Viewpoints: The Plot Thickens in Manufacturing History
By Ro Khanna
Author, Entrepreneurial Nation:
Why Manufacturing is Still Key
to America's Future
Former Deputy Assistant Secretary of Commerce
Despite cheaper labor abroad, currency manipulation, intellectual property theft, and subsidies to foreign competitors, American manufacturers are still global leaders in manufacturing.
Many manufacturers are small or medium-sized businesses that are family owned. Some are large corporations led by executives who still believe that America is the best place to set up a factory. What they have in common is that they’re creating jobs in local communities, defying the stereotype of US manufacturing going offshore. In an era when we hear weekly about plant shutdowns, know friends and family members who are being laid off, and are anxious about the career prospects for young people, they are the embers of hope.
The struggle and triumph of cutting-edge American manufacturers is the latest chapter in our national story. Larry Summers, the former director of the White House National Economic Council for President Obama, put our economic difficulties in a historical context. In a recent speech, Summers reminded his audience that there have always been skeptics.
Back in the heyday of the Cold War, the skeptics, influenced by college textbooks such as Nobel laureate Paul Samuelson’s Economics, were convinced that the Soviet Union’s GDP would overtake ours by the mid-1980s based on relative “growth rates in the 1950s.” They were wrong. Then, in the early 1990s, the skeptics believed the articles that appeared in prominent business journals predicting that Japan and Germany would be the dominant post–Cold War economies. They were wrong again.
These manufacturers help explain why, against all odds, our nation held the global lead over China in manufacturing output until 2009. What’s extraordinary is that our aggregate output remains competitive with China’s, even though the sector constitutes only 10% of our economy compared to nearly 40% of theirs. We are a global leader, in part, because our labor productivity (the value that a worker produces annually) is more than six times as large as China or India’s and significantly larger than Japan’s or Germany’s. Strong productivity has enabled the US to increase its manufacturing output over the past 30 years to a greater extent than any other developed nation, more than doubling in size.
American manufacturers often have an advantage over their competitors in more authoritarian or bureaucratic nations because participatory governance is preferable to top-down governance, even in the business world. The best American manufacturers consider the intellectual contributions of all their employees. As a result, they provide employees with healthy work environments and encourage them to be critical and divergent thinkers. Their inclusionary approach enables them to make high-value products through customization, economization, and innovation.
The most forward-looking American manufacturers, moreover, are exporting aggressively, overcoming archaic World Trade Organization rules that put them at a tax disadvantage. In certain instances, their diverse workforce is an asset for winning customers in a global economy. Some have even adopted sophisticated metrics to justify domestic production, starting a trend toward onshoring. These metrics include improvements in quality measured through customer satisfaction surveys, reductions in labor hours and shipping costs, and increases in speed to market. The metrics help these companies look beyond labor costs, which usually constitute less than 10% of a product’s total cost, in site selection.
The news, though, isn’t all positive. We shouldn’t delude ourselves into a false sense of complacency. Although American manufacturing output continues to increase, the sector’s growth rate has declined significantly throughout the last decade and has lagged behind China’s. And while our share of world manufacturing is declining, China’s share is growing. Our leadership is at risk in a world that has become increasingly competitive.
Our businesses are facing foreign competitors that are the beneficiaries of unprecedented subsidies. The competitive advantages of American manufacturers must also be balanced with strong policies that will leave companies better equipped and unleashed. To paraphrase Winston Churchill: If we give them the tools, they will do the job. ME
Editor’s Note: This Viewpoints contains excerpts from Entrepreneurial Nation: Why Manufacturing is Still Key to America’s Future.
This article was published in the November 2012 edition of Manufacturing Engineering magazine. Click here for PDF.