Disruption.

Clayton Christenson, the Harvard Business School professor whose theory of “disruption” is all the rage, once used the decline of the American steel industry as an example.[1] Leaders obsessed with profit ratios surrendered the less profitable segments of their businesses to alligators willing to accept a smaller profit in order to take over that segment. The newcomers then expanded their profit margins by investing in modern technology and pursuing efficiencies. Eventually, Big Steel found itself devoured by the alligators. From 2000 to 2013, Dan DiMicco ran Nucor Steel, one of the alligators and now the second largest steel-maker in the United States. Since leaving Nucor, DiMicco has been pondering the state of the American economy—and of the society that the economy supports. What has he concluded?[2]

First of all, he thinks that the federal government botched the 2009 stimulus bill. He thinks that the almost $800 billion stimulus could have revived the economy if it hadn’t been piddled away on subsidies to “green technology” companies, grants to limit the lay-offs caused by balanced-budget requirements of states squeezed by falling revenues, and tax cuts.[3] The failed stimulus and the obsession about cutting the deficit among Republicans have left the economy laboring along in first gear, if not in neutral.

Second, he thinks that the United States needs to create an awful lot of jobs in a Hell of a big hurry. On the one hand, there is the normal population growth that pumps out new would-be workers onto the labor market. On the other hand, the Great Recession has left a lot of people working part-time or out of the labor market entirely. He figures that the economy will have to add at least 30 million new jobs over the next decade to soak up those who want to work. The post-Great Recession economy doesn’t seem up to this task. Instead, DiMicco argues for heavy investment in a ten year plan for infrastructure as part of the basis for reviving industry.

Third, he thinks that capital-intensive manufacturing jobs are better than labor-intensive service jobs. Capital makes for high productivity; high productivity allows both high wages and high profits. In contrast, labor-intensive jobs require employers to hold down wages in order to make even a razor-thin profit. We’re never going to get strong consumer demand from an overwhelmingly service-based economy. Nucor invests in training workers for their jobs (rather than shoving the task off on colleges), so it never suffered from a supposed “skills gap.”

Fourth, he thinks that Americans—leaders and followers alike—are living in La-La Land about America’s place in the world economy. The Second World War developed the American economy while devastating those of every other country. For thirty years, American business and labor faced no serious challenge from foreign competition. At the same time, the United States promoted an open world economy because that would benefit the American economy of the Forties through the Sixties. The trouble was that the American economy did not stay “lean and mean,” while the reviving economies of Germany and Japan, and more recently China, became highly competitive. Moreover, the governments of those countries depreciated their currencies to make their countries’ more competitive with American ones. Free Trade has become a loser’s game for the United States.

There’s a lot to like in DiMicco’s bracing book.

[1] See: Larissa MacFarquahar, “When Giants Fail,” New Yorker, 14 May 2012.

[2] Dan DiMicco, American Made: Why Making Things Will Return Us to Greatness (Palgrave Macmillan, 2015).

[3] Here DiMicco is to some extent at odds with Paul Krugman. The Princeton economist wanted a stimulus bill that was twice as big, although he too derided the impact of the tax cuts.

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