4 Reasons Manufacturing is NOT Special

V.2, N.72

As a parent, I love all my children equally (well, all two of them). Similarly, as a localist, I love all the sectors of the economy that generate good jobs. Every good local job means more local income, more local wealth, and a stronger local tax base.

But for more than a generation, we have been told that manufacturing jobs are special. They deserve special subsidies, special policy prioritization, and special favors. Economic developers are willing to lavish tens of billions of dollars each year on state and local “incentives” to attract and retain large manufacturers like auto plants. Ditto for national leaders across the political spectrum. President Biden invested tens of billions in industrial policies like the CHIPS Act and the IRA to bring manufacturing industries back home. And now, President Trump is erecting high tariff walls to bring manufacturing back to the United States.

The nostalgia for manufacturing is understandable. When I was a kid in the 1950s and 1960s—when I suspect President Trump thought America was “great”—about 30% of our workers were employed in manufacturing. (That percentage actually peaked at 38% at the end of World War II.) Most were union jobs that paid handsome salaries and benefits, including comprehensive healthcare plans and fixed-income retirements. Our factories made great products that not only met our own needs but also the world’s, and our factories were models of efficiency, management, and fairness. That’s the story, at least.

Now, everyone wants to restore the glory of our industrial-era manufacturing economy. But can we do this? And should we? Count me as skeptical, for four reasons:

(1) Our Consumption Habits Have Radically Shifted

Back in the 1950s, the typical American household spent about 45% of its total spending on services. Today, the number is closer to 70%. As Paul Krugman argues in Pop Internationalism: “A steadily rising share of the workforce produces services that are sold only within that same metropolitan area. . . . And that’s why most people in Los Angeles produce services for local consumption and therefore do pretty much the same things as most people in metropolitan New York—or for that matter in London, Paris, and modern Chicago.”

I would argue that this is progress for two reasons:

• First, goods have steadily become cheaper because of automation and other efficiencies. (I don’t believe we need to fear our jobs being taken over by robots, but that’s another blog.) Consider calculators. The first handheld calculator in the early 1970s cost about $200. The combination of advancing technology, miniaturization, and automation has shrunk the cost of a similar calculator to about a penny today.

• Second, saturation effects have taken hold in wealthier countries. Once you have two cars, five refrigerators, and six computers, you are more interested in spending your next dollar on health care, education, or entertainment.

That Americans are spending relatively more for services than for goods should be a point of pride. Moving upward on the psychologist Abraham Maslow’s “hierarchy of needs,” from physiological needs like food, water, and housing, to the needs of safety, love, self-esteem, and self-actualization, is good for our happiness and good for our souls. It’s also good for the environment, because the ecological stresses from manufacturing are almost always greater than those of services.

These changes in our buying habits, along with automation, mean that manufacturing will never return to 38% of our workforce. Right now, it accounts for 10%. And despite all the policy shifts led by Biden and Trump, it’s not increasing. Before COVID, the United States had just under 13 million manufacturing workers. Today, in 2025, the number is almost identical! In fact, there is some evidence that the chaotic first few months of the Trump Administration has been terrible news for the manufacturing sector. a recent headline in Politico says it all: “Trump Hails ‘Manufacturing Miracle’ as Factories Bleed Jobs.”

A footnote: If we’re spending 30% of our money on goods, some of you might wonder why 30% of our productive economy shouldn’t be manufacturing stuff rather than 10%? The reason is that a dollar spent on goods doesn’t just go to manufacturing. It goes to the construction of the factory, it goes to finance for the operations, it goes to advertisers, distributors, and retailers, etc. In other words, even a dollar spent on a physical good is mostly spent on embedded services!

(2) Manufacturing Employment Is Shrinking Worldwide

Our politicians tell us that our manufacturing sector has disappeared because of bad U.S. policies—bad trade policies, an artificially strong dollar, our yawning budget deficit, overregulation, and too many unions. There’s truth in each of these arguments, but they obscure the larger reality. The manufacturing sector is becoming more efficient and contracting jobs across the planet.

Since the early 2000s, the percentage of workers involved in manufacturing has shrunk: from 15% to 9% in Canada; from 13% to 6% in Australia; from 19% to 11% in France; from 17% to 9% in the United Kingdom. Even the powerhouse manufacturing exporters have seen declines. Germany has gone from 24% of the workforce to 19%. Mexico has gone from 22% to 17%. Japan has gone from 21% to 16%. South Korea has gone from 20% to 16%.

The exception is China, which saw an increase in its manufacturing workforce to 29%. This number, however, may reflect a peculiar definition of manufacturing (it tracks employees in “industry,” which includes more than just goods-producing factories). And more importantly, it too is likely to decline now, because of the myriad problems its factories are facing.

Only a few small countries like Vietnam, with large low-wage labor forces and authoritarian systems to keep wages low, are experiencing growth in manufacturing jobs. But this doesn’t change the bigger global picture.

(3) Manufacturing Wages Are Not Distinctively Better

For a generation, economic developers have argued that attracting big manufacturers was worth the expensive incentives because they create new, well-paying jobs. Never mind that research shows that nearly 90% of the jobs created in these schemes go to outsiders who move into the community doing the attraction (while the locals get screwed). Let’s focus on the wage argument.

According to the Bureau of Labor Statistics, the average hourly wage for manufacturing workers is now, as of April 2025, $28.80. The average hourly wage for all service providers in the economy is $30.83—seven percent higher. Sure, there are lots of low-paid services, but also many highly paid ones, including professional services (paying $36.81 per hour), financial services ($36.98 per hour), and information services ($42.86 per hour). Indeed, focusing on manufacturing instead of these other post-industrial service industries may be a recipe for keeping wages low.

I’m mindful that one reason manufacturing wages were once relatively high is that these industries were unionized. And many advocates of the revival of manufacturing are hopeful that it will be accompanied by increased unionization. While I would also like to see increased unionization of our workforce, the recent history in the United States shows that the few sectors where unionization has expanded have been public employees and service employees. The better way to expand unionization is probably to expand high-paying service sectors, not manufacturing.

(4) Our Goal Should Be to Localize Manufacturing, Not Expand It

Readers of The Main Street Journal are already well-versed in the arguments for greater localization: More income, wealth, and jobs. More income equality. Stronger tax bases. More civic engagement through voting and volunteerism. More resilience against unanticipated supply chain breaks, COVID outbreaks, or climate disasters. Less crime, poverty, and alienation. And much, much more.

If you care about localization, you should be delighted with the global shift of spending from goods to services. Most services are already localized because they have low overheads, depend on person-to-person relations, and are competitive at a small scale. If there are gaps—say you discover your community needs more dentists—it’s a lot easier to recruit dentists, or train them, than to spend millions bribing one big outside manufacturer to relocate.

I’ve performed dozens of leakage assessments around the country, and the findings are fairly consistent. Most communities have far less “leakage” in services than in goods. Localization of services, in other words, is already occurring. And the easiest way to accelerate this trend is by expanding well-paying service categories like finance, information, and professional services.

That said, localizing manufacturing is also a noble quest (to the extent that it is possible). A community that produces more of its own goods will realize all the benefits from localization, plus increase the skill base of its citizenry. Communities with their own craft breweries take pride in imbibing their local brews. And I applaud efforts to expand this kind of local production by groups like Recast City LLC.

But should we subsidize the expansion of local breweries and ignore the opportunities from localizing, say, financial services or accounting services? That’s 1950s thinking. Let’s instead nurture localization across all sectors of the economy in a balanced way. Our economic development priorities should reflect the next century, not the last one.

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Paying subscribers will find a bunch of other stories on local investment and local economies.

• Richard Heinberg makes a persuasive case that communities worldwide should respond to rising tariffs with “eco-localism.”

• The European Federation of Employee Ownership just published its latest annual assessment, with a striking movement toward employee ownership among British small businesses.

• Nonprofit Quarterly has a compelling piece on why philanthropies should increasingly focus their giving on “enterprise capital” to their grantees, so that they might grow their own revenue-generating businesses.

• A discussion in Stir to Action illuminates how creative placemaking in the United Kingdom is reclaiming buildings and bringing distressed communities back to life.

• Despite the conservative war on ESG, Next City and ImpactAlpha both have great articles on the latest successes of local investment initiatives around the country, focusing on BIPOC-run businesses and projects.

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