US Manufacturing Renaissance

As the United States reorients towards an export economy, some CEOs are clamoring for better manufacturing policy. That's a bad bet. Manufacturing is converging on a global scale:

Despite the lack of convergence among economies as a whole, there is apparently quite strong convergence within manufacturing industries.  What this means is that manufacturing sectors that are further away from the technological frontier tend to experience more rapid productivity growth.  And -- this is the really interesting part -- this happens regardless of the quality of domestic policies, institutions, or geography.  Manufacturing productivity converges even if you are in a remote country with lousy policies and institutions. In economics jargon, manufacturing industries are subject to unconditional convergence.

Dani Rodrik goes on to explain the implications for the fastest growing economies around the world. For manufacturing, geography doesn't matter. For innovation, geography is destiny. If Ohio is hoping that cheap shale gas will revive manufacturing there, think again.

The Rust Belt needn't worry. The trouble is mostly in the Sun Belt:

Blue-collar jobs lost in the recession might never return, and Florida’s housing collapse and health care concerns are barriers to a quicker economic recovery.

[A study released today by Georgetown University’s Center on Education and the Workforce] says the South has a “vicious economic cycle” in which high-skill, high-wage employers avoid the region because of its unqualified workforce.

“Industry has no incentive to locate in those states, employers have no incentive to create jobs that require anything but low skill and pay, and workers have no reason to attain much beyond a minimum education,” the report states. “This, of course, is no way to compete in a global economy that increasingly emphasizes competition based on knowledge and skill.”

The rapid growth in the Sun Belt was a product of the unconditional convergence of manufacturing, not low taxes and right to work policy. The same goes for the narrative about cheaper housing and liberal zoning practices.

The South has a talent problem, which will be a major drag on innovation. The Georgetown professors reckon that megaregional talent is about a decade behind the nation as a whole. Thanks to legacy assets, the Rust Belt has a wealth of talent production hubs. The early rumblings of convergence in the Innovation Economy should privilege shrinking cities.

Going further out on a limb, I think the above report maps the emerging divergence of Talent Economy. Knowledge production will continue to diffuse. Talent production will agglomerate, mainly benefiting Boston and Pittsburgh (the two biggest talent production clusters not only in the United States, but perhaps the world). Regardless, the Sunburnt Belt is losing the war for talent.