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Fortune Work

September 19, 2011

Obama: Looking for jobs in all the wrong places

The president has a very clear vision of how to solve the jobs crisis. The problem is he's completely misguided.

FORTUNE—Even Democrats and Republicans at each other’s throats agree on one thing: Jobs are America’s No. 1 issue. President Obama and his Republican challengers strive to outdo one another with ideas for job growth, and maybe some good will come of that debate. But right now the President is the only one in a position to take action on the problem. The bad news for the country is that he seems fixated on an approach that is delusional and doomed.

President Obama is bedazzled by the idea of manufacturing jobs as the way forward. Just look at his most prominent jobs initiative, his Jobs and Competitiveness Council, which will meet with him at the White House this month. He announced the council’s formation at a giant turbine factory in Schenectady, N.Y., praising the jobs it creates and saying, “I want plants like this all across America.” He next met with the council in June at a lighting factory in Durham, N.C., telling the workers they’re “leading the comeback of American manufacturing. This is where the future will be won.” Total references to manufacturing and building things in those speeches: 17. Total references to services: one, and that was in the phrase “goods and services.”

The President is trying to create a narrative in which U.S. manufacturing fell into sad decline over the past decade but can be restored to its former glory and employ legions of Americans in high-paying jobs. “What was driving our economy was, we were spending a lot on credit cards,” he said in Schenectady, talking about the previous economic expansion. “Folks were selling a lot to us from all over the world. We’ve got to reverse that. We want an economy that’s fueled by what we invent and what we build.”

But that narrative, implying that U.S. manufacturing withered while we bought Chinese products at the mall, is simply wrong. American manufacturing boomed during the expansion. The value of “what we build” increased every year. The problem for the President—and it’s a giant, central problem for him—is that we did it with fewer workers every year.

Four ways to get businesses to invest again

This is the overwhelming reality that the President ignores. The great story of manufacturing in America and every place with a market economy is that we continually produce more stuff with fewer workers. The trend is not new. Manufacturing employees were 39% of total U.S. workers at the end of World War II, and that was the peak. The proportion has declined steadily ever since and is now 9%. Looking past percentages, the raw number of U.S. manufacturing workers topped out in 1979. Today it’s 11.8 million, about half what it was then, though the country is far larger and richer and manufactures enormously more. For perspective, in 1941, before our entry into World War II, we had more manufacturing workers than we have today.

None of this should be surprising, because we’ve seen this movie before. Well over 60% of U.S. jobs were in agriculture in the 19th century, and the proportion has been declining ever since. Today it’s less than 2%. Back when it was 60%, hunger was a significant worry for much of the population. Today that tiny 2% of workers produce so much food so efficiently that obesity is our gravest national health problem.

Fewer people relentlessly produce more and better stuff, whether it’s corn, cars, or any other physical product. The trend isn’t going to reverse.

The President’s obsession with manufacturing jobs goes deep. “I’d like to once again see our best and brightest commit themselves to making things,” he told Georgetown University students soon after taking office. And that’s fine. Smarter, more sophisticated, higher-technology manufacturing is good for America. But one thing we know for sure is that the more advanced that manufacturing becomes, the fewer people it employs. At a time when the country desperately needs more jobs, manufacturing is obviously not the place to look for them. As the President meets with his Jobs and Competitiveness Council, listen carefully to what he says. A delusional policy for America’s No. 1 problem is the last thing we need.

This article is from the September 26, 2011 issue of Fortune.