Manufacturing Matters or Does It? Two Democratic Former CEA Chairs Battle it Out

In his State of the Union Address, President Obama highlighted the importance of providing special treatment for U.S. manufacturing through tax breaks and other forms of direct support.  In a February 4th op-ed piece in the New York Times, Christina Romer, the first Chair of President Obama’s Council of Economic Advisors (CEA) finds the arguments for such special treatment less than compelling.  In response, in a February 10th New York Times Economix blogposting, Laura D’Andrea Tyson, the Chair of President Clinton’s CEA, makes the case for why manufacturing deserves such support.  This blog posting summarizes their arguments.  Read the full articles for yourselves and respond by indicating which argument you find more compelling.

Professor Romer makes the following points in arguing that special treatment for manufacturing is unnecessary.

  1. No market failure specific to manufacturing exists.
  2. Innovation takes time to commercialize, thus special treatment makes sense; however, innovation is far from limited to manufacturing.
  3. National defense needs must be met but such needs do not map easily onto manufacturing. The problem, of course, becomes identifying in some objective way which industries (firms?) are essential to the national defense.
  4. Manufacturing industries have not been great job creators, as the share of employment tied to manufacturing has declined markedly in the past 30 years.  Technology and rapid productivity growth have led to not only a reduced need for workers but an increased need for more high skilled workers.
  5. Improved income distribution is not well served by a specific focus on job creation in manufacturing.  It is better served by direct attention to policies that will raise the skill levels of the population in a way that matches the needed capabilities.

Professor Tyson begs to differ.  She highlights the recent increase in manufacturing jobs as well as the need to strengthen U.S. competitiveness in manufacturing.  Specifically, she makes the following points:

  1. The U.S. economy needs to be rebalanced towards export production, and manufacturing goods make up 60% of the exports of goods and services.
  2. Manufacturing jobs are highly productive and provide relatively high compensation to workers; thus, we should encourage such job creation as a way to raise the average level of worker compensation.
  3. Manufacturing companies play a key role in innovation.  They employ the majority of scientists and engineers in the U.S. and cover 68% of business R & D (research and development) dollars.
  4. Increased manufacturing activity will assist in keeping R & D in the U.S. rather than see it outsourced along with lower skilled employment.

Both Romer and Tyson support extension of the R & D tax credit and efforts to improve the skills of the American workforce.  Clearly, they disagree, especially given current and prospective budgetary pressures, how narrowly focused these policies should be.  With whom to you agree?