{"id":164,"date":"2011-04-12T16:40:31","date_gmt":"2011-04-12T23:40:31","guid":{"rendered":"http:\/\/savingusmanufacturing.com\/blog\/?p=164"},"modified":"2011-04-12T16:43:07","modified_gmt":"2011-04-12T23:43:07","slug":"the-importance-and-promise-of-american-manufacturing","status":"publish","type":"post","link":"https:\/\/savingusmanufacturing.com\/blog\/general\/the-importance-and-promise-of-american-manufacturing\/","title":{"rendered":"The Importance and Promise of American Manufacturing"},"content":{"rendered":"

At a time when most economic news articles are on the negative side, it\u2019s refreshing to read a report that corroborates the \u201cwhy\u201d portion of my book, Can American Manufacturing be saved?\u00a0 Why we should and how we can<\/em>. \u00a0Last week, the Center for American Progress released a report titled, \u201cThe Importance and Promise of American Manufacturing, Why It Matters if We Make It in America and Where We Stand Today,\u201d co-authored by Michael Ettlinger and Kate Gordon.\u00a0 \u00a0The 41 page report is filled with interesting charts and graphs and can be downloaded at www.americanprogress.org<\/a>.\u00a0\u00a0 The Center for American Progress is a nonpartisan research and educational institute dedicated to promoting a strong, just and free America that ensures opportunity for all.<\/p>\n

The authors echo what I have been saying \u2013 \u201cManufacturing is critically important to the American economy. \u00a0For generations, the strength of our country rested on the power of our factory floors\u2014both the machines and the men and women who worked them. \u00a0We need manufacturing to continue to be bedrock of strength for generations to come … The strength or weakness of American manufacturing carries implications for the entire economy, our national security, and the well-being of all Americans.\u201d<\/p>\n

The Executive Summary states that supplying our own needs through a strong domestic manufacturing sector protects us from international economic and political disruptions, but most importantly our national security where the risk of a weak manufacturing capability is obvious. \u00a0\u00a0Over reliance on imports and high manufacturing trade deficits make us vulnerable to everything from exchange rate fluctuations to trade embargoes to natural disasters.\u00a0 \u00a0The authors conclude that American manufacturing is not too far gone to save, and \u00a0that while manufacturing in the United States is under threat, and faces serious challenges, it is by no means a mere relic of the past. \u00a0It is a vibrant, large sector of our economy\u2014even if sometimes it\u2019s hard to see that as manufacturing jobs are lost, as factories close, and as sections of the country deindustrialize.<\/p>\n

The purpose of the report is to examine where the United States remains competitive in manufacturing at home and abroad. \u00a0\u00a0The authors began by detailing why manufacturing remains so important to our economy, our society, our national security, and our ability to remain the world\u2019s science and innovation leader in the 21st century. \u00a0Then it looks at our domestic manufacturing base and our top manufacturing export sectors to gauge where U.S. manufacturing remains competitive.\u00a0 The report does not outline a manufacturing policy agenda.<\/p>\n

The authors state that the health and future of manufacturing in the United States matters, representing 12 percent of the U.S. economy, and put that in perspective by commenting that when the United States recently lost less than 4 percent of its gross domestic product, or national income, the result was labeled the \u201cGreat Recession.\u201d\u00a0 They note that \u201cthe manufacturing sector also boasts an outsized importance that is understated by even that 12 percent.\u201d \u00a0While the United States will never again dominate world manufacturing the way it did in the decades immediately following World War II and no country is likely to ever do so again, manufacturing is, can, and should remain an important part of our economic future.<\/p>\n

The report states that one key reason manufacturing is so important is its position as the cornerstone of the success of many other economically important activities. \u00a0This role has been the subject of a longstanding debate as to whether the United States should hold onto its manufacturing sector or instead become a \u2018postindustrial\u2019 society.\u201d\u00a0 This debate started in the 1980s when Japanese goods started flooding the U.S. market. \u00a0Some economists argued then that America should move beyond competition for manufacturing jobs and adopt a new economic growth pattern based on service jobs in knowledge-based industries. \u00a0These economists argued that just as the United States shifted away from agriculture and into industry, so should it shift from industry into services as the primary source of economic activity for the future.<\/p>\n

The authors point out that a strong manufacturing sector does not come at the cost of a strong service sector\u2014each manufacturing job actually supports multiple jobs in other sectors. \u00a0\u201cAs economists Stephen Cohen and John Zysman wrote in the late 1980s, the manufacturing sector does not just include the group of employees who work\u00a0 n the factory floor. Instead, the manufacturing sector has \u201cdirect linkages\u201d to high-level service jobs throughout the economy: product and process engineering, design, operations and maintenance, transportation, testing, and lab work, as well as sector-specific payroll, accounting, and legal work.\u201d<\/p>\n

As an example, they note that motor vehicle manufacturing now creates 8.6 indirect jobs for each direct job. Computer manufacturing creates 5.6 indirect jobs and steel product manufacturing creates 10.3 indirect jobs for each direct job (Authors\u2019 calculation of Bureau of Labor Statistics, \u201cEmployment Requirements Matrix: Chain-Weighted Real Domestic Employment Requirements Table, 2008.\u201d Downloaded March 2, 2011)<\/p>\n

They conclude that when shop floor manufacturing jobs depart, other jobs go with them\u2014and with those jobs go the ability to create and innovate. \u00a0Declines in the U.S. manufacturing sector mean declines in our nation\u2019s overall \u201cindustrial commons\u201d\u2014a set of related industries and activities including those in the highly prized knowledge-based economy. \u00a0According to Harvard economist Gary Pisano, when manufacturing moves overseas so does this industrial commons, meaning that we lose not only production prowess but also the process innovation that comes from collocating research and development, design, engineering, and manufacturing.<\/p>\n

\u201cIn addition to undermining the ability of the United States to manufacture high tech products, the erosion of the industrial commons has seriously damaged the country\u2019s ability to invent new ones,\u201d writes Pisano in a recent Harvard Business Journal <\/em>online debate.\u00a0 With the loss of the commons and the jobs comes a decline in U.S. workforce skills and the ability to invent and innovate that can only come from the hands-on experience of working in an industry. \u00a0The upshot: If we lose our ability to make things, we may well lose our ability to invent them.\u00a0 (Robert H. Hayes, \u201cOutsourcing Is High Tech\u2019s Subprime-Mortgage Fiasco,\u201d Harvard Business Review, October 7, 2009,\u00a0 http:\/\/blogs.hbr.org\/hbr\/restoring-american-competitiveness\/2009\/10\/outsourcing-is-high-techs-subprime.html.)<\/p>\n

The authors state that there is strong anecdotal evidence that if we cede production on a process invented in the United States then we may lose future iterations of innovation of that process. \u00a0\u00a0They cite solar panels as one example. \u00a0Invented in New Jersey at Bell Laboratories in 1954, the production of solar photovoltaic panels has largely moved overseas (China is currently the world\u2019s largest producer), and most new innovations in panel production, such as process improvements that make the panels far more powerful by altering their electrical properties, are happening outside of our nation. \u00a0(Kevin Bullis, \u201cSolar\u2019s Great Leap Forward,\u201d MIT Technology Review<\/em>, July\/August 2010, available at http:\/\/www.technologyreview.com\/energy\/25565\/5)<\/p>\n

They cite a recent set of studies by Carnegie Mellon University engineering professor Erica Fuch, who examined the impact of offshoring production on technological innovation. Her key finding:\u00a0 When optoelectronics companies offshored production of their original designs to, for instance, Asia, they tended to produce those initial designs cheaply and efficiently.\u00a0 When these firms then began work on new and improved designs, however, they tended to lose valuable time and knowledge if their operations were off shore.\u00a0 (Erica Fuchs and Randolph Kirchain, \u201c<\/strong>Design for Location? The Impact of Manufacturing Offshore on Technology Competitiveness in the Optoelectronics Industry,\u201d Management Science <\/em>56 (12) (2010):2323\u20132349, available at http:\/\/mansci.journal.informs.org\/cgi\/content\/abstract\/56\/12\/2323<\/a><\/p>\n

They conclude that \u201cmoving manufacturing overseas impeded the companies\u2019 ability to compete and keep at the forefront of design and production and to efficiently push forward new technologies. \u00a0These companies will follow other manufacturers who have shifted design and innovation closer to their physical operations\u2014 witness the photovoltaic manufacturing industry.\u201d\u00a0 They note that \u201cFuchs\u2019s findings are critical not only to the question of why basing manufacturing in the United States matters but also to the analysis of what kinds of policies might best support the types of manufacturing that will ultimately put our nation in the best economic position. \u00a0Fuchs\u2019s research shows that when you\u2019re talking about the United States, manufacturing does matter, but advanced and cutting-edge manufacturing matters even more. \u00a0When such manufacturing leaves, it takes much more than the factory floor jobs\u2014as important as those may be\u2014it takes technology, innovation, and the next generation of products with it.\u201d<\/p>\n

The authors point out that offshoring and outsourcing can grow as parts of different manufacturing supply chains develop elsewhere. \u00a0U.S. companies that supply these manufacturing operations offshore find it more and more advantageous to go where their factories are, which is why industries can get slowly hollowed out as other countries become the central places of production. \u00a0\u201cThe United States risks being relegated to the periphery, which in turn would hurt our capacities at innovation and thus threaten our innovation and technology leadership. \u00a0Remaining capacity can hang on for a while but the leadership, the concentration of wisdom, and skill slips away\u2014and once gone is hard to recapture.\u201d<\/p>\n

They note that whether the United States still dominates manufacturing as it once did is a different question than whether U.S. manufacturing can compete. \u00a0U.S. manufacturers are successfully making and selling their goods on a massive scale.\u00a0 One reason is that we are the biggest-consuming country in the world, and \u201cone could argue that as a result we cannot avoid being a large manufacturer. \u00a0There are enough products that are expensive or difficult enough to ship that it\u2019s hard to avoid making them here. \u00a0There\u2019s certainly truth to the story that some U.S. manufacturing succeeds because of this advantage.\u201d<\/p>\n

Part of how a business competes is being close to its customers so selling goods in a home market is nothing to be ashamed of.\u00a0 However, there\u2019s clearly more to U.S. manufacturing success than a captive market.\u00a0 U.S. manufacturing is also a top exporter. \u00a0Proximity is a factor to the extent those exports are to Canada and Mexico as these two countries account for about a third of U.S. manufacturing exports. \u00a0But the United States was the third-largest exporter of manufactured goods in the world in 2009 and 2010, behind China and Germany.<\/p>\n

The report shows that manufacturing in the U. S. covers a broad range of activities, but there are six large,\u00a0 subsectors that account for the bulk of U.S. manufacturing. \u00a0\u00a0The top six subsectors by value added are:<\/p>\n

\u2022 Chemicals, including pharmaceuticals and other chemical products<\/p>\n

\u2022 Transportation equipment, including, most prominently, automobiles and aircraft
\n\u2022 Food, which includes everything from steaks to potato chips
\n\u2022 Computer and electronic products, including semiconductors, lab equipment, and a host of other products
\n\u2022 Fabricated metal products, including a range of products from pre-fab sheds to I-beams
\n\u2022 Machinery, which includes goods such as air conditioning units and farm equipment<\/p>\n

The report does not contain a detailed analysis of the competitiveness of U.S.-based manufacturing, but notes:<\/p>\n

\u2022 Wage differences aren\u2019t everything
\n\u2022 The overall cost differences between countries aren\u2019t as large as they are sometimes made out to be
\n\u2022 Different industries care about different costs differently29
\n\u2022 Proximity to markets matters
\n\u2022 Proximity to research and management and resources also matters
\n\u2022 Skills matter<\/p>\n

They conclude by stating that as \u201clong as there is demand in the United States for manufactured goods as well as the innovators, manufacturing workers, and available capital necessary to remain competitive, manufacturing can continue to be important in the U.S. economy.\u00a0 U.S. workers are nervous about taking jobs in industries that have seen declining employment. \u00a0Other countries offer enormous subsidies in a variety of ways. And we are not alone in being innovators\u2014and have become much less welcoming to innovators from abroad who wish to live in the United States\u2026 President Obama\u2019s focus on manufacturing and exports are welcome signs, as is the introduction of a new \u201cMake It in America\u201d agenda in Congress. \u00a0But this is an effort that\u2019s going to take more than setting goals and one president\u2019s focus\u2026The United States needs to get into the game and find the right steps for us that will create an environment where a nation\u2019s manufacturing sector can flourish and succeed\u2014not just in selling here, but to the world.\u201d\u00a0 I heartily concur and have proposed many suggestions for steps to take to preserve American manufacturing in my book.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

At a time when most economic news articles are on the negative side, it\u2019s refreshing to read a report that corroborates the \u201cwhy\u201d portion of my book, Can American Manufacturing be saved?\u00a0 Why we should and how we can. \u00a0Last week, the Center for American Progress released a report titled, \u201cThe Importance and Promise of […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,3,6],"tags":[],"class_list":["post-164","post","type-post","status-publish","format-standard","hentry","category-general","category-outsourcing","category-reshoring"],"_links":{"self":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/164","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/comments?post=164"}],"version-history":[{"count":3,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/164\/revisions"}],"predecessor-version":[{"id":166,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/164\/revisions\/166"}],"wp:attachment":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/media?parent=164"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/categories?post=164"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/tags?post=164"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}