JOHN HOOD COLUMN: Manufacturing continues to thrive

Published 3:21 pm Monday, December 27, 2021

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With the recent announcements of a new Toyota battery plant in Randolph County, a new Fujifilm Diosynth drug plant in Wake County, a large MasterBrand cabinet facility in Kinston and a big White River Marine operation in New Bern for making saltwater boats, among other projects, North Carolina’s manufacturing sector appears to be thriving.

John Hood

But ask around and you’ll soon discover that many North Carolinians have a very different perception. “We used to make things here,” they insist, “and now we’re just buying everything from overseas.”

Domestic consumers do, indeed, buy more products made overseas than their parents and grandparents did. That’s undeniable — and nothing to get overly worried about. No one is compelled to buy clothes, electronics or other goods imported from abroad. Folks do so in order to get the most value for every dollar they spend. Protectionist policies are always and everywhere a conspiracy against the general public, an attempt to foist limited choices and higher prices on households to benefit special-interest groups.

There are other problems with such gloom-and-doom pronouncements about manufacturing. For example, they rely on outdated definitions. What does it mean to be “made overseas”? Products such as smart phones may be assembled in one country out of parts made in many others. And the most-valuable components are often the intellectual property produced disproportionately in America.

Furthermore, it simply is not factual to assert that “we” no longer “make things here.” According to the latest measurements of gross domestic product, manufacturing makes up 17 percent of North Carolina’s economy. That’s a far-higher share than the national and regional averages, both 11 percent.

It’s true that manufacturing’s share of GDP used to be higher. As recently as 2005, it comprised 20 percent of North Carolina’s economy. It’s also true that many fewer North Carolinians work in manufacturing than was true decades ago. That’s mostly a function of manufacturing plants becoming more automated, by the way, not the extent to which plants have migrated elsewhere.

Keep in mind that goods-producing industries inevitably shrink as a share of any developed economy where incomes are rising. Think about it in terms of a hierarchy of needs. When you’re poor, you’re mostly concerned about obtaining adequate food, clothing, and shelter. As your income goes up, you will probably spend more on these and other necessities — buying quality, variety, and perhaps even a bit of conspicuous consumption — but your spending on goods probably won’t rise in proportion to your growing income.

In other words, you’ll begin to substitute services for goods. Instead of buying or fixing your lawn mower, you’ll hire a lawn company. Instead of repeatedly upgrading your wardrobe, you’ll eat out more, go to shows, pursue hobbies or take vacations. Instead of buying the biggest, flashiest house your credit rating would allow, you’ll prefer to buy more education and medical services for you and your family.

By observing that manufacturing remains a vital segment of North Carolina’s economy, I don’t mean to suggest everything is hunky-dory. Properly measured, average incomes have continued to rise significantly over the past two decades while poverty has continued to fall. Nevertheless, there remain many of our fellow citizens whose living conditions and prospects are poor. And as I’ll discuss in a future column, tens of thousands of working-age North Carolinians are still sitting on the sidelines of the labor market, lacking either the skills or the motivation to fill the jobs available to them.

Manufacturing will never again make up a third or even a quarter of GDP. But it remains a sizable component of America’s economy, and an even-larger share of North Carolina’s. Fostering its vitality requires both public and private investment. Policymakers should build and maintain good roads and expand access to high-quality education and training. By far the biggest lever, however, is private spending on productive assets — plants, equipment, technology, and distribution networks — which policymakers can foster by keeping tax rates low, removing regulatory barriers and otherwise staying out of the way.

John Hood is a John Locke Foundation board member and author.