Report on the Subject of Manufactures: The Changing Landscape of Industrialization and Economic Development

Introduction

Alexander Hamilton, one of the founding fathers of the US, wrote a wealth of reports that served as building blocks for the country’s economic system. In 1791, during his time as secretary of the Treasury, Hamilton published one of his most important: the Report on the Subject of Manufactures. This report argued for the development of the US manufacturing sector through industrial and trade policy to drive economic growth, strengthen the military, increase productivity, and catch up with Great Britain, the industrial and technological powerhouse of the time.

The Changing Landscape of Industrialization

Megatrends

The relationship between economic prosperity and industrialization, which has been long-established, is now starting to change. Megatrends, which are global technological, economic, societal, and ecological trends, are reshaping traditional ideas of technological progress and how countries approach economic development. My book The Future of the Factory explores four key megatrends that are impacting industrialization and manufacturing-led growth: the rise of services, digital automation technology, globalization of production, and ecological breakdown.

Digital Technology

Contrary to expectations, megatrends are not diminishing the importance of manufacturing-led development. While digital services are seen as an alternative to manufacturing in driving economic development, they do not replace the manufacturing sector as the engine of innovation and productivity growth. The manufacturing sector still outperforms the service sector in terms of tradeability, innovation potential, and spillovers to other parts of the economy. Digital automation technology has also been disruptive in some sectors and countries, but it is not a significant threat to overall job displacement. In fact, automation technology tends to create more jobs than it displaces, as seen with the introduction of the personal computer (PC) which created 15.8 million more jobs in the US between 1980 and 2015. Industrialization and factory-based production remain crucial for economic development and innovation.

Uneven Opportunities

Power asymmetries in the world economy are creating uneven opportunities for industrialization and economic benefits. Transnational corporations based in high-income countries wield significant power and often prevent developing countries from receiving a fair share of profits in global production systems. For example, Apple outsources the production of every component of the iPhone but still retains over 50% of the final retail price, while the firms and workers in developing countries who assemble the iPhone receive less than 1.5% of the final price. High-income countries also refuse to take responsibility for ecological breakdown, placing the burden on developing countries. To address these challenges, international trade systems need to be reformed for fairness, and developing countries should have more ecological policy space in their implementation of industrial policy.

The Return of Industrial Policy

Alexander Hamilton’s insights on manufacturing-led development remain relevant today. Governments, including the US, are actively revamping industrial policy to re-industrialize their economies and enhance competitiveness. The US Senate recently passed a historic $280 billion industrial policy bill, signaling a renewed focus on manufacturing. Industrial policy is at an all-time high globally as geopolitical tensions and shocks to global supply chains drive the need for strategic economic development. While megatrends are changing industrialization in some ways, they do not diminish its importance.

Competition and Power Dynamics

Hamilton’s insights also shed light on the nature of competition in the modern world economy. Industrialization is a competitive game involving power, politics, and even warfare. However, the global playing field is not level when it comes to the distribution of industrial and technological capabilities, posing a major obstacle to economic development in the 21st century.

SDGs, Targets, and Indicators

1. SDG 9: Industry, Innovation, and Infrastructure

   • Target 9.2: Promote inclusive and sustainable industrialization and foster innovation
   • Indicator 9.2.1: Manufacturing value added as a proportion of GDP and per capita
   • Indicator 9.2.2: Manufacturing employment as a proportion of total employment

2. SDG 8: Decent Work and Economic Growth

   • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation
   • Indicator 8.2.1: Annual growth rate of real GDP per capita
   • Indicator 8.2.2: Levels of research and development expenditure as a proportion of GDP

3. SDG 12: Responsible Consumption and Production

   • Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources
   • Indicator 12.2.1: Material footprint, material footprint per capita, and material footprint per GDP
   • Indicator 12.2.2: Domestic material consumption, domestic material consumption per capita, and domestic material consumption per GDP

4. SDG 10: Reduced Inequalities

   • Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality
   • Indicator 10.4.1: Labor share of GDP, comprising wages and social protection transfers
   • Indicator 10.4.2: Proportion of people living below 50% of median income

Analysis

The article discusses the changing landscape of industrialization and manufacturing-led growth, as well as the challenges and opportunities associated with these changes. Based on the content of the article, the following SDGs, targets, and indicators can be identified:

1. SDG 9: Industry, Innovation, and Infrastructure

The article highlights the importance of manufacturing-led development and the role of industrialization in achieving economic growth and innovation. This aligns with SDG 9, which aims to promote inclusive and sustainable industrialization and foster innovation.

• Target 9.2: Promote inclusive and sustainable industrialization and foster innovation
• Indicator 9.2.1: Manufacturing value added as a proportion of GDP and per capita
• Indicator 9.2.2: Manufacturing employment as a proportion of total employment

The article emphasizes the importance of manufacturing sector in terms of tradeability, innovation potential, and spillovers to other parts of the economy. The indicators mentioned in the article can be used to measure progress towards achieving inclusive and sustainable industrialization.

2. SDG 8: Decent Work and Economic Growth

The article discusses the impact of digital automation technology on job displacement and creation. It highlights that automation technology tends to create more jobs than it displaces. This aligns with SDG 8, which aims to achieve higher levels of economic productivity through diversification, technological upgrading, and innovation.

• Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation
• Indicator 8.2.1: Annual growth rate of real GDP per capita
• Indicator 8.2.2: Levels of research and development expenditure as a proportion of GDP

The article provides examples of how new technologies, such as the personal computer, have created more jobs than they have displaced. The indicators mentioned in the article can be used to measure progress towards achieving higher levels of economic productivity through technological upgrading and innovation.

3. SDG 12: Responsible Consumption and Production

The article discusses the unequal distribution of profits in global production systems and the responsibility of high-income countries in ecological breakdown. This aligns with SDG 12, which aims to achieve sustainable management and efficient use of natural resources.

• Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources
• Indicator 12.2.1: Material footprint, material footprint per capita, and material footprint per GDP
• Indicator 12.2.2: Domestic material consumption, domestic material consumption per capita, and domestic material consumption per GDP

The article highlights the need for reform in the international trade system to ensure fair distribution of profits and the burden of dealing with ecological breakdown. The indicators mentioned in the article can be used to measure progress towards achieving sustainable management and efficient use of natural resources.

4. SDG 10: Reduced Inequalities

The article discusses power asymmetries in the world economy and the unequal opportunities for developing countries to benefit from industrialization. This aligns with SDG 10, which aims to reduce inequalities within and among countries.

• Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality
• Indicator 10.4.1: Labor share of GDP, comprising wages and social protection transfers
• Indicator 10.4.2: Proportion of people living below 50% of median income

The article highlights the power of transnational corporations in preventing developing countries from getting a fair share of profits in global production systems. The indicators mentioned in the article can be used to measure progress towards achieving greater equality and reducing inequalities.

Table: SDGs, Targets, and Indicators