BOOK DESCRIPTION
Manufacturing jobs, once the backbone of the modern US economy, have declined over recent decades, darkening opportunities for middle-class advancement. The same trend has occurred in many countries, from Europe to Japan, China, and South Korea. To return manufacturing employment to its former glory, many countries have adopted import barriers and “industrial policies.” For the most part, those approaches have been misguided. In Behind the Curve: Can Manufacturing Provide Inclusive Growth?, Robert Z. Lawrence demonstrates that deeply rooted structural forces have produced the decline in manufacturing jobs, and these forces are not likely to be reversed. He analyzes the effects of trade, technological change, production efficiencies, and consumer spending patterns on manufacturing employment, showing that efforts by the United States and other countries will not return manufacturing jobs to past levels. Lawrence traces the historic role played by manufacturing in US growth and income distribution, but he argues that current trends—increased self-sufficiency, “green” growth, and advanced digital technologies—may make future growth less inclusive. New policies are needed to encourage more equitable sharing of the fruits of technological advancement among people, places, and countries.
ABOUT THE AUTHOR
Robert Z. Lawrence is Albert L. Williams Professor of International Trade and Investment, a Senior Fellow at the Peterson Institute for International Economics, and a Research Associate at the National Bureau of Economic Research. He currently serves as Faculty Chair of The Practice of Trade Policy executive program at Harvard Kennedy School. He served as a member of the President’s Council of Economic Advisers from 1998 to 2000. Lawrence has also been a Senior Fellow at the Brookings Institution. He has taught at Yale University, where he received his PhD in economics. His research focuses on trade policy. He is the author of Crimes and Punishments? Retaliation under the WTO; Regionalism, Multilateralism and Deeper Integration; Single World, Divided Nations?;and Can America Compete? He is coauthor of Has Globalization Gone Far Enough? The Costs of Fragmentation in OECD Markets (with Scott Bradford); A Prism on Globalization; Globaphobia: Confronting Fears About Open Trade; A Vision for the World Economy; and Saving Free Trade: A Pragmatic Approach. Lawrence has served on the advisory boards of the Congressional Budget Office, the Overseas Development Council, and the Presidential Commission on United States-Pacific Trade and Investment Policy.
[Alessandra Seiter] When it comes to the economy, the United States is an unequal place. The top 10% of Americans hold over two-thirds of the nation’s wealth with stark racial disparities in household finances. Most Americans believe they’ll be worse off than their parents, and economic concerns were voters’ top priority in the 2024 election. Political leaders of all stripes point to the decline of manufacturing as a primary culprit of this inequality. President Biden’s Build Back Better agenda and President Trump’s tariff policies both promised to reopen factories in America’s heartland, revitalizing the well-paying jobs that once reliably supported workers without college degrees. The popular narrative suggests that returning manufacturing to its former prominence is not only possible, but will restore economic mobility to struggling Americans. But according to Robert Lawrence, an economist at Harvard Kennedy School, this narrative is flawed. And in his latest book, Professor Lawrence asks, what’s missing from the popular understanding? Like, what if manufacturing can no longer drive economic equality regardless of trade or industrial policy? And if the promise of manufacturing belongs to a bygone era, what can be done for those most impacted by its decline? On this episode of Behind the Book, we speak with Professor Lawrence about his recent book, Behind the Curve: Can Manufacturing Still Provide Inclusive Growth?
Robert Lawrence reminds us that the debates over manufacturing’s importance date back to America’s founding. Thomas Jefferson saw agriculture as the backbone of the US economy, while Alexander Hamilton believed in an industrial future. Neither were quite right, at least on a long enough timescale. Today, agriculture makes up just 2% of US jobs and manufacturing only 8%. Instead, services like education, healthcare, finance, and technology dominate our economy. This trend isn’t unique to America. Analyzing countries with vastly different policies, trade positions, and political systems, Lawrence identifies a near universal pattern suggesting that manufacturing’s decline resulted from structural forces fundamental to economic advancement, not from trade or industrial policy choices.
[Robert Lawrence] As countries develop, the share of manufacturing follows an inverted U, a hump. When countries start to grow, the share of manufacturing rises, it peaks, and all of today’s industrial economies and many emerging markets have passed the peak. And so just as we accept, it’s a fact of nature that as countries grow, we get fewer and fewer farmers, and as they grow, we get more and more people in services. What my book hopes to persuade the reader is that there is an equally strong tendency for the hump to occur. And once you’ve reached a peak, and in the United States, it was in the late fifties, you experienced this declining trend in manufacturing.
[Seiter] It’s worth emphasizing that this pattern holds regardless of trade policies or government intervention. Lawrence found it in countries with trade surpluses and deficits alike. Even manufacturing powerhouses like Japan, South Korea and China have experienced the same employment trends as import dependent economies. What drives this pattern? Lawrence points to three structural factors. First, the digital revolution fundamentally transformed manufacturing. Today’s production depends less on assembling parts and more on developing software, managing databases, and applying for patents, tasks requiring specialized training typically obtained through a college education.
[Lawrence] If you think about a modern automobile, it’s kind of a computer on wheels. So that means that we have as much intangible capital that takes the form of things like branding, software, intellectual property, in manufacturing as we have equipment. And that in turn, biases everything towards demanding more skilled workers.
[Seiter] Second, today’s goods are produced globally with manufacturing following cheap labor. As countries develop and their populations gain formal education, specialized jobs become more prevalent while manual assembly shifts to nations with less educational opportunity. Third, as incomes rise, consumer spending shifts towards services and away from manufactured goods.
[Lawrence] So goods get cheaper, but Americans react to the cheaper, everybody reacts to the cheaper goods by saying, that’s terrific. I'm going to take the money I’ve saved on the goods and go and spend it on services.
[Seiter] These structural trends encompass familiar concerns like automation, offshoring, and trade imbalances. But Lawrence argues that these concerns are symptoms of economic advancement rather than the primary causes of manufacturing job loss. Importantly, Lawrence thinks these trends are unlikely to reverse, especially through individual policy measures. He argues that industrial policies promising to revive manufacturing may actually worsen economic prospects for workers without a college education. Consider President Biden’s CHIPS Act of 2022. Its goal was to spur domestic semiconductor manufacturing, creating jobs, and enhancing national security. Lawrence argues that while CHIPS had a good chance of accomplishing its national security goals, most jobs created in semiconductor manufacturing will go to workers with specialized skills in engineering, physics, and software, not to workers without college degrees. Or take President Trump’s tariff policies.
[Lawrence] Suppose we gave them the benefit of the doubt. Well, the United States has a trade deficit in manufactured goods of $1.2 trillion.
[Seiter] Professor Lawrence calculated that if you replaced all of that trade deficit with goods produced in the US, it would increase the share of manufacturing in the economy from 7.9 to 9.7%.
[Lawrence] It can’t be the answer to the problems of all of these people.
[Seiter] Given these realities, Lawrence thinks our best bet for improving the lives of people hardest hit by the loss of manufacturing jobs is to invest in those people directly. He advocates for training workers, supplementing any wage losses, providing unemployment insurance, and promoting widespread housing development.
[Lawrence] If you think about how people spend their money, the biggest part of people’s budget is going to housing. If we want to deliver for people, and if you actually look, it is stunning how slow productivity growth in construction has been for decades. When you combine very inefficient production of housing with excessive requirements for permitting and other restraints, you are depriving a lot of those middle class people of decent housing and decent living standards.
[Seiter] Professor Lawrence’s book tells us that while we’re already behind the curve in addressing manufacturing’s decline, we still have plenty of opportunities to create a more inclusive economy through policies that directly support workers and communities. The book is Behind the Curve: Can Manufacturing Still Provide Inclusive Growth? It’s written by Robert Lawrence, Albert L. Williams Professor of International Trade and Investment. It’s published by the Peterson Institute for International Economics. This has been Behind the Book, a production of Library and Research Services at Harvard Kennedy School. Find past and future episodes of Behind the Book by subscribing to Harvard Kennedy School on YouTube, subscribing to our newsletter, and visiting our website.