Three decades of vertical disintegration have fractured American manufacturing and generated market failures in the industrial ecosystems necessary to sustain it. Disintegration has been driven, Suzanne Berger thinks, by the financial sector’s short-term focus on profits. She suggests that this large-scale historical trend—not productivity increases or foreign competition—accounts for enormous manufacturing employment losses.

Berger and the Production in the Innovation Economy project should be applauded for foregrounding the roles of disintegration and industrial-ecosystem governance in the debate about manufacturing competitiveness. As corporations externalize work, vertical disintegration creates market failures by disrupting inputs to production, especially training, research, standards, export support, and, in some cases, finance. Berger proposes hopeful public and private experiments for generating these public goods, but rightly emphasizes that because regions and industries differ, there is no single solution. And she worries that the financial system’s short-term bias toward “pure-play” disintegration will undermine efforts to address the market failures it has created.

Finance, however, is not as much of a problem as Berger thinks it is. Berger’s fears about finance are misplaced for two reasons.

The U.S. financial system is not to blame.

First, the U.S. financial system did not drive vertical disintegration trends. Manufacturing disintegration has been a worldwide phenomenon since the 1980s, as successful development of Western Europe, northern Asia, the BRICs, and other emerging economies elevated global competition and flattened technological hierarchies. Manufacturers across the globe, embedded in a wide variety of financial systems and property arrangements, focus on core competencies and outsource operations to suppliers who can make components more efficiently and with better quality. Disintegration is intended to free up resources for research and experimentation, improve production quality, lower costs, and create organizational flexibility. Like their global rivals, American manufacturers disintegrate production in order to foster innovation and enhance their competitiveness, not because financial interests tell them to do so.

Second, the outcome of the Timken story is not inevitable or even characteristic of U.S. manufacturers when finance comes calling. The financial system enables manufacturers to combine assets in surprising and creative ways. For every Timken, there are many ITWs or Danahers: innovative and competitive manufacturers that intentionally and continually destabilize their internal structures by buying up promising companies. These blue chip companies leverage the flexibility of the financial system to foster innovation. Alternatively, traditional, highly specialized American machinery producers such as Terex, AGCO, and Caterpillar have recently gained global competitiveness by buying up European companies once thought to be more competitive than they were. Because American companies have more multifaceted ties to the financial system than do their European counterparts, they can carry the costs of cyclicality more efficiently, while continuing to push the technological frontier in their sectors. In short, finance provides American manufacturers with distinctive, globally competitive advantages.

If finance is not to blame, what is? The biggest obstacle to the success of industrial-ecosystem experiments and the continued expansion of U.S. manufacturing is inequality. It is inequality that explains why recent increases in U.S. manufacturing productivity (properly understood) have not generated new jobs. American manufacturers are creating jobs where demand is growing, primarily in large emerging economies such as China’s, rather than in their home markets, where historically gross income disparities suppress demand. Such offshore job growth is happening even for companies whose home-market operations are becoming more productive and competitive.

Income inequality distorts the effectiveness of public experimentation around the market failures Berger wants us to attend to. Above all, it disenfranchises stakeholders through underemployment and overburdened public budgets while empowering voices with enormous resources. Berger’s project skirts this larger problem because she seems to believe in a kind of technological Say’s Law: that radical innovation will create new markets, new industries, and new jobs. Such innovation is undeniably indispensable for American prosperity. But broad-based manufacturing growth and employment will return to the United States only when the reduction of inequality empowers all stakeholders and creates more robust demand for manufacturers of all sorts, old and new.