Sunday 21 October 2018

Too much is being made of the 'end' of manufacturing

Comment

Pharmaceuticals and chemicals, the sector that accounts for well over half of Ireland's industrial output. Stock image
Pharmaceuticals and chemicals, the sector that accounts for well over half of Ireland's industrial output. Stock image
Dan O'Brien

Dan O'Brien

For some time this column has been making the point that frequently made claims about ever more precariousness in the workplace are baseless. Despite the absence of evidence, articles and documentaries abound stating that job security is evaporating.

It has been encouraging to see some data-based analysis being introduced into the discussion. Not one but two recent reports have found that the claims of greater precariousness are not support by the available evidence.

Two weeks ago the Department of Social Protection published a study looking into claims that employers have been pushing more people off payrolls and offering them contractor-only work. The report found no evidence of an uptick in 'bogus self employment'.

Following hot on its heels was a wider study of precariousness in the Irish labour market by the scholars at the Economic and Social Research Institute. Again, they found no big changes over time.

It would be too much to expect that hard evidence stop the lazy claims that the world of work is on course to leave us all delivering takeaway meals to each other as the only career option in the future. But hopefully those capable of understanding data and evidence will be less inclined to make bogus claims in the future.

One of the reasons the claim is so often made is the decline of secure jobs in manufacturing. In the minds of some nostalgists, an era when lifetimes were spent on an assembly lines was a golden age. This rose-tinted view has strong echoes of the 19th-century romantics who railed against industrialisation and looked back with dewy eyes on an imagined bucolic idyll when people toiled on the land.

The real lesson is that no era is perfect. While there has been a decline in manufacturing jobs as a share of total employment in all advanced economies in recent decades, that is not quite the same as a decline in industry.

Last week saw the publication of European data on factory production in December. It showed that manufacturing is in rude health across the continent and that it is contributing greatly to the accelerating economic upswing.

It also showed that if the upswing continues for a few more months, industrial output will in the EU should reach an all-time historical high by mid year.

That is worth considering. Despite decades of talk about deindustrialisation, the continent where the industrial revolution started two centuries ago is about to produce more widgets than ever before.

A number of important conclusions can be drawn from this. First, competition from low wage economies has had a direct impact on how much is made in the west - shipbuilding has all but disappeared, for instance - but the overall negative impact has been less than is often perceived (and that is before discussing the benefits of shifting production to where it can be done more cheaply, in terms of cheaper goods for everyone across the western world).

A second conclusion is that technological advances, such as automated production lines, may mean fewer jobs, but they do not necessarily mean that output and wealth creation are negatively affected. Indeed, in some industries the opposite is the case. Pharmaceuticals and chemicals, the sector that accounts for well over half of Ireland's industrial output, is one example.

As it happens, Ireland's world leadership in manufacturing output growth - it has expanded by almost 1000pc over the past 30 years, as the chart illustrates - has been driven by that very sector.

Ireland is clearly exceptional in the way it has become a transatlantic production hub. Not every country can be at the centre of things.

Making firm conclusions about long-run trends in manufacturing patterns in the rich world is a little tricky at this juncture because the Great Recession hit the sector so hard. Indeed, so great were the declines in output in early 2009 that the only parallel was the onset of the Great Depression in the late 1920s.

As mentioned earlier, output in Europe as a whole is just below the peak of a decade ago. The US is even further behind its pre-crisis levels and Japan further behind again. To what extend this is solely a result of the damage caused by the crisis and to what extent it reflects a change of a more structural nature remains to be seen.

But, as the chart shows, patterns in developed world economies' manufacturing output in recent decades are varied.

After Ireland, South Korea provides the best evidence for a more optimistic outlook. It has become a high wage economy over the past 20 years. Despite this it has recorded a 500pc increase in manufacturing output over the past three decades (even if growth has stalled in recent years).

Across the Pacific, goods made in America are up 75pc over the same 30-year period. That shows that for all the talk about rust belts in the US, the world's largest economy has not had its industrial base eroded as much as the conventional wisdom would have it.

Closer to home, Europe's powerhouse provides further evidence that high-wage economies need not become non-manufacturing ones. In each of the past four years Germany recorded new record peaks in output. In 2017, both the Dutch and the Danes also made more in their factories than ever before.

For evidence to support the gloomier outlook, one has to look to southern Europe. Italian manufacturing peaked in 2000, just as it adopted the euro, some eurosceptics in the country are all too quick to note.

The same is true for Greece, even though it didn't give up the drachma until 2002. Portugal has seen an even bigger decline since its peak in 2003.

Britain and France are also interesting cases. The last decent spurt of growth in British manufacturing was in the late 1980s. It has more or less stagnated since. France's performance has been broadly similar, if a little worse. That country's manufacturing output is now only slightly higher than in 1979.

Japan has had a similar pattern, even if it's manufacturing stagnation started later. The east Asian economy's industrial might had become exulted by the 1980s. But the financial crisis it suffered in the early 1990s put an end to that. Last year Japan was producing 5pc less than in 1991.

It's clear that industry in the industrialised world is changing, but given the successes of (high wage) Northern Europe in particular, de-industrialisation need not be our ineluctable fate.

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