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U.S. President Barack Obama sits next to plant manager Teri Quigley as he drives a Volt car off the assembly line at a General Motors auto plant in Hamtramck, Mich. (LARRY DOWNING/LARRY DOWNING/REUTERS)
U.S. President Barack Obama sits next to plant manager Teri Quigley as he drives a Volt car off the assembly line at a General Motors auto plant in Hamtramck, Mich. (LARRY DOWNING/LARRY DOWNING/REUTERS)

CHRYSTIA FREELAND

Manufacturing as the lifeblood of the U.S. economy Add to ...

Chalk one up for continental Europe’s economic architects. For the past several decades, the Anglo-Saxon consensus was that state interference in the private sector economy was a mistake. Government bureaucrats were in no position to pick economic winners and losers – and if standing aside meant letting the forces of creative destruction sweep away entire industries, so be it.

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The continental Europeans, most successfully the Germans, demurred. They were unconvinced that the shift from manufacturing to services was either good or inevitable, and they used the full might of the state to try to hang on to their industrial base. The financial crisis may have briefly felt like a vindication of this model – but the near collapse and continued frailty of the euro brought a quick end to that moment of schadenfraude.

When it comes to manufacturing, though, the European approach is being embraced in the White House. In a speech this week, Gene Sperling, director of the National Economic Council and assistant to the President for economic policy, laid out the economic rationale for the U.S. shift. When I spoke to him later, he was careful to point out that the new approach did not amount to industrial policy, or an attempt by the government to pick winners and losers.

But the Obama administration has come to believe that manufacturers more broadly should be first among equals, he said. Giving manufacturers slightly lower taxes and more support for their research and development is a good idea for two reasons, he argues.

First, because manufacturing has a particularly powerful spillover effect on the rest of the economy. The benign effect of manufacturing he is most enthusiastic about is the connection with innovation. That link, he argues, has been drawn out in research by the Massachusetts Institute of Technology’s “ Production in the Innovation Economy” initiative. Its premise, which he embraces, is that in most new technologies, innovation happens most quickly and effectively when the inventors work close to the builders.

Apple is the most financially successful U.S. manufacturer of physical stuff. But Mr. Sperling’s argument amounts to an assertion that the Apple approach, with designers and engineers in California and factories in China, works for the information technology business, but not for much else. In most industries, he contends, those who outsource manufacturing will soon find that they have outsourced their innovative edge, too.

The second pillar of the White House approach is to insist that the decline of U.S. manufacturing, and, by extension, manufacturing in the rich Western economies, is not inevitable. Manufacturing, Mr. Sperling argues, is not the agriculture of the 21st century, a sector fated to provide fewer and fewer jobs over time.

He believes that the United States has a chance to bring jobs back home. “The degree that the U.S. is becoming more and more competitive in bringing manufacturing facilities and jobs back to our shores is very encouraging,” he told me.

This Obama administration’s view that the government can – and must – support manufacturing relative to other businesses is a profound shift in the conventional wisdom of the English-speaking world.

Since the days of Margaret Thatcher and Ronald Reagan, the received transatlantic wisdom has been that state intervention is an inevitable failure, that the decline of manufacturing is inevitable, too, and that service sector jobs can be just as good anyway. The shiny towers of the City of London and the canyons of Wall Street are evidence of that last conviction and, at least for a while, seemed to be a vindication of it as well.

In the coming election, manufacturing could be an area of strong contrast between President Barack Obama and his most likely challenger, Republican Mitt Romney. Mr. Romney has more hands-on experience, but Mr. Obama may have a more deft popular touch.

Unless you have a doctorate in economics, your intuition probably accords with Mr. Sperling’s point that building things is essential to a country’s economic well-being. Mr. Romney, who opposed the bailout of the Detroit auto makers, often finds himself on the other side of that argument.

From Berlin to Beijing, the debate about manufacturing and whether governments have a duty to support it is a live issue. That is one more reason this U.S. election campaign matters so much to the rest of the world.

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