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Globalization Is Benefiting Manufacturing, U.S. Economy, MAPI Study Says Sign Up to receive Daily News Alerts in your E-mail Inbox
Posted on Sunday, March 18, 2007 6:00:00 AM |
Contrary to widely held public opinion, the expansion of offshore manufacturing and other activities by U.S.-based multinational firms benefits the domestic economy, and has not played a significant role in overall job losses, according to a recently released report by Manufacturers Alliance/MAPI, a manufacturing trade organization.
According to the report, titled "Globalization Complements Business Activity in the United States," by MAPI Chief Economist Daniel J. Meckstroth, the growing trend by U.S.-based multinational manufacturers to establish offshore manufacturing affiliates -- often in fast-growing economies such as India and China -- benefits those companies and the U.S. economy as a whole in a number of ways. Besides lowering product costs to consumers, globalization increases income and profits to U.S. multinationals and stimulates demand for products and services from U.S. companies, Meckstroth says. It also creates demand for more U.S. management and research jobs. And it makes it economically feasible for U.S. manufacturers to offer products and services that would not otherwise be available, the report says.
"There are numerous direct and indirect benefits that consumers derive from globalization, not the least of which is lower-cost products and services," states the report, which was based on a survey of academic and government research. "Multinationals benefit from a longer product life and an expanded international knowledge network. Globalization, in fact, complements innovation in the United States."
While globalization sometimes results in lower-cost offshore manufacturing replacing U.S. jobs, reducing production through cheaper labor is not the driver behind most globalization by multinationals, the report found. Instead, most manufacturers expanding their operations offshore are looking to increase revenue by opening new markets, the report says. Globalization also allows multinationals to reduce risks posed by factors such as disasters, labor unrest, and regional economic downturns.
But the net benefits involved in outsourcing -- where U.S.-based manufacturers transfer production to unaffiliated offshore providers -- are less clear, the MAPI report says. Manufacturing companies and consumers alike benefit from lower material and finished goods costs. But outsourcing, particularly of manufactured goods with high labor costs, results in domestic job losses. Those outsourcing-caused losses, however, don't represent a big part of the normal job churn and turnover in the economy, according to the report.
"Given the magnitude of turnover in jobs each month, outsourcing of trade must be seen as a minor cause of displacement," the report says. Ultimately, the MAPI study reports, "Greater foreign production complements U.S. production by creating stronger demand for productive resources in the United States."
Partly as a result of globalization, the report says, the U.S. economy is strong.
Despite record trade deficits, the report says, "The labor market in the United States is at what many economists consider non-inflationary full employment; capacity utilization in the manufacturing industry is above its long-term average, and corporate profits are the highest share of GDP in more than 40 years. Furthermore, U.S. productivity has increased dramatically since the mid-1900s, thanks to increased competition, greater innovation, and advances in information technology. Globalization creates the competitive pressure on firms that leads to a higher standard of living in the United States."
This article originally appeared in the April 2007 issue of Managing Automation.
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