Marc Levinson

Tag: Productivity

  • About That Manufacturing Renaissance

    The Biden Administration asserts there’s a “manufacturing renaissance” underway in the United States. Before it, the Trump administration claimed much the same. The federal government has certainly handed out a good deal of money to support manufacturing, in addition to aiding it with tariffs put in place by both Trump and Biden. But while manufacturing capacity, as measured by the Federal Reserve Board, has increased about 2.3 percent since Biden took office in 2021, labor productivity in manufacturing — basically, output per work hour — is down, according to figures released in early December. Total factor productivity, a measure of how industries improve technology and production processes to squeeze more output from a given quantity of inputs, fell in manufacturing in 2023 even as it rose in most other U.S. industries. These facts help explain why the Fed’s Industrial Production Index has been flat since the Obama years, save for a dip during the COVID-19 pandemic.

    How does this square with the boom in factory construction and the many newspaper articles about new factories reviving down-at-the-heels communities? What seems to be going on is less a manufacturing renaissance than a restructuring. According to the Census Bureau, the computer, electronic, and electrical manufacturing sector has accounted for well over half of manufacturers’ construction spending this year, and construction in the transportation equipment sector is also strong. Meanwhile, construction in other manufacturing sectors has barely grown or even declined after accounting for inflation.

    This is relevant to the much-discussed “reshoring” of manufacturing. To the extent that “reshoring” is underway, it seems to be concentrated in a handful of sectors, notably semiconductors, electric vehicle batteries, pharmaceuticals, and medical equipment. There are few signs of U.S.-made goods supplanting imports of industrial machinery, plastics and rubber products, synthetic fibers, paper, textiles, and any number of other products. Despite all the government support and the talk of tariffs, many manufacturers don’t seem to see the future in the United States.

  • Fifty Years After Car-Free Sundays

    Some events from your youth stick with you. For me, one such memorable event occurred 50 years ago, on November 4, 1973, when the Dutch government responded to the OPEC oil embargo that arose from the Yom Kippur war by banning driving one day a week. As I write in An Extraordinary Time, “University students spread blankets on the motorway and picnicked to the sounds of a flute. Young children raced through stoplights on their roller skates. From Eindhoven in the south to Groningen in the north, the streets of the Netherlands were nearly free of cars — aside from those of German tourists and of clergy who, by special dispensation, were allowed to drive to church.” Car-free Sundays soon spread across Europe. Sporting events were cancelled. Indoor swimming pools were closed. It was the start of a bleak era.

    In 1973, no one realized just how bleak that era would be. The general diagnosis was that taming inflation or stabilizing exchange rates would make the world economy boom again. Policies involving generous social spending and heavy government intervention in the economy, which had been employed around the world since the 1940s, no longer assured full employment and higher living standards. A backlash drove politics to the right, where leaders like Margaret Thatcher and Ronald Reagan promised that smaller government, deregulation, and a clampdown on inflation would get economies moving. But that didn’t work out so well either.

    The reason? An economy’s long-run growth depends mainly on higher productivity, and this isn’t something politicians can simply order up. Productivity growth relies heavily on innovation and business investment, but investment in the wealthy economies slumped for two decades after 1973, while innovations such as microprocessors had little economic impact until the internet age began in the 1990s. Workers’ productivity improved less than half as fast after 1973 as in the decades before, which is why families in much of the world no longer sensed that their lives were getting better.

    Half a century after the year of car-free Sundays, the world seems to be mired in a productivity slump once again. The stagnation of living standards plays out in anger and unrest in many places. Perhaps stagnation will drag on — but then again, perhaps innovations such as clean energy and artificial intelligence will bring prosperity anew. Golden ages usually end unexpectedly, but they often arise unexpectedly as well.

  • Carbon Border Adjustments and Trade

    The European Union is on the way to taxing many imports based on their greenhouse-gas emissions. The plan, which was agreed by the European Commission and the European Parliament on December 13 but is not yet final, is one more factor likely to constrain the growth of international trade.

    The plan would establish an import taxation system called the Carbon Border Adjustment Mechanism, designed to force importers of certain products to pay for the carbon emitted in making their products. The tax would equal the amount an EU manufacturer would have paid to purchase permits for those emissions under the EU Emissions Trading System. The point is to stop the “leakage” that occurs when companies import products that would be subject to carbon charges if produced in the EU. Initially, imports of iron, steel, cement, aluminum, fertilizers, hydrogen, electricity, and products made from iron or steel will be subject to the tax, and some chemicals and polymers may be taxed as well. Imports from countries that tax carbon emissions as the EU does would not be taxed.

    Implementing this well-intended policy is likely to prove more complicated than EU officials are letting on. While calculating the tax on a bag of imported cement may be straightforward, accurately figuring the charge on a product containing steel from multiple mills drawing on multiple power sources may not be so easy.

    It’s possible that the new taxes will be ineffectual; if, for example, an Asian manufacturer simply ships fertilizer from an older plant to Africa while selling output from newer plants with lower carbon emissions to the EU, the tax might have no net effect on emissions. On the other hand, if the EU succeeds in convincing its trading partners to impose their own taxes on carbon emissions or if proceeds to require significant carbon border adjustments instead, some goods could become more expensive in Europe, and might therefore be traded less.

    This isn’t necessarily a bad thing. As the economist Joseph S. Shapiro has shown, countries’ failure to adequately regulate greenhouse-gas emissions provides a massive subsidy to international trade. Taxes on emissions could be one more factor weighing on trade as companies reconsider their supply chains.