savingusmanufacturing.com

The Information Technology& Innovation Foundation (ITIF) released a report, “The Case for a National Manufacturing Strategy,” in April 2011 that makes a strong case for such a strategy.  Authors Stephen Ezell and Robert Atkinson focus on three key questions where there has been no consensus to date:

1. Does the Untied States need a healthy manufacturing sector?
2. How healthy is U. S. manufacturing at the moment and for the foreseeable future?
3. Does the United States need a national manufacturing strategy?

They present information on five key reasons why manufacturing is important to the U.S. economy:

1. It will be extremely difficult for the United States to balance its trade account without a healthy manufacturing sector.
2. Manufacturing is a key driver of overall job growth and an important source of middle-class jobs for individuals at many skill levels.
3. Manufacturing is vital to U.S. national security.
4. Manufacturing is the principal source of R&D and innovation activity.
5. The manufacturing and services sectors are inseparable and complementary.

The authors argue that balancing U. S. trade through a revitalized manufacturing sector is crucial because:

• The trade deficit represents a tax on future generations that compromise their economic well-being.
• The United States is running substantial trade deficits across many categories of manufactured products.
• Services and non-manufactured goods won’t be enough to close the U.S. trade deficit.
• The trade deficit represents a tax on future generations.

They wrote, “The massive bill we run up every year by buying more imports than selling exports will have to be paid eventually when foreign nations demand payment in real goods and services, not in Treasury Bills.  In fact, the average annual U.S. trade deficit for each year of the previous decade was $458 billion, or about $20,000 per household over the course of the decade.”

According to data from the U. S. Census Bureau on foreign trade, the United States accumulated a $5.5 trillion trade deficit in goods and services with the rest of the world during the prior decade.  The U.S. trade deficit in manufactured products tallied nearly $4.5 trillion from 2000 to 2010, and in seven of those ten years, the U.S. manufactured products trade deficit was greater than $400 billion.

Their data regarding the U.S. share of world exports was even more alarming than I had encountered previously.  In contrast to the decline from 25 percent down to 17 percent, they said the U.S. share of world exports has declined from 17 percent to 11 percent since 2000, even as the European Union’s share held steady at 17 percent.

In addition, “from 2005 to 2010, the U.S. share of global high-tech exports dropped from 21 percent to 14 percent, while China’s share grew from 7 percent to 20 percent, as China replaced the United States as the world’s number one high-technology exporter.”

They conclude “without a robust manufacturing sector, it’s simply impossible for almost any nation, unless it’s endowed with oil or other natural resources, to balance its trade—and the United States is no exception.”

They concur with my premise that manufacturing remains a critical source of middle-class jobs and note “U.S. manufacturing jobs increasingly require individuals possessing higher skill levels.”   They pointed out that “from 1973 to 2001, the share of production workers with some post-secondary education rose from 8 percent to over 30 percent.  Moreover, according to a recent survey of leading manufacturers, 51 percent of the workforce demand in manufacturing is currently for skilled production workers, 46 percent for scientists and engineers, and only 7 percent for unskilled production workers.”

In substantiation of my recent articles on the importance of co-location of manufacturing and R&D, they wrote,  “manufacturing, R&D, and innovation go hand-in-hand.”  They quote Susan Houseman of the Institute for Employment Research, who said, “The big debate is whether we can continue to be competitive in R&D when we are not making the stuff that we innovate. I think not; the two cannot be separated.”

They concur with my argument that “the process of innovation and industrial loss becomes additive. Once one technological life cycle is lost to foreign competitors, subsequent technology life cycles are likely to be lost as well.”  They cite the example of the United States losing leadership in rechargeable battery manufacturing technology years ago, largely because increasing demands in consumer electronics for more and more power in smaller packages drove most innovation in batteries.   As a result, GM has had to source the advanced battery for its Chevy Volt from a Korean supplier.

According to Ezell and Atkinson, “there is a deeply symbiotic, interdependent relationship between the health of a nation’s manufacturing and services sectors: the health of one sector greatly shapes the health of the other. In particular, the technology-based services sector depends heavily on manufactured goods.”

They conclude, “the U.S. economy’s ability to remain competitive in services sectors, particularly high-technology ones, requires close interactions with the creators and suppliers of technologically advanced hardware and software.  The message is clear: manufacturing and services are not separable—they are joined at the hip.   The United States must discard the notion that it can give up its manufacturing industries but retain a robust set of services sectors capable of propelling the economy forward by themselves.”

The authors echo my strong belief that manufacturing is critical to our national security and note, “If we lose our preeminence in manufacturing technology, then we lose our national security. This is because:

1.      As the U.S. industrial base moves offshore, so does the defense industrial base.

2.      Reliance on foreign manufacturers increases vulnerability to counterfeit goods. “

They quote Joel Yudken, who explained in Manufacturing Insecurity, “Continued migration of manufacturing offshore is both undercutting U.S. technology leadership while enabling foreign countries to catch-up, if not leap-frog, U.S. capabilities in critical technologies important to national security.”

The report shows that the “United States has diminishing or no capability in lithium-ion (Li-ion) battery production, yttrium barium copper oxide high-temperature superconductors, and photovoltaic solar cell encapsulants, among others…. Additional examples of defense-critical technologies where domestic sourcing is endangered include propellant chemicals, space-qualified electronics, power sources for space and military applications (especially batteries and photovoltaics), specialty metals, hard disk drives, and flat panel displays (LCDs).”

Reliance on foreign manufacturers increases U.S. vulnerability to receiving counterfeit goods.  According to a study conducted by the Bureau of Industry and Security (BIS), in 2008 there were 9,356 incidents of counterfeit foreign products making their way into the Department of Defense supply line, a 142 percent increase over 2005.

The section of the report, “U. S. Manufacturing in Transition and Relative Decline,” shows that manufacturing has lagged and is no longer keeping up with overall U.S. economic growth.  From 2000 to 2009, total manufacturing realized a 5 percent increase in real-value-added, even as overall U.S. GDP increased 15 percent, which means that manufacturing is not keeping up with the growth in the rest of the economy.

The report shows that most manufacturing sectors actually shrank in terms of real value-added from 2000 to 2009. In fact, from 2000 to 2009, fifteen of nineteen U.S. manufacturing sectors saw absolute declines in output; they were producing less in 2009 than they were at the start of the decade (categories were listed in the report).

The reality is that U.S. manufacturing declined noticeably over the last decade, not just in the number of jobs.  Their data from the Bureau of Economic Analysis shows that from January 2000 to January 2010, manufacturing jobs fell by 6.17 million, or 34 percent.  And, from 2000 to 2009, fifteen of the nineteen aggregate-level U.S. manufacturing sectors shrank in terms of change in real value-added.  They present convincing evidence that the government’s official calculation that manufacturing accounts for a 11.2 percent share of U.S. GDP is too high because it vastly overstates output from the computer and electronics industry.

In the section “Why the United States Needs a Manufacturing Strategy,” the authors present three primary reasons:

1. Other countries have strategies to support their manufacturers and by lacking similar strategies we are therefore forcing our manufacturers to compete at a disadvantage.
2. Systemic market failures mean that absent manufacturing policies, U.S. manufacturing will underperform in terms of innovation, productivity, job growth, and trade performance.
3. If a country loses complex, high-value-added manufacturing sectors, it’s unlikely to get them back, even if the dollar were to decline dramatically.

They state that “a number of countries—including Brazil, Canada, China, Germany, India, Singapore, South Africa, Russia, and the United Kingdom, among others—have articulated national manufacturing strategies, and the United States needs one as well it if wants to stay competitive with these countries.  Among other elements, countries’ manufacturing strategies include measures such as:

• offering competitive tax environments including generous R&D tax credits;
• providing incentive packages, including tax breaks and credits, to attract internationally mobile capital investment;
• increasing government R&D funding;
• supporting programs designed to enhance the productive and innovative capabilities of their small to medium enterprise (SME) and large manufacturers;
• facilitating technology transfer between university and industry;
• producing a highly educated, highly skilled workforce, including by investing directly in workforce manufacturing skills; and
• investing in physical and digital infrastructure such as wired and wireless broadband networks, smart electric grids, and intelligent transportation systems.”

While acknowledging that these types of policies and incentives all represent tough, fair, legitimate competition between nations to win advantage in key manufacturing industries, they note, however, that U.S. manufacturers aren’t just competing against foreign manufacturers; they are increasingly competing against foreign manufacturers backed by the technology, economic, and political systems of their nations.  American manufacturing firms operating as independent entities will increasingly find themselves at a disadvantage in international markets against firms from countries backed by effective public-private partnerships.

The authors opine that a number of countries are supporting their manufacturers through unfair, mercantilist strategies that manipulate or violate the mutually established rules of international trade.  In contrast to the fair practices described above, these countries’ goals are not to increase the global supply of jobs and innovative activity, but rather to induce their shift from one nation to another. These countries accomplish this goal by using a broad range of unfair mercantilist practices, including:

• Currency manipulation;
• Standards manipulation;
• Intellectual property theft;
• Illegal mandates including the forced transfer of intellectual property or location of manufacturing production as a condition of receiving market access;
• Government procurement practices that exclude foreign competitors; and
• Abuse of regulatory, anti-trust, or competition policies to the disadvantage of foreign competitors.

The authors make it clear that “the loss in U.S. manufacturing jobs has not just been a story of higher productivity leading to fewer jobs—as was the case with the transformation of the U.S. agricultural sector over the last century.  It’s been more a story of decline in output due to a loss of international competitiveness,” so it merits a serious policy response.

In the “What Would a National Manufacturing Strategy Do?” section of the report, they state their “goal for a national manufacturing strategy would be to create the most competitive environment for U. S. manufacturing firms, of all sizes, to flourish.”  Their call is not to wish for the re-creation of all the lost jobs from factories employing low-skill workers and producing commodity products.  It’s “a call to restore U.S. manufacturing to a competitive position in the global economy, even though the industries and jobs will look very different than they did a generation ago.”

They don’t mean “a de facto, heavy-handed industrial policy that ‘picks winners and losers.’”  They “mean a process of designing our nation’s tax, regulatory, and innovation policy environments to make the United States the world’s most attractive location for advanced manufacturing (including both domestic and foreign direct investment

They recognize that “most U.S. manufacturers, small or large, cannot thrive solely on their own; they need to operate in an environment grounded in smart economic and innovation-supporting policies with regard to taxes, talent, trade, technological development, and physical and digital infrastructures.”

Ezell and Atkinson recommend adoption of the following actions as part of the national strategy:

• Increase public investment in R&D in general and industrially relevant in particular
• Support public-private partnerships that facilitate the transition of emerging technologies from universities and federal laboratories into commercial products
• Coordinate state, local, and federal programs in technology-based economic development to maximize their combined impact
• Provide export assistance to build upon the National Export Initiative, which seeks to double U. S. exports by 2015.
• Increase export support for U. S. manufacturers through the Export-Import Bank loans

The authors acknowledge that “this will require a new understanding of the importance of U. S. manufacturing on the part of economists and policymakers alike and a deeper understanding of the forces affecting U. S. manufacturing industries.”

In conclusion, they state that “The American public gets it; it’s time that economists and policymakers do so as well.”  They recommend, “Congress craft, pass and fully fund and the President sign and implement a comprehensive national manufacturing renewal strategy for the United States.”

American manufacturers are responsible for more than two-thirds of all private sector R&D, which ultimately benefits other manufacturing and non-manufacturing activities.  More than 90 percent of new patents derive from the manufacturing sector and the closely integrated engineering and technology-intensive services.  The U. S. economy has been the innovator of virtually all major technologies developed since World War II.

Manufacturing R&D is conducted in a wide array of industries and businesses of all sizes.  The heaviest R&D expenditures take place in computers and electronics, transportation equipment, and chemicals (primarily pharmaceuticals.)

The competitive status of U. S. manufacturing is increasingly challenged by the state-of-the-art technologies being developed by established nations such as Japan, Germany, Korea, and Taiwan.  Emerging economies, such as China, are acquiring advanced manufacturing capability through R&D tax incentives, incentives for direct foreign investment, and theft of intellectual property.

According to the 2010 annual survey conducted by the Industrial Research Institute (IRI), 53% of the companies responding said they plan to increase R&D spending in 2011.  The managers expected this increase to be focused on new business projects while support of existing businesses and directed basic research would remain relatively flat.  This is the first increase since 2008 after a 30% drop in R&D spending during 2009-2010.  External collaborations through alliances and joint ventures continue to be an area of increased emphasis according to the managers surveyed.  The most disturbing trend is that about 70% of companies surveyed now have R&D facilities overseas.

However, federally funded R&D has declined over the past two decades, with only a slight increase during the Bush administration from 2002 – 2008.  In 1985, federal R&D funding represented 1.25% of U. S. GDP compared to only .80% of GDP in 2004.  In addition, federal R&D funding has shifted away from technology, engineering, physical sciences, and math and computer science, to life sciences.

America’s manufacturing innovation process leads to investments in equipment and people, to productivity gains, the spreading of beneficial technology to other sectors, and to new and improved products and processes.  It is an intricate process that begins with R&D for new goods and improvements in existing products.  As products are improved in speed, accuracy, ease of use, and quality, new manufacturing processes are utilized to increase productivity.  Education and training of employees is required to reap the benefits of such improvements in manufacturing processes.

Innovation is the hallmark of U. S. manufacturing, and it requires a certain mass of interconnected activities, which like a snowball rolling downhill grows in size as it proceeds towards end users.  Substantial R&D is required to keep the ball rolling to ensure more successes than failures.

Innovation and production are intertwined.  You need to know how to make a product in order to make it better.  “Most innovation does not come from some disembodied laboratory,” said Stephen S. Cohen, co-director of the Berkeley roundtable on the International Economy at the University of California, Berkeley.  “In order to innovate in what you make, you have to be pretty good at making – and we are losing that ability.

In his book Great Again, Hank Nothhaft, recently retired CEO of Tessera Technologies writes that “In our arrogance and our own naiveté, we told ourselves that so long as America did the ‘creative’ work, the inventing, we could let other nations do the ‘grunt’ work – the manufacturing.  We did not yet understand that a nation that no longer makes things will eventually forget how to invent them.”

Manufacturing is an incubator for technology and science, which require proximity to facilities where innovative ideas can be tested and worker feedback can fuel product innovation.  Without this proximity, the science and technology jobs, like customer service jobs, follow the manufacturing jobs overseas.

The ability to fund R&D comes largely from the profits that a company can invest back into its business.  Thus, the available cash flow of manufacturing companies is closely linked to their ability to conduct R&D as well as make capital investments.  The severe recession of 2008-2009 dramatically reduced corporate profits and resulted in a drop in corporate R&D.  In addition, when multinational companies keep their profits in offshore divisions in order to avoid paying  U. S. corporate income taxes, it reduces their funds for conducting R&D in the U. S. and encourages them to conduct R&D overseas.

The process through which R&D promotes economic prosperity is complex and multi-faceted.   First, there are direct benefits to companies from their own R&D investments.  Second, other companies derive benefits from the R&D of the innovating company in a “spillover” effect.  A “spillover” is where R&D performed by one company benefits other companies without direct compensation for the innovation. Third, the feedback from R&D and its spillovers improves other products, processes, and distribution networks.  Fourth, one industry’s investment has a beneficial effect on other industries and the U. S. economy as a whole.  “Spillover” effects are increased through sales transactions and knowledge transfers when the parties involved are interdependent and closer in geographic proximity. (Securing America’s Future:  The Case for a Strong Manufacturing Base, by Joe Popkin and Company, June 2003, prepared for the NAM Council of Manufacturing Associations)

The maintenance of an effective U. S. R&D network is essential for attracting domestic and foreign R&D funds and the subsequent manufacturing that results from the innovation process, which increases U. S. value-added resulting in economic growth.

The problem today is that with the offshoring of so much manufacturing, certain tiers in the high-tech supply chain are disappearing in the U. S.  This is the case for certain electronic components, such as capacitors and resistors.  When a tier in a supply chain has been moved offshore, domestic research and other supporting infrastructure are degraded, which can be a major problem for U. S. manufacturers transitioning to the next product life cycle.

In the past, technology would flow from the new domestic R&D-intensive industries into the remainder of the economy, boosting overall national productivity.  Today, such emerging technologies are flowing at least as rapidly to the innovators’ foreign partners or suppliers.

In a report titled, “Rationales and Mechanisms for Revitalizing U. S. Manufacturing R&D Strategies,” Gregory Tassey, Senior Economist at the National Institute of Standards and Technology, noted that the U. S. R&D intensity is the same as it was in 1960 while other counties have steadily increased their R&D spending relative to GDP.  In addition, U. S. manufacturing firms have dramatically shifted their R&D investment strategies toward an increasingly global scope and toward shorter-term objects rather than radically new technologies with greater long-term potential.  In order to reverse this trend and adopt a technology-based manufacturing strategy, Tassey recommends three major policy objectives:

1. Increase the average R&D intensity of the domestic manufacturing sector by 30% to enable the breadth and depth of innovation to increase across the entire sector.
2. Adjust the composition of national R&D to emphasize more long-term, breakthrough research and increase the amount sufficient to fund a diversified portfolio of emerging technologies commensurate wit the size of the U. S. economy.
3. Improve the efficiency of R&D performance and subsequent technology by increasing the number of science parks and regional technology clusters and the use of research portfolio and stakeholder management techniques in order to facilitate person-to-person knowledge exchange critical to innovation.

Examples of policy instruments that could be utilized to achieve these objectives are:

• Promote increased private-sector R&D through a larger and restructured R&D tax credit
• Increase federal R&D spending on technology
• Improve the efficiency of R&D, innovation, and technology utilization
• Establish an innovation policy infrastructure

American consumers have benefited greatly from the large selection and quality of manufactured goods available as a result of the innovative new products resulting from R&D.  U. S. consumers now have a dizzying array of products from which to choose.  Quality improvements in manufactured goods have also reduced the frequency of repair and reduced the cost of operation.

This intricate process generates growth and higher living standards than any other economic sector.  But, it requires a critical mass to generate this wealth.  If the U. S. manufacturing base continues to shrink at its present rate, the critical mass will be lost.  The manufacturing innovation process will shift to other global centers, and a decline in U. S. living standards will be the result.

In an opinion article “How to Make an American Job Before it’s Too Late,” Andy Grove, former Intel CEO and chairman said, “… the imperative for change is real and the choice is simple.  If we want to remain a leading economy, we change on our own, or change will continue to be forced upon us.”  I recommend changing on our own before it’s too late.

Anyone who has shopped at their local grocery store, drug store, or hardware store has seen the variety of “green” products on the market.  Are these “green” products creating new manufacturing jobs?  For the most part, the answer is “no” because they are just more eco-friendly versions of existing products.

Global companies like General Electric, Dupont, Alcoa, and Procter & Gamble are beginning to respond to the simultaneous increases in shipping and environmental costs with “green” policies meant to reduce both fuel consumption and carbon emissions. That pressure is likely to increase as both manufacturers and retailers seek ways to tighten the global supply chain as fuel prices and transportation costs continue to rise.

“Being green is in their best interests not so much in making money as saving money,” said Gary Yohe, an environmental economist at Wesleyan University.  “Green companies are likely to be a permanent trend, as these vulnerabilities continue, but it’s going to take a long time for all this to settle down.” (August 2, 2008, The New York Times)

Pamela Gordon dispels the myth that environmental practices are bad for business in her book “Lean and Green: Profit for Your Workplace and the Environment.”  She presents evidence gathered from organizations around the world that environment protection and a profitable business can go together. Her book outlines four basic steps to creating a lean and green organization and presents stories of how 20 companies have enjoyed greater efficiencies and cost savings by utilizing these steps to pursue environmental leadership.  Many of these companies are leaders in their field – IBM Corporation, Agilent Technologies, ITT Cannon, Intel Corporation, and Apple Computer.  The stories show how companies saved money and increased profitability by utilizing “green” technology and practices.

Since her book was written in 2001, everything related to “green” has become more important because of concerns about “global warning” and acid rain.  “Green” has moved from the fringe to the mainstream of American life.  More and more consumers are choosing to buy “green” products, even when it means paying more for them.  Major corporations are featuring their “green” technology and practices in their advertising campaigns.  Some of the largest and most successful companies are now “greening” how they do business:  Coca-Cola, DuPont, General Electric, Ford, and General Motors.

For example, in August 2008, General Motors announced that it would add a 1.2-megawatt solar power installation to the roof of its transmission assembly plant in White Marsh, Maryland.  The installation generates about 1.4 million kWh of clean renewable solar energy, which is enough to serve the electricity needs of about 145 households.  In addition, the White Marsh plant reached landfill-free status in 2007, because it no longer sends any production waste to local landfills.  All the waste generated at the facility is entirely recycled or reused.

San Diego business consultant and author, Glenn Croston, advises companies small and large on green business strategy and best practices for becoming eco-friendly.  He said, “When people hear the word ‘green,’ they often think this means that something is expensive, hard to do, a luxury, impractical, and only for tree-huggers…In fact, going green often saves money, whether by cutting down on costly gasoline use or by wasting less paper.”  His book, “Greening Your Business on a Budget” presents many low cost ways to go “green.”

At a time when consumer confidence in “made in China” goods is at an all-time low, the opportunity is ripe for American manufacturers to feature how their products are made utilizing “green” manufacturing technologies.  After the debacle of tainted and defective Chinese products, people are willing to pay more for products that are safe and made in an environmentally responsible manner.

Even when businesses are fighting for their survival in the tougher economic times, they are choosing to move forward by going green.  “Indeed, companies would be foolish to abandon their green credentials at the first sign of difficulty,” said Solitaire Townsend, chief executive of Futera Sustainability Communications, which advises companies on their green strategies.  “What is more, companies have much to gain from taking steps to improve their environmental performance. The guiding principles behind behaving in an environmentally sound manner are the same as the principles of thrift and economy.  Using fewer resources is at the core of environmental sustainability, and leads to cost savings. Thrift and being green go hand in hand,” she said.

More than 260,000 workers in California currently work in the green economy, according to the Employment Development Department.  The Redwood empire north of San Francisco leads by percentage with 5.1% of it workforce employed in green jobs, but Southern California leads in actual number of jobs at 106,350 for 1.6% of its workforce.  The border regions of San Diego and Imperial counties have slightly more than 21,000 jobs for 1.8% of their workforce.

Traditional blue-collar occupations, such as carpenters, electricians, and heating and air-conditioning technicians comprise the largest number of workers in the green economy.  Greenjobs.org provides an online database of environment-related job postings, showing a growing demand for workers with “green” skills.

While it good that that “going green” is saving money for manufacturers, benefiting some traditional blue-collar occupations, and providing “green” products for consumers, the question is whether it is creating any new manufacturing jobs.  While campaigning for president, Barrack Obama, proclaimed the goal of creating five million so-called “green collar” jobs   by restoring America’s manufacturing base through clean energy technologies, innovation and less reliance on foreign oil.  He said, “My presidency will mark a new chapter in America’s leadership on climate change that will strengthen our security and create millions of new jobs in the process.”

Three years later, it appears that America is missing the boat in creating green manufacturing jobs. China’s cheap labor, combined with free trade policies that afford companies with international portability, have propelled China to the top of the mountain in terms of clean energy investment.

One example is the manufacture of light bulbs.  In July 2010, General Electric permanently shuttered its last major factory producing incandescent light bulbs.  The closure cost 200 employees their jobs.  These jobs were transferred to China, where the much more energy efficient bulbs known as compact fluorescents, or CFLs, are produced at a much lower cost.  The incandescent light bulb was born in America and now has died in America, taking plenty of well-paying manufacturing jobs with it.

Despite the fact that CFL’s were invented in America in the 1970’s, virtually none are made in America. Because they require much more hand labor than your typical incandescent bulb and labor costs are much higher in the      U. S., many companies set up manufacturing in China to take advantage of its massive low-cost pool of available labor.

The same thing has happened with solar panels.  China tops the world in solar panel manufacturing.  “Five of the top 10 solar panel makers in the world are from China, a trend that took hold last year {2009} according to a report by Massachusetts-based greentech analysts GTM Research.”

“Jenny Chase, a lead solar analyst for the Long-based research firm New Energy Finance, says it’s unrealistic for the United States to count on long-term manufacturing jobs in the solar industry, at least where a global oversupply is pressing solar-panel prices through the floor.”

Plenty of others disagree.  Several thin-film solar startups, such as PrimeStar Solar, Applied Quantum Technology and SoloPower are planning new factories now in the hope of catching a market upturn in the next couple of years.  In April 2011, G.E. announced plans to build the nation’s largest solar panel plant.  “The plant, whose location has not been determined, will employ 400 workers and create 600 related jobs, according to G.E.”  The factory would annually produce solar panels that would generate 400 megawatts of energy, the company said, and would begin manufacturing thin-film, photovoltaic panels made of a material called cadmium telluride in 2013.”

In 2009, China became the world’s leader in private investment in renewable energy, according to a report by the Pew Charitable Trusts. Even in the midst of the worst recession since the Great Depression, China invested $34.6 billion in green technologies.

America, meanwhile, has leaked clean energy investment and jobs like a sieve. According to the report, the U.S. has invested just over half the amount of China in clean energy technologies. For all of 2009, private investment in the U.S. totaled just $18.6 billion, down 48 percent from 2008.

A report by the Investigative Reporting Workshop and ABC News, found that $8 of every $10 spent on wind energy projects through the stimulus package went to a foreign company. Total recovery funds spent on wind energy projects total nearly $2 billion.  The report estimates stimulus funding for wind projects created roughly 6,000 manufacturing jobs overseas and just hundreds in America.  Thus far, the Recovery Act has paid to create 1,807 wind turbines to fuel American homes, businesses, schools and other buildings.  Just 588 of those were manufactured domestically, according to the report.

“The United States’ competitive position is at risk in the emerging clean energy economy,” Phyllis Cuttino, director of the Pew Environment Group’s Global Warming Campaign, said in a statement attached to the group‘s report.

In an opinion article for Industry Week, consultant, John Madigan of Madigan Associates, presents “real solutions” to create the $20-per-hour jobs needed to sustain a strong middle class.  With more than 25 years experience in operations management at Continental Can and Storagetek, among other companies, Madigan said in 2008, “’Green’ manufacturing technology offers more than a way to slow environmental destruction; it could be a powerful antidote for America’s economic crises, mass job losses, and diminished international status.” (Viewpoint, July 2, 2008, www.Industryweek.com)

In the last couple of years, the term “green technology” has evolved into the more encompassing term of “cleantech.”  The new “cleantech” industry could be a powerful antidote for America’s economic crisis and massive job losses in manufacturing.  “Cleantech” manufacturing and the technologies that support it could create the higher paying jobs needed to sustain a strong middle class while helping to solve air, energy, water and food crises.  Next week’s article will take a look at how some “cleantech” companies are creating new manufacturing jobs in the San Diego region.

The average American rarely thinks about manufacturing, and if he or she thinks of it at all, he or she thinks that American manufacturing is dead or dying.”  They may think that we have transformed into the postindustrial society predicted by John Naisbitt in Megatrends, in which the Untied States was supposed to transform from dirty heavy industry into the clean bright world of services and high technology.

Many may wonder why we should expend any effort to save American manufacturing.  What difference would it make to the United States if we lost virtually all of our domestic manufacturing?  Is it too late to save American manufacturing?  Can American manufacturing be saved or even revived into a new period of growth?

The truth is the so-called postindustrial society was a dream that failed to generate any new net jobs either in manufacturing or services.  We’ve learned that it’s even easier to outsource services, such as telemarketing and customer service, computer programming, and software design to India and other offshore countries than it is to outsource manufacturing.

Americans may be surprised to learn that the United States is still the world’s number one manufacturer, accounting for 17 % of global manufacturing output, but down from 25 % in 2007 before the Great Recession.

For over sixty years, American manufacturing has dominated the globe.  It was responsible for turning the tide for the Allies in World War II and defeating Nazi Germany and Japan.  It helped rebuild Germany and Japan after the war and enabled the United States to win the Cold War against the Soviet empire, while meeting the material needs of the American people.

High– paying manufacturing jobs helped spur a robust and growing economy that had little dependence on foreign nations for manufactured goods.  American families and communities depended on a strong manufacturing base to improve our quality of life.

Manufacturing is the foundation of the American economy and was responsible for the rise of the middle class in the 20^th Century, in which the average daily wage rose from $2.50 per day to $96 per day.

American companies like General Motors, Ford, Boeing, IBM, and Levi Strauss became household names.  American manufacturing became synonymous with quality and ingenuity.  Now General Motors is recovering from bankruptcy thanks to American taxpayers through a government bailout.  IBM sold their computer line to Chinese company Lenovo, and Levi jeans are made in China just like every other brand of jeans.

The U. S. manufacturing sector accounted for $1.7 trillion or 11.2% of the country’s Gross Domestic Product (GDP) in 2010, up from $1.58 trillion in 2009.   If this sector were a country, it would be the eighth largest economy in the world.  Manufacturing output of the nation’s factories in the United States today is at the highest level in history and continues to rise.

The five largest manufacturing industries today are: chemicals, food products, computers and electronic products, transportation (automobiles and aircraft), and fabricated metal products.  Automobiles and auto parts dropped from third to fourth between 2002 and 2007, and fabricated metal products slipped from fourth to fifth in the same time period.

Manufacturing is the engine that drives American prosperity.  It is central to our economic security and our national security.  Federal Reserve Chair Ben Bernanke stated on February 28, 2007, “I would say that our economy needs machines and new factories and new buildings and so forth in order for us to have a strong and growing economy.”

However, Franklin Vargo, vice president for international economic affairs of the National Association of Manufacturers, said, “If manufacturing production declines in the United States, at some point we will go below critical mass and then the center of innovation will shift outside the country and that will really begin a decline in our living standards.” ³

In the 1970’s, over 26 % of American workers were in manufacturing, but this number has decreased every year since 1990 until it dropped down to less than 11 % by the end of 2009.  

In 1965, American manufacturing accounted for about 28 % of the U. S. Gross Domestic Product, but it dropped to only 9.5 % in 2009.   According to Forbes magazine, we’ve lost 50,000 manufacturing jobs per month since 2001, adding up to over 5.5 million jobs by the end of 2010.

Manufacturing ensures that the U. S. has a strong industry base to support its national security objectives. American manufacturers supply the military with the essentials needed to defend our country, including tanks, fighter jets, submarines, and other high-tech equipment.

In a keynote address “Lessons for a Rapidly Changing World” at the CA World 2003, Dr. Henry Kissinger, former U. S. Secretary of State, said “The question really is whether America can remain a great power or a dominant power if it becomes primarily a service economy, and I doubt that.  I think that a country has to have a major industrial base in order to play a significant role in the world. “

The reality is that the supply chain of goods upon which our military and defense industry rely is weakening.  The U. S. printed circuit board industry has shrunk by 74 % since 2000, and the communication equipment industry has lost 47 % of its jobs.  The U. S. machine tool industry consumption fell by 78 % in 2008 and another 60 % in 2009.    There is only one steel plant left that can product the high quality steel needed by the U. S. military.  Even more serious is that China is now the #1 supplier of components for defense systems.

The five states with the largest manufacturing workforces are: California, Texas, Ohio, Illinois, and Pennsylvania.   California’s manufacturing workforce of more than 1.5 million is almost the size of the Texas and Illinois manufacturing workforce combined.

Jobs paying $20 per hour that have historically enabled American wage earners to support a middle-class standard of living are leaving the U. S.  Only 16 % of today’s workers earn the $20 per hour baseline wage, down 60 % since 1979.

Manufacturing wages and benefits are approximately 25 – 50% higher than non-manufacturing jobs.   Manufacturing compensation averages more than $65,000, compared to an average of $53,000 in the remainder of the economy.

Another important point is that the decline in the higher manufacturing jobs produces less tax revenue making the Federal budget deficit worse.  This becomes serious when you realize that nearly half of federal revenue comes from income taxes on individuals.  Decent-paying, entry-level jobs offering a future are replaced by menial, dead-end jobs.

There is a multiplier effect of manufacturing jobs that reflects linkages that run deep in the economy.  Manufacturing jobs create three to four supporting jobs, while service jobs create only one to two other jobs.  However, steel product manufacturing creates 10.3 indirect jobs, and automotive manufacturing creates 8.6 indirect jobs.

Automation has helped keep American manufacturers not only competitive but the most productive in the world.  Manufacturing has long led U. S. industries in productivity growth.  Gains in productivity raise a country’s standard of living.  In the past 20 years, productivity -output per hour -) has more than doubled – actually 2.5 times – that of other economic sectors.

American manufacturers are responsible for more than two-thirds of all private sector R&D, which ultimately benefits other manufacturing and non-manufacturing activities.  More than 90 % of new patents derive from the manufacturing sector and the closely integrated engineering and technology-intensive services.

America’s manufacturing innovation process leads to investments in equipment and people, to productivity gains, the spreading of beneficial technology to other sectors, and to new and improved products and processes.  It is an intricate process that begins with R&D for new goods and improvements in existing products.  As products are improved in speed, accuracy, ease of use, and quality, new manufacturing processes are utilized to increase productivity.  Education and training of employees is required to reap the benefits of such improvements in manufacturing processes.  Substantial R&D is required to keep the ball rolling to ensure more successes than failures.  Co-location of R&D and manufacturing is critical because you have to know how to make a product to be able to know how to make it better for the next generation of the product.

Inside the modern U. S. manufacturing facilities, you will see the most productive, highly skilled labor force in the world applying the latest in information, innovation, and technology.  Contrary to popular opinion, the industrial age is not over.  We are on the edge of incredible advances in manufacturing – nanotechnology, lasers, biotechnology, biomimicry, rapid prototyping, and electro forming.

In summary, manufacturing is the foundation of the U. S. national economy and the foundation of the country’s large middle class.  Losing the critical mass of the manufacturing base would result in larger state and federal budget deficits and a decline in U. S. living standards.  This, in turn, would result in the loss of a large portion of our middle class, which depends on manufacturing jobs.  America’s national defense would be in danger, and it would be difficult, if not impossible to maintain the country’s position as the world’s super power.

The next article will look at what trends are occurring now and how various choices that we could make as a nation, company, and/or individual will affect the future of American manufacturing.

The House Judiciary Committee approved H.R. 1249, on Thursday, April 14, 2011, by a vote of 32-3, and the bill is expected to reach the House floor in May or June.

Like S. 23, the America Invents Act of 2011, which passed the Senate in March, this bill switches the United States to a first-to-file patent system and allows the U.S. Patent and Trademark Office to keep the fees it collects in order to address the backlog of hundreds of thousands of patents.  Amendments to strike the first-to-file provision and strengthen the grace period failed to pass in committee.

“Patent reform is an important key to our economic recovery and will help America invent its way back to prosperity,” Leahy said.  “Patent reform is supported by Democrats and Republicans alike, by the Obama administration and by businesses, industries and manufacturers across the spectrum.”

A large range of tech firms support the bill, including IBM, Microsoft and GE, as well as several large pharmaceutical companies.  Many small companies and independent inventors have complained the changes will reduce their incentives for innovation by favoring large corporations.

In his April issue of The Inventor’s Mentor, “First to File – Impact on the Small Inventor,” George Levy wrote, “The new law will recognize the first person who files as the legal inventor. Many analysts disagree with director Kappos and believe that it will encourage a rush to the patent office with half-baked inventions and poorly drafted applications and that it will hurt small inventors not supported by the legal and technical resources of large corporations.

Currently an invention cannot be patented if the inventor has publicly disclosed it more than 1 year earlier.  Public disclosure can occur by a public use, public sale, a publication, or a patent (MPEP2133).  If the disclosure is within the year, the inventor can still patent it in the U.S.  In contrast, most countries disqualify inventions immediately after publication.  This time interval called the “grace period” is of great benefit to small inventors who often need to refine their prototypes and test the market before they file.

The new law provides a much weaker grace period protection than the current law.  While it recognizes the first to file, it also states that a public disclosure within one year of the filing date does not count as prior art to the invention.

This provision allows the inventor to lock in his rights to the invention by issuing a defensive publication.  In doing so, he bars anyone else from patenting his invention – except himself.

Unfortunately, such a publication will prevent him from obtaining a patent in most other countries.  In the US, it will start the clock ticking and commit him to file within one year or lose all his rights.

In summary the inventor will have to make a choice:

• Either to publish early and thereby commit himself to file within a year, losing his international rights and possibly tipping his competitors at a crucial time,
• Or not to publish and risk being preceded by someone else at the patent office.

It will still be possible for him however, to divulge his invention to others without starting the one year clock, if he does it on a confidential basis. To protect himself, he should have a non-disclosure agreement and record his invention with a time stamp service such as mycreativeregistry.com

The loss of the grace period will significantly impact the small inventor. It is extremely important for inventor associations to lobby their congressional representatives to maintain a strong grace period.”

After passage of the Senate bill, Adrian Pelkus, President of the San Diego Inventors Forum, emailed me the following comments, “This is a game changer for American inventors and the entire entrepreneurial system.  I accept Mr. Kappos reasoning that proving who was first to invent is hardly ever an issue.   I am glad to see the $ stay in the USPTO for much needed improvements! It is the one-year grace year period that is the deal killer.

Here is what I imagine, expect and worry about:  China will bring our ideas to market faster than we can, killing U. S. startups.  Investors leery of this new exposure risk will find safer bets depriving our country the chance to grow new jobs from new products and ideas.  Those that stay in the “Angel” investment game will demand much more (expensive) competitive research and FTO letters more than ever.  Universities may stop publishing research because someone can beat them to the Patent office.  Every student presenting a poster or paper will have to file for a patent to protect their idea?  Startups will have to fully develop their technologies before filing.  What’s the use of continuations if another company can see your path and jump to your next conclusion?  Or even filing if you know a company with more resources can see what you are doing and can out develop you.

Patent filing will become a corporate venture game to beat one another using software that auto generates patent filings based on mined information made public.  So, companies with big $ will have the advantage over startups.  Corporations will have an overwhelming advantage in the process over individuals.

Typically people invent an idea, put some private $ in to develop it to where it is presentable with minimal patents/pending to raise more $ to finish the Design for Manufacturing (DFM), patents, marketing, and launch the product.

Having to raise all the R&D and launch $ at once is an oxymoron.  Just like SBIR grants goes in phases, so does private R&D investment in startups.  Angels fund private R&D; the successes then go on to next round, DFM.   Great risks, great rewards.

Hindering this process because exposing the Intellectual Property too early gives away the opportunities that an investor comes aboard for in the first place is counterproductive to our countries goals of creating jobs. ”

I also received the following email from Gary F. Witting, a Registered Patent Attorney in Scottsdale, Arizona.  “I am writing this note in response to your article that came across my desk this morning.

I am very concerned about the state and future state of the manufacturing and research and development in the United States.  It truly bothers me watching our patent system, which was the best in the world, getting moved around by large powers in the name of harmonization with Europe.  One needs to consider how many sole, small inventors, and small businesses there are in Europe as compared with the United States.  Typically, there are very few sole and small inventors in Europe.  Also, one needs to consider, whether our recent business successes such as Apple, Google, Motorola, and the like would have been able to survive in the proposed intellectual property climate.”

In addition, Newton Ball, emailed me saying, “I am an inventor with more than twenty U.S. issued patents, and several active provisional applications. There is an element of U.S. Patent Law that is even more important to me, than “first to invent”.  Since 1984, Chinese patent law has imposed an obligation to manufacture on patent holders.  A “duty to manufacture” was part of the English law that was the basis for the U. S. early patent law.  Sadly, to the detriment of small U.S. manufacturers, this duty has never been a part of U. S. patent law.  This means that large U. S. corporations are free to patent and shelve inventions, preventing U.S. manufacture and sale.  Several of my own inventions are in this “shelved” state.  I urge savingusmanufacturing.com to join me and my non-profit, Orbic Institute, in bringing this to the attention of the public and congress.  A simple no-cost change to patent law could bring a surge of new manufacturing in the U.S. of innovations, presently shelved.”

Sandy Rios, Vice President of Family-Pac Federal and a Fox News Contributor, commented in The Daily Caller Opinion, “America has always been a country of innovators. Within thirteen years of its first patent law, America had surpassed Great Britain in its number of annual inventions, even though Great Britain had a population twice as large. By 1865, the U.S. was churning out three times as many inventions as Great Britain… According to historians, it was no accident. As the Founding Fathers studied existing patent law, they discovered statutes that gave advantage only to the wealthy, not to the small entrepreneur. So they created a unique system that inventors have enjoyed for 250 years. It’s a first-to-invent system, not a first-to-file one. The first person to invent something gets the credit, not the first one to rush to a bureaucratic office and file a piece of paper.

Now Senator Patrick Leahy and the Obama administration, along with multi-national corporations, have a better idea. They want to change our system from a first-to-invent system to a first-to-file system. Under such a system, anyone who can co-opt the ideas of an inventor and pay the cash would be able to take the credit and reap the rewards. This would hurt inventors and give large corporations — and China — a leg up.

Currently, inventors are given a grace period to perfect their inventions and try to obtain financial backing. The new bill would replace that with a European-style post-grant challenge, which would force inventors to pay $20,000-30,000 every time they modify an invention.

The voices of Edison and Bell, Wright and Ford are crying out. Don’t put a stake in the heart of American innovation and job creation. Say “no!” to this patent reform bill.”

It’s not too late to contact your representative in Congress and urge them to vote no on this bill without amending it to strengthen the grace period to protect individual inventors and small businesses.

While the United States still leads world in innovation, American manufacturers are faced with doing more with less to compete in the global economy.  They must achieve higher productivity with fewer people and lower profits.  What can manufacturers do to survive, succeed and thrive in the intense global economy?

There are hundreds of books and articles with recommendations on how manufacturers can succeed and grow in the global economy.  Innovative strategies are key to success.  Let’s focus on the following three strategies:  purpose, process, and promotion.

Purpose – a clear vision of the reason for the existence of your company, an understanding of the need you are looking to fulfill and the solution, the Distinct Competitive Advantage (DCA) of company’s products or services, the target audience you are serving, and the internal business model and guiding principles of the company.

Process – adoption of Lean Manufacturing and Six Sigma principles that seek to eliminate waste through all aspects of the organization and process and focus on the production and delivery of products directly associated with customer orders.

Promotion  – use of most cost-effective and productive marketing and sales methods and channels to market

According to Michael Treacy’s book, “The Discipline of Market Leaders,” best in class companies must choose one of the three following types in order to be able to fully optimize key company support systems:

1. Process Excellence Company – companies like McDonalds make their processes very efficient and consistent to survive or thrive.
2. Innovative Leader Company (product leadership) – companies like Apple create innovative products like the iPhone and iPOD at a much faster rate than their competition in order to survive or thrive
3. Customer Intimacy Company – companies that focus on being flexible to cultivate long time relationships with customers

How well a company performs, or even survives, depends upon how that company focuses on meeting the markets to which it is trying to sell.  As a manufacturers’ sales representative for over 25 years, I know how important marketing is to the growth and success of a company.  Businesses cannot succeed if they don’t meet the needs of the market.  Manufacturers often fail because they embrace a product-driven strategy instead of a market-driven strategy.  There’s an old story that if you build a better mousetrap, the world will beat a path to your door.  This isn’t true!  You first have to let the world know you have built a better mousetrap through marketing, and you have to make the product easily available to them through the right sales channels.

Most small to medium-sized manufacturers don’t put enough emphasis on marketing because they don’t really understand what marketing is and don’t have any marketing experience.  Most small to medium-sized companies can’t afford to have a marketing or sales manager.  The owner of the company tries to do sales at the same time he/she is managing the day-to-day activities of the company.

So what is marketing?  It is everything a business does to create customers for their product/services.  Everyone in the company is part of marketing, and marketing begins in the mind of customer.  A business should never stop marketing.  What’s in it For Me (WIFM) is a universal law of marketing.   There are no marketing rules that apply to every type of company, and there are no quick fixes or “magic pill” that will work for every company.  All marketing is a gamble – you can’t accurately predict the results.  There are three basic steps to effective marketing

• Know your market
• Know each possible way to reach market with persuasive message
• Use methods that provide maximum results with minimum effort

Every company needs to address these three areas in some way, but any given company will need to focus on one or more of these methods in order to survive or thrive.   As Brian Tracy’s said in his book “The Discipline of Market Leaders” “No company can succeed today by trying to be all things to all people.”

You and your sales team need to be able to describe what it is about your product or service that is unique or different.  This is called your Differential or Unique Competitive Advantage (DCA).  In other words, the reasons why customers would want to buy or use your products or service.

You need to be able to describe your “business identity” in 25 words or less (called an  “Elevator speech”).   For example, my business is ElectroFab Sales, a manufacturers’ sales rep agency, and my business identity elevator speech is:  “We help companies select the right manufacturing processes to make parts for their products from the companies we represent.”  The key is to find a market in which your product and/or service can be a leader.

An effective DCA always develops out of an under filled or unfulfilled market need.  Examples of DCA thrusts are:

• Cutting edge technology
• Fills wide range of needs
• Specialized know-how
• Wide selection
• Exclusive selection
• Customization
• Convenience
• Speed (of service or product delivery)
• On-going customer education
• Service follow-up

If you are having trouble determining the DCA for your business, ask your customers questions about what they like best about you company’s products and/or services.  Ask them what they look for in a vendor/supplier and how they decide which company to choose.   Compare your products or services with those of your major competitors.   It would be helpful to have a consultant or someone outside of your company do a comparative matrix of your products or services.

If you still can’t determine your company’s DCA, you would be wise to hire a marketing consultant to help you identify what is unique about your company and its products and/or services.  You may even need help restructuring your company or redesigning your products to create a competitive advantage.  If you do not have a competitive advantage your sales people can easily describe, you are dead.

Once you have an accurate understanding of your target markets and have determined your DCA, then you can choose the best marketing methods to use.  The following are some of the best low-cost marketing methods:

• Direct Mail Marketing  – flyers, letters, brochures, catalogs, CDs/DVDs
• Internet Marketing (website, e brochures, e newsletters, videos, webinars)
• Distributors
• Sales Representatives
• Strategic Partnerships – non-competing companies promote each other for percent of the action
• Social networking (Linkedin, Facebook, Twitter)
• Telemarketing
• Trade Shows

The direct mail marketing methods of flyers, letters, brochures, and catalogs don’t work as well as they once did, and people don’t often take the time to view the newer CDs and DVDs.  A two to four minute video on a website has become more effective.

An Internet presence via a website has become crucial way to establish credibility as a company.  I am surprised I still meet entrepreneurs that don’t have a website and have a gmail mail or yahoo email address instead of one connected to a company website.  It’s well worth the money to have a website, even for very small companies or professional consultants.  Electronic brochures and newsletters can become effective tools to use if they are concise, easy to read, and contain useful information.  Even though attendance at trade shows has dropped in the last few years, there is no substitute for the opportunity to meet face-to-face with a prospective customer and have them see and touch your products or even see a live demonstration of how it works.  Telemarketing is most effective when it is used to make “warm” calls to follow up on show leads or keep in regular contact with regular customers and key prospects.  If you don’t have any idea how to utilize social networking for your company, there is an abundance of training available now to fit everyone’s schedule.

Today’s manufacturers must utilize innovative strategies to succeed and grow.  The days are gone when manufacturers could have equipment and people sitting idle.  American companies who provide the level of delivery, or quality, or customer service that got them by in the past will not survive, because customers can get that from Chinese vendors for a far lower price.  American manufactures are now in a struggle for their very survival.  The strategies covered in this article are based on an excerpt of the chapter in my book, Can American Manufacturing be Saved?  Why we should and how we can, on what manufacturers can do to not only “save themselves,” but also prosper and grow in the competitive global economy.

Michele Nash-Hoff is President of ElectroFab Sales and can be reached at michele@savingusmanufacturing.com