Monday, August 17th, 2009

The New Industrial City

My latest post is up over at New Geography. It is called “The New Industrial City“. So many visions of urban futures are explicitly post-industrial. But that’s a mistake. We need to retain industry in our cities. Not only can it provide a middle class living to people without high powered educations, it also has the potential to link the fortunes of the “creative class” with the “working class”. Plus, can we really afford to be a country that doesn’t make things anymore? But tomorrow’s manufacturing will be much different from yesterdays. Instead of large scale monolithic factories, we’ll have networks of smaller firms in the craft and specialty fields. Click through to read.

As always, additional thoughts here. The idea that we can focus on craft and specialty products instead of mass market assembly fits with the fragmentation of the great American common culture we’ve seen in the last 20 years. One size fits all products are going the way of the dodo. Once Americans watched only three networks. Today’s its “57 channels and nothing on” (or 157 as the case may be). Today there are ever more varieties of almost anything, from cars to consumer electronics to beers to types of mustard. Many of these only appeal to the upper end of the income spectrum, but if history is a guide, we can see this filter down assuming we are able to raise average incomes over time. Whatever the case, there is plenty of room in the marketplace for niche products and I see no reason why American’s can’t make them.

Also, I see lots of evidence that Americans can compete and win in the craftsmanship sweepstakes. We think of Europe as the home of old world luxury. And indeed, their design and craft industry draw on a long history of bespoke products of the highest quality for the aristocracy. In America, we’ve got different roots and a different design and craft ethic. I think this is best illustrated by the DIY movement. Think about it. Today, America arguably brews the best and most diverse and innovative beers in the world. It should come as no surprise that there is a robust homebrew scene as well. Similarly, it isn’t surprising that we find all sorts of specialty racing and fancy aftermarket auto suppliers in a country where tons of people still like nothing better than to work on cars. Demand for organic produce and local, small scale organic farms and a home gardening resurgence go hand in hand. There would appear to be almost limitless opportunities to exploit this to start renewing our manufacturing base.

Here are some recent articles that might add additional perspectives to the debate:

  • A Nascent Debate in Germany: Research or Manufacturing (NYT). Here’s an idea: why not both? If Germany decides to eviscerate its manufacturing base to chase R&D dreams, the’ll end up regretting it. Remember, the countries that we outsourced manufacturing to aren’t content to just build cheap toys for the west. They’ve got aggressive plans to move up the value chain – all the way up.
  • Forging Recovery on the Assembly Line (Harold Meyerson @ WashPo). “The long-term decline of American manufacturing has depleted our high-tech, cutting-edge industries as much as it has our more venerable sectors…But at the high end, only one of the world’s top 10 photovoltaic cell manufacturers is American. The United States fell behind China in the value of our high-tech exports in 2004, and we’ve fallen further behind every year since.”
  • Obama’s Plan to Reverse Manufacturing’s Fall (NYT). “The United States ranks behind every industrial nation except France in the percentage of overall economic activity devoted to manufacturing — 13.9 percent, the World Bank reports, down 4 percentage points in a decade. The 19-month-old recession has contributed noticeably to this decline. Industrial production has fallen 17.3 percent, the sharpest drop during a recession since the 1930s.”

20 Comments
Topics: Economic Development

20 Responses to “The New Industrial City”

  1. Alon Levy says:

    A few points about your article:

    1. It's not true that carbon regulations will shift production elsewhere. The US is ready to collect carbon taxes from imported goods – in fact, the WTO has explicitly declared such taxation to be allowable, since cap and trade/carbon taxation is a tax on consumers that is collected from producers for logistical reasons.

    The only reason for an American company to shift production to another country is if it makes goods for export to countries without carbon regulations. Since the US produces very little for export and even less for export to developing countries, such shifts in production will be small.

    2. Jane Jacobs emphasizes not just diverse production, but also the fact that research is a form of production. When asked in an interview about outsourcing to Taiwan, she said it's not a problem because the Taiwanese know how to make computers, whereas the Americans know how to make blueprints for computers; the only issue is that the US is over-specializing in design.

    While it's true that Taiwan and the other East Asian tigers have since moved up the value chain, they've done so not by poaching research from the US, but by creating their own industries from scratch, and enlarging their own internal consumer markets. Thus they both compete with the US and function as new markets for US companies.

    3. While it's true that only 27% of the adult US population has a bachelor's degree, it's equally true that fewer than 27% of the population had a high school diploma a hundred years ago. Even at the end of WW2, the percentage was less than 50. And yet the US became the world's most advanced country by creating a system of near-universal high school completion, rather than by insisting on good jobs for high school dropouts. This system, in which most of the population had good academic qualifications for participating in society, encouraged social mobility, and has only unraveled in recent decades, as further economic growth demands college education.

    The German Mittelstand strategy was the opposite of the US strategy: in Germany students are assigned to either an academic or a technical track in middle school. Overall school completion rates are higher than in the US, but academic school completion rates are much lower, and technical school leads to a fixed menial job, with little hope for advancement. Even that has not staved off deindustrialization: German economic activity is now shifting from the industrial Rhine-Ruhr region to Frankfurt and Munich, the global cities.

  2. darrint says:

    I don't buy the argument that mass production is dying or that the USA is too expensive.

    My reading of the state of the art is that we just aren't that good at managing labor into getting stuff made. That's fixable and if we don't fix it we will fail at design as well.

  3. Anonymous says:

    Thank you, Mr. Renn for daring to think about the people outside the intellectual class. We really need to get past this debilitating idea that education is the answer for everything.

    Looking back to our industrialization, you see that few people had high school, let alone college degrees. Why? Education was exclusive, and not widely available. It was expensive, especially in opportunity cost of not working in prime ages (15-25). The premium a degree offered was not that great, and an education was not necessary for a middle class standard of living.

    After the war, education became widely available and inclusive. Education became heavily subsidized, including extensive loan programs. The premium for a degree grew steadily to the point that a college degree is almost essential for what we consider a middle-class income today.

    In response, high school and college graduation rates rose for each cohort from around 30 and 10 percent to 80 and 30 percent. **But then they leveled off**

    When you observe an investment that is available, affordable, and lucrative, and people are not buying it, then there is a hidden cost. In this case, it is psychological disutility – most people find intellectual work painful.

    What if I told you that you had to milk 100 cows by hand, twice a day for a year? Painful? What if I told you that if you milk those cows well for four years, you can milk them every day for the rest of your life? I'll double any other salary offer you have. Would you pay me $100,000 for that opportunity?

    The chattering classes enjoy, or at least do not dislike intellectual work. They cannot understand that most people do not enjoy it. 60 percent of every cohort of 18-year-olds enters college. 30 percent finish. At some point along the way, the 30 percent who don’t finish decide that the additional income they could earn does not justify doing work like their coursework for the rest of their careers. If it did, they would find someway to earn a passing grade, borrow or earn the money, take one course at a time until they finished.

    As their neighbors and countrymen, we have an obligation to open a space for them somewhere in our economy. There has to be meaningful work, not just transfer programs while all manual labor is outsourced to China.

  4. David says:

    "Education became heavily subsidized, including extensive loan programs. The premium for a degree grew steadily to the point that a college degree is almost essential for what we consider a middle-class income today."

    - that is the the premise that the chattering class made and it was bought, hook line and sinker by many Americans who today find that the costs of a college education have reached such proportions they can no longer afford it and it is not justified on an ROI basis (particulalry private liberal arts bastions that cost > $25K/year).

    I am not anti-education. Everyone needs a high school diploma from a strong high school (which is a rarity in the US). Then it needs to be ok/all right/accepted to go into work that does require a college degree.

    Fix the high schools first….

  5. Alon Levy says:

    Anon, in one paragraph you mention the positive effects of subsidies to education; in another, you ignore the effect of skyrocketing tuition rates at colleges.

    Nor do you provide any evidence that American college completion rates (but not European ones) are stagnating because people don't like learning. The mere fact that many people drop out isn't enough. High school completion rates weren't any higher in the 1920s and 30s, when many entered high school but then dropped out. High school homework was and still is considered a chore, and given a choice most teenagers would not do it. College is no different – if anything, it offers more choices, and does not produce adages like "Those who can't do, teach" among the students.

    Your question about milking cows is unfair. The reason farm work is considered a chore is precisely that it doesn't pay so well. The reason people in developing countries flee the farms to the factories isn't that they dislike farm work; it's that factory work pays 3 times as much.

  6. Lord Peter says:

    I think that it would be interesting to take an in depth look at Portland's – and to some extent all of Oregon's – extensive bicycle industry for an example of how new manufacturing can come to be and be nurtured.

  7. JG says:

    ANON: Are you using 'chattering class' as a derogatory term? This is from a guy (or girl) who just used the phrase "psychological disutility" to refer to school being challenging.

    I didn't always enjoy my eight years of cow milking in college and medical school. But I got through it – I work hard.

  8. Anonymous says:

    We raised high school graduation rates by making high school free across the entire country. We also passed mandatory schooling laws that prohibit dropping out until most students are half way through. We set a social goal of universal high school graduation (which we have never approached, we’re at 80% grads plus 5% GEDs). We lowered the standards for high school graduates to a level that would embarrass a HS degree holder of 1900. For decades you could be illiterate and innumerate and get a degree for attendance at thousands of schools. Finally, teenagers are living at home and not legally adults, so parents can pressure them to finish.

    To achieve higher college graduation rates, are you ready to raise the age of adulthood to 22? Pass mandatory attendance laws and arrest truants? Make college tuition free? Lower the standards even lower than they are?

    Raising the college graduation rates from 30 to 60 percent would absolutely have a general equilibrium effect and lower college graduates’ wages. People with higher talents would have to purchase another costly signal to distinguish themselves.

    And what about the 40% who still would have a high school degree or less? Are you satisfied with their job prospects?

    In the cow example, most, maybe all of the readers of this blog would take an admin assistant job at $50k over milking cows at $100k because a mundane, low-paying office job is much less painful to you than manual labor. You need to see that the opposite is true for most people. Physical work may cause them discomfort, but intellectual work causes them much more discomfort. So much discomfort that the additional money does not compensate for it.

    Yes, I am calling you the chattering classes because I get upset with your inability to understand those unlike yourselves (ourselves). I have milked a lot of cows, punched the clock at several factories, and I will be receiving my PhD at the summer convocation next week. For whatever that’s worth.

  9. Andy Moore says:

    I read the post over at New Geography. Great essay, great ideas. I'm living in Pittsburgh currently, and as I bike/walk/drive past old factories and warehouses that have been converted to lofs or art spaces, and although I appreciate and like these new spaces and retrofittings, I can't help but wonder–what about when we run out of cheap oil and Americans must begin to manufacture "things" again–wont we need those factories and warehouses back? So, of course, I appreciated your post. I like your ideas for "new" manufacturing.

    But, also, suppose there is no future for the high-tech jobs, and research jobs, if the collapse (The Long Emergency) comes as Kunstler writes it. Reading Kunstler says we have lost an incredible amount of wealth that wont be coming back to our country–so how can we finance these high-tech, office jobs? Perhaps we can't? And perhaps the future of the American landscape must revert back to growning food, the one thing we truly need to survive–not lofs, not toasters, not computers–but something to eat.

  10. Alon Levy says:

    We lowered the standards for high school graduates to a level that would embarrass a HS degree holder of 1900.

    This is complete horseshit. In 1900, what's considered high school math today was considered lower-level college math. Science was barely taught until Sputnik, often for political reasons, such as religious objections to teaching evolution.

    Make college tuition free?

    Why not? It's free in Sweden, and almost free in France and Germany. Unsurprising, those three countries keep increasing their graduation rates – I believe France has already overtaken the US and is still improving.

    Right now, high school and grad school are free, but college is not. This is absurd.

    Raising the college graduation rates from 30 to 60 percent would absolutely have a general equilibrium effect and lower college graduates’ wages. People with higher talents would have to purchase another costly signal to distinguish themselves.

    It would lower college graduates' wages relative to the national average for obvious reasons. However, in absolute terms, it wouldn't. More college graduates means more skilled workers and more division of labor, which means higher overall wages (e.g. even high school dropouts today make more than they did in the 1930s – their wages have just increased less than those of people with diplomas). And people who want to do more already have to get Ph.D.s in some industries, such as biomed and economics; grad school is free and even comes with stipends.

    In the cow example, most, maybe all of the readers of this blog would take an admin assistant job at $50k over milking cows at $100k because a mundane, low-paying office job is much less painful to you than manual labor.

    Again, it's an unfair example. Admin assistant jobs often lead to promotions. That's why people take them over factory and farm work.

    As for the idea that most people find intellectual work discomforting, I think that you've squandered your moral authority there the second you started bragging about being both a Ph.D. and a farm hand. The whole idea that ordinary people just want to be happy doing chores isn't some affront to the chattering classes, whose incomes are the most secure when they have no competition; it's just a modern equivalent of the common 19th century notion that blacks were at their happiest in slavery.

  11. Anonymous says:

    You cannot compare a slave, who makes no choices regarding anything, to free adults with experience and information.

    Most college drop outs experience one or two years of school before they make their decision. They know exactly what they are walking away from. And the central point is: they make the decision.

    No one is turning away women or banning minorities anymore. If you get rejected from the elite school, some mid range school will admit you. Can't make it there?Community colleges have open enrollment.

    There are financial aid offices, counselors, evening programs, day care programs, transit programs, distance programs, even college courses in prisons. We as a society do a lot to help people through school – they decide for themselves not to continue.

    In surveys, most high school dropouts *overestimate* the wage premium that high school graduates earn. College drop outs are surely aware of the college premium. The incentive is there, so there must be a strong counterincentive to motive their action. What is it?

  12. Anonymous says:

    "College drop outs are surely aware of the college premium. The incentive is there, so there must be a strong counterincentive to motive their action. What is it?"

    - what is it…how about the fact that when many graduate from college there are not sufficient jobs available (not just talking about todays environment)that make the effort/cost worthwhile.

    - the chattering class would suggest they need grad school and/or additional training…(which is logical as the chattering class has large numbers employed in those endeavors…)

    - the new industrial city is one that has first rate elementary/secondary schools and celebrates high school graduates who choose to 'milk the cows'.

  13. The Urbanophile says:

    Thanks for the comments.

    I certainly believe we can raise overall educational attainment rates in our society. Will we ever truly universalize college the way we did high school? Maybe not (probably not). But we can increase it a lot. The question is, what are we to do in the interim between now and the date that happens, which is many, many years in the future at best.

    Also, in the rapidly changing world in which we live, vocationally oriented education is increasingly obsolete. You hear the stories about hackers dropping out or bypassing college altogether because they best way to get relevant and stay relevant is to be a direct practitioner, not a student.

    However, I think it is pretty clear that there are many, many people who do not prefer high level intellectual pursuits. My boss is a C-level executive in a major corporation, but he works as a volunteer fireman at night. It's very clear that firefighting is his first love and he gets more satisfaction from that than his very stimulating job. I had a college educated friend who was a stay at home mom who decided to go back into the workforce doing data entry. She explicitly said she just wanted to start off with a part time, "mindless" job she could have to have some time away from the kids and just leave at the door when she walked out of the office.

    There's a false dichotomy between intellectual work and "milking cows". Clearly, few people want to turn screws on an assembly line all day and wouldn't do so unless paid. But that's the type of work America will be least competitive at in the future. Lots of other matters of working manually are actually quite enjoyable. That's one reason you see plenty of people who like to work on their cars, remodel their own homes, etc. even though they might have the money to hire someone.

    Plus, a lot of manufacturing work today involves a lot of technical work that actually does require some post-high school training. And that's increasingly likely to be the case in the future.

    I don't have much time to post at the moment, but will again reiterative that, whatever we might think of comparative advantage, that it is in our long term national interest to de-industrialize.

  14. Anonymous says:

    I agree with urbanophile's last comment. Yes, the milking cows vs. desk job dichotomy is too stark, and many many people enjoy both manual and mental labor.

    The example was an argument against the people who cling to the notion that someday 75 or 90 percent of the population will have a college degree. They use that notion to justify indifference to our de-industrialization and stagnated real wages for the non-degreed majority of our workforce.

  15. darrint says:

    I've been reading Deming and Shewhart. One thing that's clear from the reading, the dichotomy between manual and intellectual labor is false.

    Challenging that notion is tough, because most people in the USA accept it fact. Possibly because management as taught and practiced in the USA is what some students of Deming called "neo-Taylorism".

    Taylorism and current practice are old blunt tools for getting work done. Getting past the Taylor mindset and into something more effective could lead to huge gains in productivity.

  16. thundermutt says:

    I'd underscore Aaron's comments about his boss. (I am not his boss.) Having done both kinds of work, manual and "think-work", I find that I need to "volunteer" for the other kind during my off hours.

    That is, today I love to work on my house and yard because I do "think work" all day. When I was on my feet all day running a plant, I wanted nothing more than to get home and read a good book in a cool, quiet place.

  17. Pete from Baltimore says:

    MR Renn
    I enjoyed your article very much.I am glad that it went against the conventional wisdom that there are only two options.

    One : we allow industry to die in this country

    or

    Two: we embrace protectionism.

    These are always seen as the only two options.

    I defintly agree with you that there is tremendous potential in small industrial businesses .And i think that at this point they may be our only option.

    There will alwaays be a few big factories in America.But a huge amount have left and they are not coming back.

    And as you wrote in your post on Detroit, there isn't a shortage of abandoned and unused wharehouses and factories in this country.

    In Baltimore in the 1980's the city realised that it had little to lose and instituted a "dollar house" program.It sold people a house for a buck if they fixed it up and lived in it a certain amount of time . maybe we could do this with some of our abandoned buildings as far as industry is concerned.

    I hope you write more about this.I especially am interested in the practicalities of having small industries in our cities.

    Some do exist.As i said in an earlier comment there are two that i know of in Baltimore.One is a small plant that makes chisels and sells them at a price that is competitive with the stuff from China[i know because i have bought their chisels myself].Another is a foundry that survives by making custom alloys, not just for indavidual people ,but for factories and businesses as well.They can remain competitive because they can produce it quicker and cheaper than China.

    We will never be able to compete with China in the mass production of cheap goods.But obviously these two companies that i mentioned are making money.

    I would be interested to know about more companies like that in the rest of America.And whether their sucsess can be duplicated.

    And what problems that they face.And what the government could do to encourage such small industries.Or what the government [ on state ,fedral and local level] could stop doing as far as hampering this kind of industrial development.

    I am grateful that you wrote this article and i hope that you can follow up on it in the future with more articles going into some of the details.

    As always , thank you for your work on this blog.

  18. Pete from Baltimore says:

    MR Renn
    One issue that i think wouldneed to be adressed in encouraging small industry is the issue of "not in my back yard " [NIMBY for short ].

    Gentrification in itself is not a bad thing but it has caused many wharehouses and smaller industrial businesses to close.

    I think that we need to have a middle ground.We do need "knowledge workers" in our cities.But we have always had these types of workers in our cities.There were plenty of those people in places like Detroit in the past.And they accepted the fact that there were factories and blue collar people in their city .It was not seen as a problem.

    And as far as the old blue collar neighborhoods go , there were always educated proffessionals in these neighborhoods. A steelworker might have a daughter who was a scientist or college proffesor.People that moan about "yuppies" moving into blue collar neighborhoods as part of gentrification, should realise this.

    My point is that many people seem to feel that a city or neighborhood [ or our economy]has to be all industrial and blue collar or all proffessional and college educated.

    They can be ,and must be, both.Someone has to design our products . And someone has to build them.

    I think that too often it becomes a game of us VS them.I live in a neighborhood that is gentrifying and i see silly atitudes on both sides.

    It's not just an economic issue.I am a construction laborer .But i have many college educated friends that work in offices.I like living near them,just as i like living near my blue collar friends.There is more to "diversity "than just race.

    I had my taxes done by an acountant who lived a 10 minute walk from my house.And she in turn just called me today to do some work on her deck.

    We both have different skills.And we both need each other for different purposes.And by hiring each other we keep our money in the neighborhood.

    This is becoming increasingly difficult to do as neighborhoods are becoming more divided into very rich or very poor neighborhoods.

  19. Pete from Baltimore says:

    MR RENN

    I am sorry to take up so much space .But i would like to make one more comment.

    You do not mention Richard Florida by name in your post .But yuo obviousely disagree with his writings.I can certainly see why since i do as well.

    I think that MR Florida is right about cities needing a "creative class".But he seems to think that this "creative class" is made up of 25 year old hipsters who will never grow old or have kids and are only concerned with biking and skateboarding.

    My neighbors a couple of doors down are a lesbian couple in their mid twenties who are both psycholigists .They are exactly the type of people that MR Florida would like to move into our cities.

    But they also plan to adopt a child in the next year.And Baltimore's public schools are shockingly bad.And there is a lot of crime in Baltimore.

    They like living in the city.But they have told me that they may have to move once the child reaches school age.

    Please note that they are not thinking about moving because of the lack of bike trails in Baltimore.Or because we aren't "hip" enough.

    They have basic and reasonable concerns about their future childs education and safety.

    I myself like biking [i don't own a car].But i am a lot more concerned about crime.

    I agree with you MR Renn, and also with Joel Kotkin, on the fact that we need to adress the basic problems in our cities instead of trying to make them into "hipster paradises.

    Considering how much he likes the "creative class" ,MR Florida unfourtantly spends a lot of time fitting them into a bunch of silly stereotypes.They don't all hang out at clubs and wear goatees.

    Once more i would like to say that this was an excellent article that you wrote and that i am planning to make some copies of it at my local library [i don't have a printer] and am going to pass it on to some of my friends that are interested in urban development.

    In Baltimore, like the midwest, these issues are ones that are not simply academic for us.

    Thank you again for posting this article.

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