The "American Disease"

In the 70s and 80s, the British economy experienced a steady decline in the standard of living. Some of the decline is attributable to high inflation and a social welfare state that consumed more than its beneficiaries produced, but a great deal of the decline can be attributed to a shrinking manufacturing sector.

The Thatcher/Reagan era of free market reforms brought obout reduced taxes, reduced regulation and a reduced reliance on welfare. The results were favorable in the U.S. but took much longer to take hold in Britain. Manufacturing continued to decline in Britain during this period (and later), further undermining the working class and keeping unemployment high. This condition was known as the "The British Disease".

Sociologists attribute the decline in large part to the prevailing attitudes in Britain. In "public" schools and "Oxbridge", young Britons learned to despise commercial and technical skills in favor of the humanities. The emphasis was on having wealth rather than creating it. Accordingly, Britain tended to lack daring and innovative capitalists. In other words, the education system not only failed to provide the skills that were needed in the economy, but it also shaped the attitudes of the youth, giving them a bias against the working-class and manufacturing in general.

Today, we see the same disease infesting America: A decline in manufacturing jobs primarily due to changing social attitudes and the failure of educational system to provide the necessary skills needed in the economy. Incomes are declining, unemployment is high and social welfare is consuming more than it's recipients are producing. The "British Disease" has spread an mutated into the "American Disease".

This condition bring to mind the book entitled: Make it in America, written by Dow Chemical CEO, Andrew Liveris. In his book, Mr. Liveris provides some insights into the "American Disease" (although he doesn't call it that). Here are a few quotes from his book:

Americans have given up on manufacturing jobs. It's an attitude/perception problem:

"Americans are used to thinking about manufacturing jobs as a caricature of what it was decades ago: jobs that required relatively little skill and even less critical thinking. They imagine themselves soldering the same metal part to the same metal frame hour after hour, day after day, without deviation. They see jobs like this as a dead end, as an anachronism, destined for outsourcing—or oblivion. It's no wonder, then, that for every Ph.D. in physical sciences or engineering, America graduates 18 new lawyers and 50 new MBAs."

"This is a chronic problem and it exists, even among the children of engineers. I frequently hold town halls with Dow employees and their families. They can tour our facilities, learn about our processes. When I ask how many of those kids are studying science and engineering, only a few hands go up. And these are the children of engineers! I suppose I shouldn't be surprised. I pushed science at the dinner table with my kids from a very young age, but none of them ended up going into engineering. Even when parents value these careers, they are operating in a society that encourages kids to look elsewhere."

"Sometimes I wonder whether some other countries—namely, the ones that missed out on the heyday of the industrial age—are better able than we are to see manufacturing as it is today, rather than what it used to be. They don't have long-held preconceptions, as we do. When they think of manufacturing, they don't think of their fathers leaving for the steel plant in the morning. They see high-paying, skill-intensive jobs. High-tech jobs that are always evolving—jobs operating incredibly complex machines, drawing or reading complicated blueprints, mixing specialized chemicals, perfecting microchips at the molecular level. Jobs that require an excellent education. So the education systems in these countries are designed to create more of what they seek, value and admire."

We can not grow the economy sufficiently with only the service sector:

"As a general rule of thumb, every job created inside a chemical plant also creates five jobs outside of it. There is simply no service sector equivalent to this kind of job and wealth creation."

"And even among those positions outside of manufacturing that do add value to the economy—jobs like engineers and designers—the bulk of the value they add to the economy doesn't result from the idea itself, but from the mass production of it."

"And when engineers and designers innovate those products at home, but see them manufactured abroad, the substantial portion of the value-add from their efforts accrues offshore."

"[...] even if it were the case that the United States could thrive as long as we kept innovating new products, as long as we were the world leader in research and development, the country's economy would still stagnate without a manufacturing sector. That's because you cannot separate innovation from manufacturing. Where manufacturing goes, innovation inevitably follows."

"But when companies are deciding where to build their R&D facilities, more and more, it makes less sense to build those facilities far away from the manufacturing plants themselves. An engineer who develops a new prototype is better served walking across the street to get it made than she is sending it across the ocean. And what we are seeing now, as manufacturing continues to move offshore, is that the engineers and designers are moving offshore with it."

"These plants needed engineers to run the manufacturing operations, adapt global platforms to local conditions, specify parts, and certify local manufacturers. Once companies established an offshore presence and the procedures to move work back and forth, it became easier to do more product support, additional upgrades, complex reengineering, and even next-generation design where they made their products. Companies know that putting their innovators next to their producers is usually the more sensible choice."

The myth that we can't compete in manufacturing with lower wage countries:

"Countries with higher wage rates can compete—and prevail—against countries with substantially lower wage rates, and that's good news for America. Indeed, the manufacturing success of a country like Germany, which has wage rates that are competitive with the United States’, should be proof enough that cheap labor cannot explain why U.S. manufacturing is struggling."

Part of the problem is the general decline in the quality of education:

"[...] many other countries are investing substantially in education, raising their standards, and often exceeding them. They have longer school days, longer school years, and give students homework over the summer. American students spend 40 percent less time studying than they did 50 years ago. That's not how it is abroad. Other countries are far more serious about getting results."

"Too many students, having done all that was required of them, are graduating from high school unprepared either for college or the working world. It's not essential, in my view, that every one of these students goes on to a four-year college. But every student needs to get a degree that has actual value and meaning in the workplace."

"Ben Venue Laboratories, a pharmaceutical manufacturer, told the New York Times that the company had reviewed 3,600 job applications in 2010 and only found 47 people to hire for 100 positions. The workers didn't even need to have advanced degrees. All that was required was to pass the most basic skill test, with the bar set at a ninth-grade math level. But a substantial portion of the applicant pool failed."

"According to a study by Georgetown University, 63 percent of jobs in the next four years will require more than a high school degree. And yet we have a system that is continually churning out unskilled, unprepared high school graduates (assuming they even graduate), sending them out into an economy that has no place for them. The outcome is tragic for them as individuals, and deeply worrying for our national future."

"Teachers also often lack relevant training in the subject matters they teach. Few chemistry teachers, for example, have a chemistry background. Instead, teachers are encouraged to earn master's degrees in generic fields like 'education' that have little relationship to what they will spend their careers teaching."

The wrong skills are being taught:

"Our worry isn't just that our children are being educated poorly; it's that they're being educated poorly in the subjects most relevant to our economic well-being. There isn't enough focus on science, technology, engineering, or math in our schools (known as STEM in education policy circles). The country will need 400,000 new graduates in STEM fields by 2015; but we won't get them. And when we don’t, companies in search of new talent will have no choice but to search elsewhere."
 
"The effect of this shortage is substantial. As the president of the Federal Reserve Bank of Minneapolis recently noted, if we could find a good match between the jobs that are open and the skill sets available from our workers, the U.S. unemployment rate would be two points lower than it currently is. That represents about three million jobs."

Conclusion:

The "British Disease" has now become the "American Disease" as we stop competing for, innovating in and promoting manufacturing in this country. It's primarily a attitude/perception problem that somehow manufacturing is for the "working class" when in reality, the type of manufacturing jobs we should be fighting for are the high tech manufacturing jobs that require highly skilled and highly educated workers. This attitude and misconception about manufacturing needs to change before we can see a change in the education system. Without a fundamental shift in attitudes and values, the "American Disease" will only spread and the economy will remain sickly.

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Notes:

Mr. Liveris covers a number of other underlying problems, not just education, and I think the book is well worth reading. Some of the other topics covered are:

• The need for a permanent R&D tax credit.
• The need to overhaul the tax code, especially the corporate tax.
• A level field is required with our trading partners. We have trade surpluses with countries that we have free trade agreements with while we have trade deficits with those who do not have trade agreements with us.
• Regulation is ridiculously complex, without stated goals, and often contradictory. Regulations need to be streamlined and made consistent between agencies. They also need to be descriptive instead of prescriptive.
• The short-sightedness of politics prevents us from achieving long-term goals.

... and much more.