quality means fewer repairs and longer useful life (Table 4.2). Car maintenance costs dropped 28 percent between 1985 and 1998, translating into a sav ings of $21 billion in 1998 alone. As a result of higher quality, the median age of cars in operation today is over eight years, compared with 6.5 years in 1990 and less than five years in 1980. Yet the average mileage traveled by cars increased from 9,500 miles a year in 1985 to over 11,000 miles today (Chart 4.3).
Advances in manufacturing technology and machine tools have also delivered savings to consumers through major improvements in the fuel efficiency of cars and light trucks during the last 15 years. Today’s passenger vehicles are more powerful and more economical than those of 25 years ago, and they are saving consumers tens of billions of dollars annually in fuel costs alone.
The story of the automobile industry is no fluke. Similar quality improvements and dollar savings are seen in other durable consumer goods. For example, new, more precise and flexible machine tools have enabled the manufacture of the scroll compressor, making it possible to increase the energy efficiency rating of air conditioners and heat pumps nearly 40 percent since 1981; the energy rating of refrigerators jumped 100 percent during the same period. These improvements saved consumers nearly $20 billion in electricity costs during 1997 alone (Chart 4.11).
MACROECONOMIC BENEFITS
In addition to the many machine tool advances that have enabled manufacturers in various industries to produce better products faster and cheaper, improvements in manufacturing technology have also delivered important gains to the economy as a whole in at least four major areas.
First, and of greatest significance, the dramatic turnaround in manufacturing helped fuel America’s economic expansion during the 1990s. After accounting for inflation, the average annual rate of growth of real GDP in durable goods industries between 1992 and 1997 was a remarkable 7.6 percent, more than twice the rate for the overall private economy. During the decade from 1987 to 1997, durable manufacturing grew at a 4.0 percent average annual rate, still significantly higher than the private economy as a whole. And according to the Congressional Research Service, increases in manufacturing output have more than twice the downstream impact on the economy as output increases in other sectors of the private economy such as services.
Second, advances in manufacturing technology have improved the quality and prosperity of the workforce by making it necessary for employers to provide workers with more training. Training is often needed because although today’s machine tools are simpler to operate, the tasks they perform are more complex. Workers who improve their skills through training qualify for higher wages and improve their living standards while enhancing manufacturing productivity.
A third heretofore unappreciated benefit of the improvements in manufacturing technology has been to reduce the peaks and valleys of the U.S. business cycle by reducing inventory fluctuations. Better machine tools have helped to shorten process times and aided Just In Time inventory management procedures. In the past, inventory fluctuations have often triggered economic recessions.
Finally, manufacturing improvements have again made the U.S. a powerhouse in the global marketplace. After bottoming out in the early 1980s, the quantity of manufactured goods exported from the U.S. grew at nearly 12 percent annually between 1986 and 1992, while those of leading global competitors lagged. German exports of manufactured goods grew at only 4 percent, for example, and Japan’s grew at just 3.5 percent. Over the 10 year period from 1986 to 1996, U.S. exports of manufactured products grew at an average annual rate of 10 percent, while those from Germany and Japan averaged a mere 4 percent and 2.5 percent, respectively.
CONCLUSION AND RECOMMENDATIONS
The dividends to the U.S. economy created by advances in manufacturing technology are not captured by productivity measures alone. There are other important ways in which the restructuring of the nation’s manufacturing capabilities have generated significant economic benefits for producers of durable goods, the consumers who buy their products, and the U.S. economy as a whole.
Thus, policies that promote and support continued capital investment, the development of advanced manufacturing technologies, and the continuing advancement of education and skill training for the American worker should be a priority at all levels of government.
Specific public policy initiatives have been developed and are to be published separately. Among the highlights are:
▪Keeping interest rates stable so as not to discourage continued investment.
▪Stimulating more investment by allowing investments in productive equipment to be written off at the time the expenditure is made.
▪Supporting research & development by extending the R&D tax credit on a permanent basis and increasing the budget for the National Science Foundation and other technology oriented programs.
▪Improving the trade environment by adopting a territorial and border adjustable tax system, increasing resources for trade promotion agencies including the Export/Import Bank, eliminating unilateral U.S. export controls, vigorously enforcing U.S. Fair Trade laws, strengthening dispute resolution within the World Trade Organization, and working to open foreign markets to U.S. products.
▪Assuring that exchange rates reflect international as well as domestic economic conditions to provide fair trading relationships.
▪Adopting fair and balanced legal and regulatory reforms.
These policies will, AMT believes, help extend prosperity in the United States in a manner that will provide the maximum opportunity for manufacturing and other industries to participate in the expansion.
The study was sponsored by AMT The Association For Manufacturing Technology, the trade association for American producers of machine tools and manufacturing technology equipment. For additional copies contact AMT at 703 893 2900. E mail: [email protected].
Fig. 1-1-1
The Law of Production
What Everyone Should Know About Economics
The following sets of facts, developed by The American Economic Foundation, are called the “Ten Pillars of Economic Wisdom.” These basic laws of economics might be called a blueprint for man’s economic life. These simple truths should clear up the hostility that has been generated between economic groups by people who want to benefit by that hostility.
These ten rules show how simply the economic truth can be told:
1.NOTHING IN OUR MATERIAL WORLD can come from nowhere or go nowhere, nor can it be free. Everything in our economic life has a source, a destination, and a cost that must be paid.
2.GOVERNMENT IS NEVER A SOURCE OF GOODS. Everything produced is produced by the people, and everything that government gives to the people, it must first take from the people.
3.THE ONLY VALUABLE MONEY that government has to spend is that money taxed or borrowed out of the people’s earnings. When government decides to spend more than it has thus received, that extra unearned money is created out of thin air, through the banks, and, when spent,
