Sunday, December 4, 2011

Vaclav Smil: "The Manufacturing of Decline"

We have a lot of Smil posts, usually pertaining to energy, links below. Here he takes on another subject.
From Breakthrough Journal:
Popular fears that America is an empire in decline rise and fall with the business cycle -- or, more recently, the bubble cycle. One can only hope that, as the economy recovers, the surfeit of excited comparisons between the United States and ancient Rome will dissipate, allowing more sober assessments of America's future to take center stage. In a recent book, Why America is Not a New Rome, I observed that American decline after 1945 was inevitable, but that the US trade deficit and the significant relative retreat of manufacturing were not.1 This essay takes a closer look at the rapid decline of American manufacturing in comparison to other wealthy nations, challenges the reasons given for why Americans need not worry, and argues that for the United States to overcome its economic straits it must increase its export of manufactured goods.

September 2, 1945, the day that Japan's Foreign Minister Shigemitsu Mamoru signed his country's surrender on board the USS Missouri, was the apex of American military and economic power. There was nowhere for America to go but down. And, relative to the rest of the world, down America went. When compared in constant monies, US GDP was nearly 6.5 times higher in 2010 than in 1945, but as a portion of the world economic product, it declined from 35 to about 23 percent (in nominal terms).2 This decline was inevitable once the war-destroyed economies of Europe and Japan began to regain strength and even more so once they began to concentrate their innovation and export efforts in some key modern manufacturing sectors: cars and machinery in Germany and cars, electronics, and robotics in Japan.

As befits a large, modern country, America's manufacturing sector remains very large and has been growing in absolute terms. In 2009, US manufacturing accounted for more than 18 percent of global manufacturing3 and its value was higher (when compared in nominal, exchange-rated terms) than the total GDP of all but seven of the world's economies (behind Brazil at $2 trillion and ahead of Canada at $1.6 trillion). The per capita value of manufacturing in 2009 was higher in the United States ($5,800) than in France ($3,900), Canada ($4,200), Italy ($5,100), and China ($1,500). When measured in constant monies, US manufacturing expanded by about 60 percent between 1990 and 2009, nearly matching the growth of overall GDP; it grew by 10 percent between 2000 and 2009, compared to a 15 percent increase in GDP.4

But these numbers can be deceptive. America's manufacturing sector has retreated faster and further in relative terms than that of any other large, affluent nation. US manufacturing as a percentage of GDP declined from 27 percent in 1950 to 23 percent in 1970 to 14 percent in 2000 to 11 percent in 2009. While manufacturing as a share of GDP has also declined in Germany and Japan, both countries have retained relatively larger manufacturing sectors at 17 and 21 percent, respectively. The contribution of manufacturing to per capita GDP is also higher in Germany ($6,900) and Japan ($8,300) than in the United States. The most shocking, but underemphasized, fact about global manufacturing is that Germany's share of global merchandise exports is actually higher than America's (9 percent vs. 8.5 percent in 2009), despite having an economy just one-quarter of the size.

As a consequence, the United States is lagging as a global economic competitor. In 2009, Germany and Japan had large manufacturing trade surpluses ($290 and $220 billion, respectively) while the United States had a massive manufacturing trade deficit ($322 billion).5 The other key measure -- little known in popular discussions of manufacturing -- is export intensity, the ratio of a nation's exports to its total manufacturing sales. The global average export intensity is twice as high as that of the United States, which ranked 13th out of the 15 largest manufacturing countries in 2009, higher only than Russia and Brazil.6 Meanwhile, the leading EU countries had export intensities 2.5 times to 4 times higher than America's. Comparisons of the value of manufactured exports on a per capita basis are even more dramatic: they are higher in Spain ($3,700), Japan ($4,000), Canada ($4,600), and Germany ($11,200) than in the United States ($2,400)....MORE

Bill Gates Reviews Vaclav Smil's "Prime Movers of Globalization: The History and Impact of Diesel Engines and Gas Turbines"

Oct 2010 
Serious Thinking on Energy: An Interview With Dr. Vaclav Smil
Smil is one of the heavyweights in the cogitating-about-energy biz....
July 2010 
A Major Piece: "Why the tech revolution isn’t a template for an energy revolution"
We've been following Mr. Smil for a while. Some interesting links after the headline story, from the Financial Times' Energy Source...
And many more.