Obama Talks Up the Production Economy

We (and by ‘we’ I mean my friends at the Progressive Policy Institute) have been talking a lot recently about the need for the U.S. to shift from a consumer economy to a production economy. (See for example here, here and here).

We are mighty pleased to see President Obama shifting in that direction. Here’s a quote from one of his latest speeches.

…over the last decade, we became a country that relied too much on what we bought and consumed. We racked up a lot of debt, but we didn’t create many jobs at all.

If we want an economy that’s built to last and built to compete, we have to change that. We have to restore America’s manufacturing might, which is what helped us build the largest middle-class in history. That’s why we chose to pull the auto industry back from the brink, saving hundreds of thousands of jobs in the process. And that’s why we’re investing in the next generation of high-tech, American manufacturing.

That’s a production economy, Mr. President.


The Post-Industrial Production Economy

Sometimes when I write about the shift from the consumer economy to the production economy, people assume that ‘production’ equals ‘manufacturing’ .  That’s just not true.  So I asked Mary Adams of  I-Capital Advisors, and co-author of  Intangible Capital,   if she would write a guest post on  “The Post-Industrial Production Economy.”  She graciously agreed, and here it is. 

In follow-up to Michael’s post on production vs. consumption economies, he asked me to take a crack at describing what the post-industrial production economy will look like. So here goes!

We live at the cusp between the industrial and the knowledge eras. In the U.S., the shift is already very much underway. But there is still much change to come, including in the production economy.


To understand what will happen, let’s first look at what happened during the industrial revolution. Yes, mass production and factories drove huge growth. But manufacturing was not the only part of the economy that was created or “industrial-ized.” Education was industrialized to provide large numbers of capable workers. Energy production was industrialized to provide cheap, available power for factories, homes and offices. Agriculture was industrialized to provide reliable, economical food sources. The change affected almost every corner of our society.

This industrialization process occurred under a number of very simple conditions or design constraints. Some of the most important included the availability of relatively cheap energy, the relative lack of importance placed by society on externalities (such as pollution and health risks), the availability of large workforces and continued returns available from mechanization that provides greater and greater returns on the work of employees.

These design constraints began to shift a long time ago in the U.S.For example, we have known for a long time that our patterns of energy and resource use were not sustainable. But rather than rebuilding or remaking our industrial economy, we chose to/had the opportunity to send much of it off shore. If you look at the rise of China in the last 20 years, you will see a replay of the industrialization process, not the end of it.

The Chinese also know that the model they are imitating is not sustainable. But the Chinese have an opportunity to use the model to quickly raise the level of living of their enormous population and generating enough wealth in time to simultaneously invent a new model. Or to follow whomever can invent the new model.


What will the new model look like? Moving into the knowledge era does not mean the rise of services and consumption and the decline of production. Humans will have the same needs to live. Housing, transportation, consumer goods, food, healthcare, education will all remain constants in our economy. These needs require a production sector. But this new production sector will be built under a new set of constraints.

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