Manufacturing in the New Southern Economy

Thank you for inviting me to speak with you today. The focus of this gathering – manufacturing in the economies of the American South – is a timely one, and well-deserves the attention of senior policy makers. Manufacturing has been one of the few bright spots in an otherwise lackluster economic recovery, and understanding what has driven that performance can suggest promising directions in public policy. Beyond purely cyclical considerations, however, the longer-term evolution of manufacturing industries has played – and is likely to continue to play – a vital role in the growth of living standards over time. I therefore commend Governors Barbour, Haslam, McDonnell and Perdue for their attention to this important subject. In my remarks this morning, I want to provide you with an overview of the evolution of manufacturing in the South. My theme will be the role of comparative advantage. Indeed, it would be hard to make progress thinking about the geographic distribution of manufacturing, or any other economic activity for that matter, without it. Viewed through the lens of comparative advantage, the story of manufacturing in the South has two central threads – the migration of low-skilled jobs overseas and the growing need for higher-skilled workers. The main message for policymakers is to think very carefully about the sources of comparative advantage and how they change over time. In particular, if the comparative advantage of Southern and U.S. manufacturing in the global marketplace rests increasingly on technical expertise and skills, then a first-order policy issue for the future is how to facilitate people's investments in human capital. This has implications for, among other things, the full spectrum of educational policies, from early childhood through secondary education to vocational and higher education.