Contrarian but well-argued. I mostly agree.
The only secure ground for the government’s
subsidizing a producer is that the goods or services that he
sells
are likely to confer external benefits, which is to say
benefits
that, because they are not paid for by the buyers, do not
contribute to covering the producer’s costs. The total
social
benefits, private as well as public, that his production
creates
may exceed his costs, but he will not produce if the private
benefits (the payment he receives from customers) do not
cover
those costs.
Some manufactured products, vaccines for example, confer
external benefits: when most of the population is vaccinated
against some disease, the risk to the rest of the population
may be
so slight that they stop buying the vaccine: they are
benefiting
from it but not paying for it. Another example is
intellectual
property that, in the absence of patent or copyright
protection,
could easily be copied: the original producer of the
intellectual
property would be conferring benefits on the copiers for
which he
would not be paid.
External benefits are actually rather pervasive in
manufacturing
as in other sectors of the economy. For example, consumers
who
value a product much more than its market value derive an
external
benefit, because (by definition) the manufacturer does not
capture
this “consumer surplus [value].” But there is no reason
to think that manufacturing confers greater external
benefits than
other sectors.
There is a general anxiety about becoming dependent on
foreign
nations for products that are vital to our nation. That is a
legitimate concern when one is talking about products that
are
essential for national security or economic welfare, such as
military aircraft; and obviously our military production is
heavily
and justifiably paid for largely by the government, although
some
is paid for by foreign buyers. The foreign “products”
that might be thought essential to our security and welfare
are not
manufactured goods at all, but commodities such as oil and
rare
earth metals. The United States is still the world’s largest
manufacturing country, accounting for a fifth of total world
industrial output.
Becker points to the analogy of agriculture. Employment in
agriculture has plummeted, leading to anxieties spurred by
agricultural companies about the decline of the “family
farm” and the loss of the imagined virtues of the
independent
farmer, to combat which agriculture continues to be heavily
subsidized. The subsidies are widely recognized to be a pure
social
waste, and the same would be true of subsidizing
manufacturing.
Like manufacturing, American agriculture is thriving with
its
historically small labor force.
The decline in agricultural employment is a product of
technological advance, and likewise the decline in
manufacturing
employment. Subsidizing manufacturing will no more increase
employment in manufacturing than subsidizing agriculture has
prevented the precipitous decline of agricultural
employment, for a
manufacturing subsidy will be used to speed the automation
of
manufacturing tasks and so accelerate the decline of
manufacturing
employment—unless the subsidy is conditioned on increased
employment, which would would mean diverting workers from
more to
less productive work. We would not be better off if 40
percent of
the labor force were in farming rather than 2.5 percent, or
if 28
percent of the labor force were in manufacturing rather than
9
percent.
Some concern has been expressed that we need to boost
manufacturing in order to reduce our trade imbalance,
because many
manufactured goods are exported. But a recent article in the
New York Times (April 10) points out that the
United
States is the world’s largest exporter of services—and
would be larger still if we took steps, such as loosening
visa
restrictions that impede international provisions of
services and
making the same efforts to pry open foreign markets to
American
services as we do to pry open foreign markets to American
goods.
The politicians know all these things. The push to promote
manufacturing is political in origin and may (one hopes
will) be
abandoned after the election. Its political appeal is
related
partly to the fact that unions still have a foothold in
manufacturing, and partly to the fact that America’s prowess
in manufacturing (think of the vast output of munitions in
World
War II) is associated in the public mind with the epoch of
greatest
American world power.
I have no objection to efforts to negotiate with foreign
countries trade agreements that facilitate U.S. exports
(they also
of course facilitate imports—and that’s fine too). Such
efforts are the centerpiece of the Administration’s program
of stimulating employment in manufacturing. But the efforts
should
be extended to services. I can think of no rational basis
for
putting manufacturing ahead of services.
