Don’t Cry For Me, Motown

Detroit was a US auto manufacturing center a few decades ago, but now its population of 700,000, down from 2 million, cannot afford to pay off $18 billion in debt and unfunded liabilities. The city has filed for bankruptcy. “Outsourcing, automation and suburbanisation have drained its population” and “the bankruptcy of what used to be the country’s fourth-largest city does indeed signal the symbolic end of the era of the Second Industrial Revolution,” explains Nayan Chanda, YaleGlobal editor in his Businessworld column. Detroit ushered in an era of assembly lines, and Chanda points out the city’s struggles stand “as a warning to countries expecting to grow on the backs of unskilled assembly line labour.” A Third Industrial Revolution, based on internet technology, presents new disruptions as automation and computers replace workers. The most profitable corporations are no longer necessarily big employers. US leaders urge workers to pursue education and hope that job creation follows. Cities and nations that borrow without preparing for rising productivity and fast-changing economic conditions could confront their own bankruptcies. – YaleGlobal

Don’t Cry For Me, Motown

Detroit’s bankruptcy is not the end of the road for manufacturing in the US, just the end of an era when factory assembly lines meant lots of jobs
Nayan Chanda
Monday, August 19, 2013

In a nation’s history, there are occasions when an event stands out as marking an era. The recent filing for bankruptcy by Detroit, America’s iconic industrial city, is likely to be remembered as such an event. Once the glitzy home of the automobile giants that embodied US manufacturing might, Detroit has been in distress for over three decades. Outsourcing, automation and suburbanisation have drained its population, leaving a dilapidated shell of a — now bankrupt — city. It would, however, be a mistake to see in Detroit’s decline the end of America’s manufacturing era; on the contrary, manufacturing of a different sort is actually being revived. But the bankruptcy of what used to be the country’s fourth-largest city does indeed signal the symbolic end of the era of the Second Industrial Revolution.


The First Industrial Revolution started with the steam power engine in the 19th century and the second followed in the early 20th century when assembly line production was introduced in places like Detroit. In fact, with its diversified manufacturing and its growing immigrant labour force, Detroit emerged as the quintessential American city, a place where blue collar workers earning a decent living rose to middle class affluence that was at the heart of ‘the American dream’. Detroit’s demise not only serves as a reminder of the changed times in the US, but as a warning to countries expecting to grow on the backs of unskilled assembly line labour. To be sure, the production of inexpensive, basic commodities will continue to be performed by such workers. But the market will increasingly be dominated not by blue collar workers, but by automated chrome and steel machines.


Detroit’s woes mark the culmination of a trend that started three decades ago, when the number of labourers in manufacturing worldwide began to decline. In a recent paper, ‘The global decline of labour share’, two University of Chicago economists, Loukas Karabarbounis and Brent Neiman, have shown the global labour share has significantly fallen in a large majority of countries and industries. With advances in information and communication technology, the relative price of capital goods has declined, inducing firms “to shift away from labour and toward capital”. The paper showed that six of the 10 major industries experienced a significant fall in their labour share. The case of two iconic US companies highlights the shift. In the 1960s, GM owned many factories and employed nearly one per cent of America’s non-farm labour force. Today, another giant, Apple, employs less than 0.05 per cent of US workers. Even Foxconn, the Chinese firm that supplied over 100,000 workers assembling Apple products, is preparing to replace them with robots.


The recent Economic Report of the US President noted the trend. “For the past three decades, American workers have faced a challenging job market. Computers and robots now perform routine tasks, reducing demand for workers in many industries and occupations.” The US, says the report, needs to invest in upgrading the skills of its workforce so as to engage effectively in the global competition for good jobs and attract highly skilled workers who lead innovation — something the Senate’s immigration Bill is trying to address.  

The consequences of an IT-led Third Industrial Revolution are beginning to show up. For example, while there has been a phenomenal rise in the income of a few captains of the industry, workers’ income has stagnated and unemployment has stayed stubbornly close to 8 per cent. Recessions have often seen introduction of labour-saving technologies for maintaining profit margins. The US Fed’s policy of maintaining near-zero interest rate has further led companies to invest in automation and robotics. What tractors and harvester combines once did to US agriculture — drastically reducing the number of farm workers — IT and automation could do to manufacturing. Expect productivity to rise while more and more Detroits go belly-up. 

The author is editor-in-chief of YaleGlobal Online, published by the MacMillan Center, Yale University.

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