Is Our Decline in Manufacturing Such a Bad Thing?

"Positive non-interventionism involves taking the view that it is normally futile and damaging to the growth rate of an economy, particularly an open economy, for the Government to attempt to plan the allocation of resources available to the private sector and to frustrate the operation of market forces" Sir Philip Haddon-Cave, Hong Kong's Finance Minister 1971-1981...

Manufacturing's contribution to U.S. GDP amounted to 11.7% in 2010... Back in the 50s, manufacturing accounted for 28% of national income... So clearly, the notion that we've exported away 60% of our capacity to produce tangible items is indisputable, right? Of course that's what certain special interest groups (labor unions) would have us believe...

Reality however, is something altogether different... In fact we're producing more autos, plastic and steel products, electronics, etc., in U.S. factories than we ever have, by a bunch - almost $2 trillion (that's more than our total GDP in the 50s) worth in 2010... It's just that the service sector has grown faster over the past 60 years...

So is our decline in manufacturing as a % of GDP a bad thing? Depends on whom you ask... Unions and politicians (right and left merge on this one) say yes... I say no, with a huge exclamation point! In fact I'll add "misrepresenting manufacturing data"to my list of red flags (read We Need to Educate our Policymakers)...

Protectionists have a field day with this one... They site the dwindling manufacturing-as-a-%-of-GDP along with the so called trade deficit (read On Balance) as reasons to reign in foreign investment by U.S. companies, and tariff steel, rubber and any other item they might dangle in front of politicians looking to keep their seats...

I'm convinced that if we could only regain our position on the Economic Freedom Index (we've gone from 3rd to 9th and our score continues to drop. See Index Rankings) we would achieve all the (jobs, inflation and GDP) goals our central planners claim they can bring us...

The only nations currently enjoying what we're after - low unemployment, low inflation and high GDP growth - are the ones that sit atop the Index...

Here's how #1, Hong Kong (a country that, over the past 30 years, has seen manufacturing decline to a mere 7.4% of GDP) does it:

*The Hong Kong Government has traditionally played a mostly passive role in the economy, with little by way of industrial policy and almost no import or export controls. Market forces and the private sector were allowed to determine practical development. Under the official policy of "positive non-interventionism", Hong Kong is often cited as an example of laissez-faire capitalism.

*Hong Kong, one of the world