Yes We Can (Manufacture in a Global Economy)

I am beginning to think that I am an idiot. Every time I start looking into a manufacturing issue, I find that the numbers don’t always agree with what I thought. In this case, the disconnect in my thinking has to do with the proportion between goods and services in our nation’s exports.

I keep hearing that services accounts for over two thirds of our domestic economy. Add to this the constant assertion that our nation’s manufacturing is deteriorating, I was under the impression that services account for a significant percentage of our exports. With this information in hand I was not prepared for what I found concerning our nation’s exports. It turn out that in 2007, approximately 70 percent of our nation’s total exports are from goods.

I don’t know what I expected, but it wasn’t 70% of our exports being from goods. Part of my problem is with what exactly is meant by goods verse services? Are goods limited to only tangible items such as a hammer, computer, or automobile? Does it include less tangible things like software or digital music? Is there a difference in how buying a CD is treated verse downing loading a song from iTunes?

What confuses me more is that IBM considers itself a services company. I would agree that services are a part of the company, but I still would not have considered IBM to be a services company. In a way this classification answers some of the above questions. The amount of hardware IBM sells is small when compared to the software systems and consulting work they do. If one defines the hardware as goods and the software systems and consulting as services then IBM is a services company. The problem is that this definition of services would increase the expectation for a higher percentage of exports being from services, not decrease it.

Don’t get me wrong, I am not complaining that so much of our exports are goods. It is just that the news keeps telling us about how bad manufacturing is being hit and how we need to move to an innovation economy. I was beginning to think that our nation would crumble if we did not have almost 100% of our children go to college with most of them being scientists and engineers.

We might need more scientists and engineers, but the country will not collapse. As some economists say, the fundamentals are strong. It is interesting that if you look at Q1 2008, roughly 62% of our trade deficit was due to oil imports. With 70% of the exports being goods, that makes the trade deficit seem to be more like an energy independence issue as opposed to a systemic problem with manufacturing.

In the end, the numbers actually were more inline with what I thought then the expectations set by the media. The loss of manufacturing in America is not a “fait accomplish”, i.e. a done deal. I am just afraid that with the way the media portrays the state of manufacturing it will become a self fulfilling prophecy.