General Electric announced it was selling its 101-year-old appliance division last month. Newspapers around the world proclaimed the death of U.S. manufacturing. “Is it the end of an era? Or is the era already over?” asked the Wall Street Journal. GE is the “ideal coal-mine canary,” according to Kiplinger.com. According to the Asia Times, the announcement was “the death-knell of yet another U.S. manufacturing business, one among so many in U.S. manufacturing’s long and seemingly unstoppable downtrend since 1980.”

U.S. manufacturing has been on a steady decline for a number of years. Yet every time a company makes this kind of announcement, two questions are always raised: Why, and who cares anyway?

One of the main reasons U.S. manufacturing is declining so rapidly is outsourcing. Yet outsourcing is an effect, not the root cause of the problem. Treat the root cause—find the reason it is cheaper to make goods abroad—and then you can solve the problem.

The common causes given for the ramp-up in outsourcing is that more companies are turning to factories overseas to take advantage of lower wages, longer work weeks, reduced regulation, and less stringent environmental standards—all valid reasons. However, inexpensive foreign locales are not the only problem. Many of the problems plaguing industry in America are self-inflicted.

This excellent article from the Asia Times argues that poor management strategies deliberately starved American manufacturing industries. Had some investment and effort been put into manufacturing, rather than milking it dry for cash to spend elsewhere, then companies like General Electric would be leading the world in appliance manufacturing.

The huge welfare liabilities faced by many U.S. manufacturers is another legacy of poor management. In 2005, for every car General Motors made, approximately $2,550 went to pay for pensions and health care. Toyota spent closer to $250.

There are other reasons as well. Trade unions, for example, make life harder for U.S. manufacturers. These unions end up hurting the workers more than anyone else: As manufacturing moves oversees, the people the union bosses are supposed to be representing are left without a job.

It is mismanagement and unsound economic planning, then, that have made outsourcing the problem. Addressing these issues would be far more productive than trying to restrict trade, or bailing out U.S. companies with subsidies.

Next is the second question. Who cares? China and other countries have cheap labor. The United States has a more highly educated workforce. Instead of manufacturing, the U.S. should focus on things like financial services and trade, the thinking goes.

There are major dangers, both economically and in terms of national security, in abandoning manufacturing. For more information on these, see our article “Shooting Ourselves in the Foot.” Those dangers aside, there is another major flaw in this kind of thinking. If U.S. manufacturing jobs can be outsourced, what is there to stop other high-tech and financial sector jobs moving abroad as well?

Maintaining the edge in the service industry requires an educated workforce. If the U.S. is not going to manufacture, the national workforce must instead rely on its scientists and engineers to keep it on the cutting edge of technology, to innovate the nation’s way to prosperity.

“As a nation, our ability to create intellectual property is pretty much fundamental to continue to drive our economy, and we don’t want to see the U.S. fall behind there,” says William Swope, a vice president of Intel Corp.

Sir Richard Sykes of Imperial College, London, said with regard to Britain: “If we produce a generation well-versed in literature, history and politics but ignorant of the foundations of mathematics and science, our ability to compete internationally will certainly be compromised. In the global economy we will be fighting with one, if not both, hands tied behind our back.”

The problem is that the U.S. and other nations like the UK simply are not producing the kind of university graduates that drive economies forward. In 2006, Rolls-Royce announced that it had to recruit overseas because the UK did not have enough engineering graduates. Instead, students are choosing to study “soft” subjects, such as media studies and hospitality.

The United States used to lead the world in education. Two years after America landed the first man on the moon, the U.S. was granting half of the world’s science and engineering doctorates. Now, as the USA Todaywrote, “even ‘old Europe’ has surpassed us.”

“Much ink has recently been given to the deplorable state of teaching these subjects in our public schools,” USA Today continued, “where in eighth-grade math we rank last among 20 nations and in science we also fell below the median. America’s pre-eminence as an innovator, source of advanced scientific education and producer of engineers is disappearing.”

India and China, on the other hand, are turning out 5 million graduates a year, including 600,000 science and engineering graduates.

“By 2010, more than 90 percent of all scientists and engineers in the world will be living in Asia,” Joann P. DiGennaro, president of the Center for Excellence in Education, estimates.

Europe is also beginning to outperform the U.S. in science and technology. Next month, the most sophisticated and expensive machine on Earth will be switched on in Europe, the Large Hadron Collider at cern. Researchers will be looking for a theoretical particle called the Higgs boson, known as the “God particle” to enthusiasts because its existence would explain why particles have mass. The trend of cutting-edge science moving from the U.S. to Europe won’t stop with a particle accelerator; there are plans to build a $13 billion experimental fusion reactor in France. While the U.S. is participating in the new $1.4 billion Herschel Space Observatory, the largest infrared space-based telescope of its kind, it too is a European project. The U.S. is not taking the lead as it once would have.

The U.S. has chosen to bet its life that it doesn’t need to manufacture. First it was low-tech jobs that were outsourced to other countries. But unless the U.S. fixes its problem, soon high-tech jobs will be outsourced as well. The U.S.’s days as an economic leader are numbered—if that era is not over already.