Manufacturing is the Answer But to Which Question

Recently, Andrew Grove (former CEO of Intel) and a number of policy makers have claimed that we need to keep our manufacturing sector vibrant as a way to sustain national economic security. In today’s Financial Times, Columbia University economist, and perennial Nobel Prize candidate, Jagdish Bhagwati contests that claim, and notes that we already subsidize American manufacturing in many ways.  Furthermore, he argues that such efforts have not been good value nor have they been the best way to increase employment or innovation.  He concludes as follows:

“In policy, sometimes Gresham’s Law operates – with bad policies driving away good ones. With no good argument in its favour, a preoccupation with manufacturing industries threatens yet one more example of such a perverse outcome. By promoting manufacturing of all kinds (as can be expected as the sector’s lobbies get down to work) at the expense of more innovative and dynamic service sectors, precisely when America is faltering in its recovery from the crisis, this unhelpful fascination promises to inflict gratuitous damage on an economy that can ill afford new wounds.”