufacturing output.
Between 2010 and 2021, the years for which World Bank data are available for both countries, German manufacturing value-added increased by 21 percent. In that same time span, U.S. manufacturing value-added increased by 40 percent.
Another way of looking at it is to compare how much greater U.S. output is than German output. In 2010, U.S. manufacturing value-added was 2.7 times greater than Germany’s. In 2021, it was 3.1 times greater.
If economic growth is your goal, the U.S. has achieved that better than Germany has over the past 15 years. If increasing manufacturing output is your goal, the U.S. has also achieved that better than Germany has over the past 15 years. It has done so despite having a much smaller share of its workforce employed in manufacturing.
If national security is your goal, there’s no question which country you’d rather be. As Samuel Gregg wrote in an AIER paper last year, “All other things being equal, a state’s defense capacities are heavily dependent upon the economic resources that it has available for such purposes. Ensuring national security over the long-term requires a steady long-term growth in GDP.”
Germany has ignored this advice and consequently has been unable to spend what it should to meet NATO obligations for defense spending. Now that it wants to ramp up its defense spending because of the Ukraine war, it has had to scrounge for money and suspend its constitutional debt limit because it can’t rely on economic growth for more revenue.
The U.S. can afford to have the largest defense budget in the world because its economy keeps growing. Sacrificing growth in exchange for manufacturing jobs would make the U.S. less safe, and copying Germany is a fool’s errand.