Why the Knowledge Economy Can’t Replace Manufacturing

by Fred Siegmund

Can the middle class continue to rely on manufacturing jobs?

No, says William McGurn, writing in the Wall Street Journal (“Michigan and the Knowledge Economy,” June 16).

The automobile industry and manufacturing jobs leaving Michigan will not be back, but must be replaced with new jobs in the “knowledge economy.”

McGurn defines the knowledge economy as industries with 30 percent or more of jobs using college or professional degree skills, such as information services, finance and insurance, professional services, health care and education.

If Michiganders produced everything they bought and sold, they wouldn’t need to buy oranges from Florida, furniture from North Carolina, digital cameras from China, or shoes from Taiwan. As long as they buy out of state, their money leaves Michigan and their spending creates jobs elsewhere.

Buying from out of state requires selling out of state. Otherwise, Michigan must produce and sell more services to replace lost manufacturing jobs.

Social Services
Consider social services. Like all states, Michigan has social service facilities staffed with college educated counselors and social workers. Most of these jobs require at least a master’s degree, which puts them in the knowledge economy.

Social services are local services, produced and used by Michigan residents. Like all services, they are hard to sell out of state. If Michiganders will buy fewer oranges from Florida or fewer cameras and electronics from China but more social services from each other, then college educated social service jobs will replace auto manufacturing jobs.

In education, all faculty jobs and many administrative jobs require college degrees. Education serves local residents, which makes it hard to sell out of state.

College students might be an exception, but even if it is politically feasible and economically successful to attract out of state students with lower tuition, other states could do the same and compete for students.

Competition adds to the difficulty of selling services out of state since other states can easily copy Michigan’s strategies and try to export their services. For services like information services in publishing and communications and finance, insurance, and some professional services, inexpensive digital technology allows easy entry and competition between states and other countries; outsourcing to India for instance.

Michigan has the advantage of the Great Lakes and outdoor recreation for its tourism business. Bringing in out of state money with tourism might help despite competition, but jobs at hotels, motels, restaurants, boat marinas and golf courses are not part of a knowledge economy.

Competition and the local use of services make it economically difficult to replace manufacturing jobs with service jobs. Many service industries have jobs that need college degree skills and pay good salaries, but having these jobs (or more of these jobs) is different from expecting them to replace manufacturing jobs.

Michigan needs manufacturing. America needs manufacturing. The knowledge economy offers only false hopes.

Fred Siegmund covers America’s jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

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