The next generation

by Russ Roberts on September 11, 2007

in Trade

In my book, The Choice, I tell the story of a fictional small town and how it is affected by international trade. The main employer in the town, Stellar Television, faces increased competition from the Japanese. The head of the company, Ed Johnson becomes increasingly enthusiastic about tariffs or quotas on Japanese TVs. He gets a visit late one night from the ghost of David Ricardo. The two talk trade until the wee hours.

The story is loosely based on a Motorola plant in Quincy, IL. One of the themes of the book is the dynamic nature of the US economy and how gains from trade are widely enjoyed and go beyond the monetary. In particular, economic change lets each generation shape the economy according to its plans and dreams.

Not every person benefits from trade. The steel worker, the textile worker and the auto worker all have had very tough times over the last 20 years. But one of my claims in the book (partly based on conversations with the workers on that Motorola plant, partly based on economic reasoning) is that even the people who suffer will have consolation from the success of their children, success that is possible because we don’t preserve every industry and every job. Here is one way to think about it:

Somewhere in South Carolina, there’s a high school girl whose Mom works in a textile factory.  This girl doesn’t know what she wants to do with her life, but like most high school kids in America, she probably doesn’t want to work in the same job or career as her parents.  The security of the textile factory is appealing, but she might want to go to college and try something different.  It all depends on her options.

That factory is threatened by Chinese competition.  Should we let the factory go under or should we protect it from the cheaper Chinese imports?  We could spend hours on the pros and cons and the economic impact of that decision.  But let’s look at the impact on that girl in high school.  If we keep the factory around, we make the choice of working in the factory more appealing.  If we let the factory die, we change the available options.  We push her out into the world.

Exploring the world is a good thing but that’s not reason enough for letting the factory go under.  What is harder to see is that the world to be explored is a more vibrant and alive place when the factory goes under.  Allowing the factory to die frees up capital and management skill than can be used elsewhere. If we maintain all of the factories and all of the companies that cannot survive competition, then the
  American economy is a much more static place.

If we try to make everything for ourselves and be self-sufficient, we lose the opportunity to specialize in doing what we do best.  Our capital gets tied up in industries that do not take the greatest advantage of our unique skills.  Free trade allows a high school kid in South Carolina to inherit a world of maximum human potential, with the maximum chance for her to use her gifts, whatever they may be.

A skeptic would ask how the girl in South Carolina is going to achieve her potential if her Mom is out of work.  And that in turn might lead to a discussion of how past generations have managed to survive and thrive in a dynamic economy.  In 1900, 1/3 of the American work force (Note–actually it was about 40%. I don’t know where I got 1/3 from) was in agriculture. Today the number is around 3%.  Do you think the kids on the farms of 1900 are glad that we let agriculture become more capital intensive with fewer jobs?  It wasn’t a trivial transition, but in 1900, we couldn’t see the industries that would arise to use the skills of the next generation.  And we can’t know the opportunities that will arise to help that girl in South Carolina if we let the textile factory fail.  But they will arise.  What they will be depends on the gifts and aspirations of the next generation.

A recent article in the Washington Post actually looks at the transition some textile workers and their children have been making in the face of economic change. Read the whole article—it makes the point that manufacturing output is booming in the United States. But manufacturing employment is falling due to both trade and productivity increases:

The textile industry has been particularly aggressive in replacing
people with machines. A half-century ago, a typical North Carolina
textile worker operated five machines at once, each capable of running
a thread through a loom at 100 times a minute. Now machines run six
times as fast, and one worker oversees 100 of them.

That’s a 120-fold increase in output per worker. Great for people who buy clothes. Not so good for people planning to work in a textile factory. But economics suggest that the savings from higher productivity don’t just go to the owners of the textile factory. Those savings will create new opportunities elsewhere.

The Post looks at how one Regina Whitaker copes with the change and the opportunity:

Ten years ago, straight out of high school, Whitaker went to work at a yarn texturing plant in Yadkinville, in the Piedmont region. Her mother had worked there for 30 years.

From midnight until 8 a.m., Whitaker tended to whirring machinery,
alternately wishing for another job and worrying that she would
actually have to find one: Her company was opening plants in China and
Brazil and laying people off in Yadkinville.

"I couldn’t see spending my life there," Whitaker said.

In January 2003, she enrolled in the first associate degree classes
offered in biotechnology at Forsyth Technical Community College. Now
28, she graduated in July 2004 and was hired as a lab technician at
Targacept, a biotech start-up in Winston-Salem
that was spun off from R.J. Reynolds Tobacco. Where the tobacco giant
had researched the use of nicotine to make people crave cigarettes,
Targacept is focusing on the nicotine receptors in the brain to develop
drugs for Alzheimer’s disease and schizophrenia.

Whitaker said her salary is "significantly more" than the $13.40 an hour she made at the yarn factory.

"I’m not struggling now," she said. "Before, it was paycheck to paycheck."

Today’s WSJ tells a similar story of how auto workers are turning to careers in health care, finding jobs that pay as well or more and that are a lot more interesting:

Former auto workers say they are drawn to health care
because the jobs pay well and are less vulnerable to being outsourced.
Registered nurses currently have an annual mean salary of nearly
$60,000, the Bureau of Labor Statistics says. Dental hygienists earn
about $62,000. By comparison, auto-manufacturing jobs currently pay
about $54,000.

Workers say the jobs are also a welcome break from
repetitive work. Chris Pengov, a 48-year-old native of Norwalk, Ohio,
spent the past 15 years with Ford, most recently tightening lug nuts
and installing rims and tires on Econoline vans and other vehicles at a
plant in Avon Lake, Ohio. "A mind is a terrible thing to waste," he
says. "That’s what happens working on the line."

Mr. Pengov, who has a 23-year-old daughter and a
4-year-old granddaughter, says he had been researching a move to health
care for the past few years. In January, he was among what he estimates
were 600 Avon Lake workers to accept a buyout or early retirement.
(Ford declined to provide plant-by-plant information on early worker
departures.) Mr. Pengov took an education buyout and is now in his
second semester at Mercy College of Northwest Ohio in Toledo. He says
he is considering specializing in radiology or health-information
services.

"Either way I will absolutely, positively be 100% happier," he says.

People who worry about manufacturing often argue that manufacturing was once an area where you could lead a middle class life with only a high school education and that therefore we should preserve jobs in manufacturing.

Preserving manufacturing jobs for their own sake is the road to stagnation.

The natural forces of competition and self-interest are encouraging manufacturing workers to get more education and find new work.

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