Later republished as Unsustainable: How Economic Dogma is Destroying American Prosperity
Anticipating the implosion of the late 1990s New Economy stock market boom.
First published at the height of America’s late 1990s New Economy stock market boom, In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Boston: Houghton Mifflin, 1999) presented a trenchant rebuttal of the exaggerated claims then being made for an all-digital postindustrial future. The book was named one of the ten best business books of 1999 by Amazon.com Business Editor Harry C. Edwards. It was also named one of the Ten Books that Matter by the Industry Standard, a now defunct magazine for Internet professionals. It has been translated into Japanese and Korean. An updated edition of Hard Industries was published by Nation Books in New York under the title Unsustainable: How Economic Dogma Is Destroying American Prosperity in 2003. To view the original 1999 edition at Amazon, click here.
In an interview with the Christian Science Monitor in November 1999, Fingleton distilled the book’s message into a prescient prediction for U.S. stocks. For that interview and also for a similarly prescient editorial page article Fingleton published in the Los Angeles Times in October 1999, see below.
Christian Science Monitor (Boston, MA)
November 8, 1999
HEADLINE: Author: New Economy will short-change US
BYLINE: James L. Tyson, Staff writer of The Christian Science Monitor
On Wall Street, the celebration of the New Economy and the corresponding Information Age is in full swing. Investors embrace Internet companies awash in red ink while snubbing even streamlined blue-chip manufacturers as sprouters of smokestacks from the Rust Belt. Journalist Eamonn Fingleton doesn’t just go against the grain of such attitudes, he rips them with a cross-cut saw. In his recently published book, “In Praise of Hard Industries” (Houghton Mifflin), he says the most promising engine for future prosperity is not the ethereal builders of cyberspace but the makers of vital, sophisticated products like high-tech components and advanced materials.
Following are excerpts from a recent interview with Mr. Fingleton.
Tyson: Why are “hard industries” so much better for wealth generation than the information-based companies?
Fingleton: I make three points for manufacturing. It creates a better range of jobs by harnessing the talents of all the population, whereas information services create jobs for an intellectual elite. Second, manufactured goods tend to be less culture-specific and therefore more exportable. Third, manufacturing generates better prospects of achieving real lasting productivity leadership for two reasons: It absorbs a lot of capital, each worker is working with a lot of help from machinery and so his or her output is enhanced by the contribution of capital; and it also relies on proprietary know-how. This know-how tends to be the know-how you can keep for your own company or nation. Know-how in information services tends to be something that anyone can copy.
Tyson: Who is hurt by the snub of hard industries?
Fingleton: To some extent the downside is carried by labor, but longer term, the nation as a whole will suffer in the sense that America’s ability to project economic power abroad will be diminished. Already the US depends more and more on major foreign nations for financing its consumption. That is related to manufacturing because it is related to trade: If you don’t make things, you will have to import them and borrow the money to finance those imports.
Tyson: Some statistics indicate that US manufacturing is growing faster than the overall economy. How does that square with your idea of manufacturing decline?
Fingleton: At the end of the day, the point to remember is that output in manufacturing can grow in statistical terms but not really be contributing significantly to the economy. Companies are outsourcing more and more and buying entire products from Japan and slapping an American name on those products. That creates the impression of great growth in output but it’s achieved at the expense of radically expanding imports and is a total illusion.
Tyson: How do you think the Internet sector will evolve?
Fingleton: As with computer time-share companies in the ’60s, we will see the same sort of thinning among Internet stocks. There will be some spectacular survivors but many we will not remember five or 10 years from now.
Tyson: Why are you skeptical of the long-term competitiveness of the US software industry?
Fingleton: There is a boom in the industry today. But over time there will be increasing wage pressure from lower-wage countries. I doubt it will be seen as a disaster but it will take some of the bloom off the rose.
Los Angeles Times, October 4, 1999, Monday, Home Edition
SECTION: Metro; Part B; Page 7; Op Ed Desk
HEADLINE: There’s a Worm in the New Economy’s Apple: Information Industries Cannot Match the Export Strength of the Manufacturing Ones That Fueled America’s Rise
By Eamonn Fingleton
For anyone who imagines that the new information-based economy is a panacea for America’s economic ills, the U.S. trade figures released Sept. 21 are a startling wake-up call. Not only do they show that the United States’ chronic trade problems have not gone away, but they raise fundamental questions about the wisdom of America’s New Age economic strategy.
Quite simply, the new industries that the United States has been so enthusiastically embracing–whether computer software, financial services, entertainment or Internet Web site construction–are no match for the export prowess of the old manufacturing industries that were the backbone of the American economy at its zenith. The proof is in the trade numbers, which are now clearly threatening to spiral out of control.
At $25.2 billion, the trade deficit for July was not only the largest monthly deficit ever recorded, but it was a shocking 71% higher than the figure recorded in July 1998. The United States is now on track for a deficit totaling more than $250 billion for 1999, a rise of at least 48% on the already startling record of $168.6 billion incurred in 1998.
It takes no more than a glance at the export prospects of the United States’ vaunted new postindustrial businesses to see why the information economy is clearly exacerbating the growing trade crisis for the U.S. Of the several handicaps that information-based products face in export markets, these are just the most significant:
Theft: Illegal copying of such key postindustrial products as movies, computer software and recorded music cut deeply into American receipts from major export markets–sometimes by as much as 70% or more.
Language and culture barriers: Postindustrial products tend to be highly culture-specific and therefore in their unadapted state generally do not meet the needs of prospective customers in key foreign markets. In practice, most American information-based companies do not find it worthwhile to do the necessary adaptation. Yet even in the minority of cases where companies invest in such adaptation, the benefit to the American balance of payments is generally disappointing. The reason is that such adaptation is usually carried out outside the United States, and the heavy costs incurred cut deeply into the net revenues remitted to the United States.
The service imperative: Many postindustrial products have a high service content that requires much face-to-face interaction with clients. This applies to everything from the advertising business to consulting services to banking. In practice, this often means that the services must be conducted on the ground in the markets concerned, using local employees, paying local rents and utility bills and buying local supplies. Essentially, apart from a small trickle of dividends, most of the revenues generated from such postindustrial businesses remain in the nation concerned and do nothing for the U.S. balance of payments.
In these New Age times, does any of this matter anymore? Yes–profoundly. If a nation does not export, it cannot pay for its imports, and therefore it has to borrow abroad or sell assets to keep going. In the long run, as the example of Britain shows, a nation that for too long chooses to overlook a weak trade performance is destined to be an economic also-ran.
Eamonn Fingleton is a Tokyo-based economic commentator and author, of In Praise of Hard Industries: Why Manufacturing, Not the Information, Economy, Is the Key to Future Prosperity (Houghton Mifflin, 1999).
Copyright 1999 Times Mirror Company
ADVANCE COMMENT FOR THE 1999 HARD COVER EDITION OF IN PRAISE OF HARD INDUSTRIES
“Eamonn Fingleton is a bravely original-minded writer, whose challenges to the prevailing wisdom of the time are based on detailed reporting and always worth considering. His skeptical look at the software/Internet boom is important while the boom is going on and will seem even more intriguing once it is over.”—James Fallows, author of Breaking the News
“At a third world conference, Akio Morita admonished the emerging countries that they first had to develop a strong manufacturing base in order to become a nation-state. Then he added, ‘That world power that loses its manufacturing base will cease to be a world power.’ Eamonn Fingleton’s brilliant analysis, In Praise of Hard Industries, tells why.” — Senator Ernest Hollings
“In his new book about why manufacturing, not the information economy, is the key to future prosperity, Eamonn Fingleton exposes so many hypes and punctures so many myths that the few hypes and myths that he furthers can be forgiven against the benefit of this powerful critique of the conventional party line.” — Ralph Nader, Washington, D.C.
“In Praise of Hard Industries is a seminal work — one that policy makers will fiercely debate for many years.” — Pat Choate, author and economist
“From time to time, a book is published that alters national thought about an otherwise settled topic. In Praise of Hard Industries is such a book. In lucid prose, supported by solid facts, distinguished financial analyst Eamonn Fingleton destroys the prevailing myths that nations should abandon manufacturing for information service industries. Point by point, Fingleton demonstrates why strengthening U.S. manufacturing, rather than the current policy of abandoning it, is the key to America’s long-term success. This book is must reading for lawmakers and serious students of the U.S. economy’s future.” — Roger Milliken, CEO of Milliken Inc.
“It is close to impossible to get Americans today to understand that an economy based on manufacturing and an economy based on finance are not equivalent. Manufacturing provides jobs for the largest number of citizens; finance is the non value-adding but crisis-provoking segment of modern society. Japan is the world’s leading manufacturing country; the United States is the stronghold of finance capitalism. This is the best book on why that distinction matters. It is indispensable reading for Americans who wonder what the world will be like after Wall Street’s bull market ends.” — Chalmers Johnson, author of MITI and the Japanese Miracle
“Eamonn Fingleton’s remarkable tour de force demolishes dangerous myths — mainly that large economies like America’s can flourish indefinitely while downsizing and exporting its vital manufacturing industries, and that U.S. business is leading a ‘postindustrial’ world towards a bright, nonindustrial, all-digital future. This powerful book must make policymakers and managers think again, and should make them act decisively to meet a grave challenge.” — Robert Heller, author of The Fate of IBM