The conventional wisdom is that manufacturing as an employment driver in the U.S. is in decline, because of outsourcing and because of drastic increases in productivity for the factories that remain in the country. As I reported earlier, a February 17 Wall Street Journal editorial put it succinctly: “Real manufacturing output stood at about $35,000 per worker in 1947, in constant dollars. It doubled by 1980 as companies became more efficient. Today this measure is an astonishing $150,000. Manufacturing productivity has increased by 103% since the late 1980s, outpacing every other industry and double the 53% in the larger business economy.”
Is the conventional wisdom correct? Robotics would certainly seem to be one field driving productivity increases at the expense of the workers the robots displace, but Henrik Christensen, director of the Center for Robotics and Intelligent Machines at Georgia Institute of Technology, has said that as robots continue to be used more in manufacturing, they will actually create jobs. He told IEEE-USA Today's Engineer (February 12 edition), “We're going to see more manufacturing come back to the United States, where robots will help us better control quality and intellectual property.”
Another person making the case that increasing productivity need not mean reductions in manufacturing employment is Gene Sperling, director of the National Economic Council. In a March 27 speech, he commented on “…the very real benefits that manufacturing brings to our economy and that we ought to preserve.”
He elaborated, saying, “…even if today only 12% of the U.S. private-sector workforce is employed in manufacturing, it is a sector that punches above its weight. When you take into account the outsized role that manufacturing plays in innovation—through R&D investment and patents; the tight linkage between innovation and manufacturing production; higher-wage jobs it produces; its importance for exports; the spillover benefits that manufacturing facilities have on firms and communities around them; and the deeper economic harm that comes from allowing our manufacturing production capacity to be hollowed out—it becomes clear that manufacturing is worthy of a special emphasis in the Obama economic strategy.”
With respect to productivity, Sperling said, “There is truth to the claim that productivity gains mean that we have been able to expand our manufacturing output without necessarily expanding manufacturing sector employment, and that we have certainly seen a decline in manufacturing’s relative share of employment over the last four decades. But this recognition is a long way from claiming that manufacturing is on a path of inevitable decline, and that the dramatic declines in manufacturing employment since 2000 are simply a continuation of a long-term steady pattern of declining manufacturing jobs.”
He cited a 2005 study by economist William Nordhaus that showed that for specific industry segments “…increases in the rate of productivity growth were associated with increases in the rate of job growth (or at least decreases in the rate of job loss) during the 1948-2003 time period.” Sperling quotes Nordhaus as saying that “productivity is not to be feared—at least not in manufacturing,” where higher productivity leads to lower prices, increased demand, and higher employment. Sperling noted that another study Bureau of Labor Statistics through 2009 also failed to find a correlation between productivity gains and job losses.
“Further,” Sperling said, “contradicting the often conventional view was the fact that it was exactly during the period where we saw a significant and long-awaited increase in productivity growth in the late 1990s that we saw manufacturing employment start to increase. Indeed, the manufacturing sector added almost 700,000 jobs from 1993 to 1999,” adding, “…the dramatic loss of manufacturing employment in the past decade was a break from the past and cannot be explained by the conventional view of productivity and technology gains.”
Manufacturing, he said, offers benefits that extend well beyond the factory: “Manufacturing produces more ancillary activity than other sectors. Using data from the Bureau of Economic Analysis, we can estimate that the manufacturing sector creates approximately $1.40 of overall output for every $1 of manufacturing output,” because manufacturing attracts a web of suppliers, restaurants, retailers, and service providers. “If an auto plant opens up, a Wal-Mart can be expected to follow. But the converse does not necessarily hold”—a Wal-Mart opening does not bring an auto plant with it.
Further, Sperling noted that U.S. companies are poised to become more competitive with offshore facilities: “A study by the Boston Consulting Group found that China’s production cost advantage declines to just 10% over the next several years as a result of rising wages in China and relative gains in U.S. productivity, and that is before taking into account transportation and other costs.”
Sperling also cited the drawbacks of loosing manufacturing capability, citing the consumer electronics business in particular: “For example, when we lost consumer electronics manufacturing, we gave up a claim on future innovation. We lost in follow-on products like advanced batteries, flat-panel display technology and LED lighting. When we lost consumer electronics manufacturing, we also lost the capability to make and design the batteries, including lithium-ion batteries, used in computers, cell phones, and other consumer devices. As demand for batteries began to grow in the auto industry for hybrids and in utilities for grid storage, the technological leadership to design these products had migrated along with consumer electronics manufacturing. We lost the ability to create these products at scale. Through the Recovery Act, the U.S. made major investments to re-start the advanced battery industry in the U.S. We are on track to go from 2% of global production in 2009 to 40% of global capacity by 2015. Without that type of effort, it is unclear if this important industry would have taken root in the U.S.”
Apart from the Recovery Act, government's role, Sperling said, centers on low tax rates for manufacturers, infrastructure improvements, permanent research tax credits, trade enforcement, and support for education, particularly at the community college level. He also said, “…the Administration is investing in innovation to support manufacturing, increasing our support for advanced manufacturing technologies by 19% to $2.2 billion in FY13.” He added, “We recognize investing in basic research isn’t enough to make sure that a new technology crosses the bridge from invention to product development to manufacturing at scale, The President proposed a National Network for Manufacturing Innovation, the creation of up to fifteen manufacturing institutes to fill this gap in our innovation infrastructure by letting companies collaborate and access the capabilities of our research universities to support scaling up manufacturing production.”
The term “industrial policy” did not come up in Sperling's speech, but according to a March 29 post by Reuters journalist Chrystia Freeland, “When I spoke to him afterward, Sperling was careful to point out that the new approach did not amount to industrial policy, or an attempt by the government to pick winners and losers. But the White House has come to believe, Sperling said, that manufacturers more broadly should be first among equals.”
Freeland offered an interesting observation: “For the past several decades, the Anglo-Saxon consensus was that state interference in the private-sector economy was a mistake. Government bureaucrats were in no position to pick economic winners and losers—and if standing aside meant letting the forces of creative destruction sweep away entire industries, so be it.
“The continental Europeans, most successfully the Germans, demurred. They were unconvinced that the shift from manufacturing to services was either good or inevitable, and they used the full might of the state to try to hang on to their industrial base. Alluding to Sperling's speech, she noted, “When it comes to manufacturing, though, the European approach is being embraced in the White House.”
Many observers, including the Wall Street Journal editorial board, believe there is nothing particularly special about manufacturing and that it needs no special government help beyond a tax code with lower rates and fewer loopholes, a better education system, a reformed immigration policy, and fewer regulations—positions that I believe the Journal favors for all private businesses.
And writing February 22 in The Corner, Veronique de Rugy noted, “The president thinks manufacturers deserve special treatment…. Besides the obvious unfairness of a system that rewards some (in this case, manufacturers) at the expenses of others (companies that do business abroad or non-manufacturing companies in the U.S.), these policies don’t even make sense.” Manufacturing is doing well without taxpayer help, she wrote, adding that preferential treatment won't bring back the low-skill jobs that have been lost.
Others, however, take a different view. I have previously cited a July 1, 2010, Bloomberg Businessweek article in which Andy Grove says that equally important to “that mythical moment of creation in the garage” is the transformation that occurs “as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.”
Grove's recommendation in that article was as follows: “The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars—fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability—and stability—we may have taken for granted.”
Freeland concluded her Reuters post saying, “…from Berlin to Beijing, the debate about manufacturing and whether governments have a duty to support it is a live issue. That is one more reason this U.S. election campaign matters so much to the rest of the world.”
Send me your comments: [email protected]
See previous post: Children Could Make Computers Smarter
The conventional wisdom is that manufacturing as an employment driver in the U.S. is in decline, because of outsourcing and because of drastic increases in productivity for the factories that remain in the country. As I reported earlier, a February 17 Wall Street Journal editorial put it succinctly: “Real manufacturing output stood at about $35,000 per worker in 1947, in constant dollars. It doubled by 1980 as companies became more efficient. Today this measure is an astonishing $150,000. Manufacturing productivity has increased by 103% since the late 1980s, outpacing every other industry and double the 53% in the larger business economy.”
Is the conventional wisdom correct? Robotics would certainly seem to be one field driving productivity increases at the expense of the workers the robots displace, but Henrik Christensen, director of the Center for Robotics and Intelligent Machines at Georgia Institute of Technology, has said that as robots continue to be used more in manufacturing, they will actually create jobs. He told IEEE-USA Today's Engineer (February 12 edition), “We're going to see more manufacturing come back to the United States, where robots will help us better control quality and intellectual property.”
Another person making the case that increasing productivity need not mean reductions in manufacturing employment is Gene Sperling, director of the National Economic Council. In a March 27 speech, he commented on “…the very real benefits that manufacturing brings to our economy and that we ought to preserve.”
He elaborated, saying, “…even if today only 12% of the U.S. private-sector workforce is employed in manufacturing, it is a sector that punches above its weight. When you take into account the outsized role that manufacturing plays in innovation—through R&D investment and patents; the tight linkage between innovation and manufacturing production; higher-wage jobs it produces; its importance for exports; the spillover benefits that manufacturing facilities have on firms and communities around them; and the deeper economic harm that comes from allowing our manufacturing production capacity to be hollowed out—it becomes clear that manufacturing is worthy of a special emphasis in the Obama economic strategy.”
With respect to productivity, Sperling said, “There is truth to the claim that productivity gains mean that we have been able to expand our manufacturing output without necessarily expanding manufacturing sector employment, and that we have certainly seen a decline in manufacturing’s relative share of employment over the last four decades. But this recognition is a long way from claiming that manufacturing is on a path of inevitable decline, and that the dramatic declines in manufacturing employment since 2000 are simply a continuation of a long-term steady pattern of declining manufacturing jobs.”
He cited a 2005 study by economist William Nordhaus that showed that for specific industry segments “…increases in the rate of productivity growth were associated with increases in the rate of job growth (or at least decreases in the rate of job loss) during the 1948-2003 time period.” Sperling quotes Nordhaus as saying that “productivity is not to be feared—at least not in manufacturing,” where higher productivity leads to lower prices, increased demand, and higher employment. Sperling noted that another study Bureau of Labor Statistics through 2009 also failed to find a correlation between productivity gains and job losses.
“Further,” Sperling said, “contradicting the often conventional view was the fact that it was exactly during the period where we saw a significant and long-awaited increase in productivity growth in the late 1990s that we saw manufacturing employment start to increase. Indeed, the manufacturing sector added almost 700,000 jobs from 1993 to 1999,” adding, “…the dramatic loss of manufacturing employment in the past decade was a break from the past and cannot be explained by the conventional view of productivity and technology gains.”
Manufacturing, he said, offers benefits that extend well beyond the factory: “Manufacturing produces more ancillary activity than other sectors. Using data from the Bureau of Economic Analysis, we can estimate that the manufacturing sector creates approximately $1.40 of overall output for every $1 of manufacturing output,” because manufacturing attracts a web of suppliers, restaurants, retailers, and service providers. “If an auto plant opens up, a Wal-Mart can be expected to follow. But the converse does not necessarily hold”—a Wal-Mart opening does not bring an auto plant with it.
Further, Sperling noted that U.S. companies are poised to become more competitive with offshore facilities: “A study by the Boston Consulting Group found that China’s production cost advantage declines to just 10% over the next several years as a result of rising wages in China and relative gains in U.S. productivity, and that is before taking into account transportation and other costs.”
Sperling also cited the drawbacks of loosing manufacturing capability, citing the consumer electronics business in particular: “For example, when we lost consumer electronics manufacturing, we gave up a claim on future innovation. We lost in follow-on products like advanced batteries, flat-panel display technology and LED lighting. When we lost consumer electronics manufacturing, we also lost the capability to make and design the batteries, including lithium-ion batteries, used in computers, cell phones, and other consumer devices. As demand for batteries began to grow in the auto industry for hybrids and in utilities for grid storage, the technological leadership to design these products had migrated along with consumer electronics manufacturing. We lost the ability to create these products at scale. Through the Recovery Act, the U.S. made major investments to re-start the advanced battery industry in the U.S. We are on track to go from 2% of global production in 2009 to 40% of global capacity by 2015. Without that type of effort, it is unclear if this important industry would have taken root in the U.S.”
Apart from the Recovery Act, government's role, Sperling said, centers on low tax rates for manufacturers, infrastructure improvements, permanent research tax credits, trade enforcement, and support for education, particularly at the community college level. He also said, “…the Administration is investing in innovation to support manufacturing, increasing our support for advanced manufacturing technologies by 19% to $2.2 billion in FY13.” He added, “We recognize investing in basic research isn’t enough to make sure that a new technology crosses the bridge from invention to product development to manufacturing at scale, The President proposed a National Network for Manufacturing Innovation, the creation of up to fifteen manufacturing institutes to fill this gap in our innovation infrastructure by letting companies collaborate and access the capabilities of our research universities to support scaling up manufacturing production.”
The term “industrial policy” did not come up in Sperling's speech, but according to a March 29 post by Reuters journalist Chrystia Freeland, “When I spoke to him afterward, Sperling was careful to point out that the new approach did not amount to industrial policy, or an attempt by the government to pick winners and losers. But the White House has come to believe, Sperling said, that manufacturers more broadly should be first among equals.”
Freeland offered an interesting observation: “For the past several decades, the Anglo-Saxon consensus was that state interference in the private-sector economy was a mistake. Government bureaucrats were in no position to pick economic winners and losers—and if standing aside meant letting the forces of creative destruction sweep away entire industries, so be it.
“The continental Europeans, most successfully the Germans, demurred. They were unconvinced that the shift from manufacturing to services was either good or inevitable, and they used the full might of the state to try to hang on to their industrial base. Alluding to Sperling's speech, she noted, “When it comes to manufacturing, though, the European approach is being embraced in the White House.”
Many observers, including the Wall Street Journal editorial board, believe there is nothing particularly special about manufacturing and that it needs no special government help beyond a tax code with lower rates and fewer loopholes, a better education system, a reformed immigration policy, and fewer regulations—positions that I believe the Journal favors for all private businesses.
And writing February 22 in The Corner, Veronique de Rugy noted, “The president thinks manufacturers deserve special treatment…. Besides the obvious unfairness of a system that rewards some (in this case, manufacturers) at the expenses of others (companies that do business abroad or non-manufacturing companies in the U.S.), these policies don’t even make sense.” Manufacturing is doing well without taxpayer help, she wrote, adding that preferential treatment won't bring back the low-skill jobs that have been lost.
Others, however, take a different view. I have previously cited a July 1, 2010, Bloomberg Businessweek article in which Andy Grove says that equally important to “that mythical moment of creation in the garage” is the transformation that occurs “as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.”
Grove's recommendation in that article was as follows: “The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars—fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability—and stability—we may have taken for granted.”
Freeland concluded her Reuters post saying, “…from Berlin to Beijing, the debate about manufacturing and whether governments have a duty to support it is a live issue. That is one more reason this U.S. election campaign matters so much to the rest of the world.”
The conventional wisdom is that manufacturing as an employment driver in the U.S. is in decline, because of outsourcing and because of drastic increases in productivity for the factories that remain in the country. As I reported earlier, a February 17 Wall Street Journal editorial put it succinctly: “Real manufacturing output stood at about $35,000 per worker in 1947, in constant dollars. It doubled by 1980 as companies became more efficient. Today this measure is an astonishing $150,000. Manufacturing productivity has increased by 103% since the late 1980s, outpacing every other industry and double the 53% in the larger business economy.”
Is the conventional wisdom correct? Robotics would certainly seem to be one field driving productivity increases at the expense of the workers the robots displace, but Henrik Christensen, director of the Center for Robotics and Intelligent Machines at Georgia Institute of Technology, has said that as robots continue to be used more in manufacturing, they will actually create jobs. He told IEEE-USA Today's Engineer (February 12 edition), “We're going to see more manufacturing come back to the United States, where robots will help us better control quality and intellectual property.”
Another person making the case that increasing productivity need not mean reductions in manufacturing employment is Gene Sperling, director of the National Economic Council. In a March 27 speech, he commented on “…the very real benefits that manufacturing brings to our economy and that we ought to preserve.”
He elaborated, saying, “…even if today only 12% of the U.S. private-sector workforce is employed in manufacturing, it is a sector that punches above its weight. When you take into account the outsized role that manufacturing plays in innovation—through R&D investment and patents; the tight linkage between innovation and manufacturing production; higher-wage jobs it produces; its importance for exports; the spillover benefits that manufacturing facilities have on firms and communities around them; and the deeper economic harm that comes from allowing our manufacturing production capacity to be hollowed out—it becomes clear that manufacturing is worthy of a special emphasis in the Obama economic strategy.”
With respect to productivity, Sperling said, “There is truth to the claim that productivity gains mean that we have been able to expand our manufacturing output without necessarily expanding manufacturing sector employment, and that we have certainly seen a decline in manufacturing’s relative share of employment over the last four decades. But this recognition is a long way from claiming that manufacturing is on a path of inevitable decline, and that the dramatic declines in manufacturing employment since 2000 are simply a continuation of a long-term steady pattern of declining manufacturing jobs.”
He cited a 2005 study by economist William Nordhaus that showed that for specific industry segments “…increases in the rate of productivity growth were associated with increases in the rate of job growth (or at least decreases in the rate of job loss) during the 1948-2003 time period.” Sperling quotes Nordhaus as saying that “productivity is not to be feared—at least not in manufacturing,” where higher productivity leads to lower prices, increased demand, and higher employment. Sperling noted that another study Bureau of Labor Statistics through 2009 also failed to find a correlation between productivity gains and job losses.
“Further,” Sperling said, “contradicting the often conventional view was the fact that it was exactly during the period where we saw a significant and long-awaited increase in productivity growth in the late 1990s that we saw manufacturing employment start to increase. Indeed, the manufacturing sector added almost 700,000 jobs from 1993 to 1999,” adding, “…the dramatic loss of manufacturing employment in the past decade was a break from the past and cannot be explained by the conventional view of productivity and technology gains.”
Manufacturing, he said, offers benefits that extend well beyond the factory: “Manufacturing produces more ancillary activity than other sectors. Using data from the Bureau of Economic Analysis, we can estimate that the manufacturing sector creates approximately $1.40 of overall output for every $1 of manufacturing output,” because manufacturing attracts a web of suppliers, restaurants, retailers, and service providers. “If an auto plant opens up, a Wal-Mart can be expected to follow. But the converse does not necessarily hold”—a Wal-Mart opening does not bring an auto plant with it.
Further, Sperling noted that U.S. companies are poised to become more competitive with offshore facilities: “A study by the Boston Consulting Group found that China’s production cost advantage declines to just 10% over the next several years as a result of rising wages in China and relative gains in U.S. productivity, and that is before taking into account transportation and other costs.”
Sperling also cited the drawbacks of loosing manufacturing capability, citing the consumer electronics business in particular: “For example, when we lost consumer electronics manufacturing, we gave up a claim on future innovation. We lost in follow-on products like advanced batteries, flat-panel display technology and LED lighting. When we lost consumer electronics manufacturing, we also lost the capability to make and design the batteries, including lithium-ion batteries, used in computers, cell phones, and other consumer devices. As demand for batteries began to grow in the auto industry for hybrids and in utilities for grid storage, the technological leadership to design these products had migrated along with consumer electronics manufacturing. We lost the ability to create these products at scale. Through the Recovery Act, the U.S. made major investments to re-start the advanced battery industry in the U.S. We are on track to go from 2% of global production in 2009 to 40% of global capacity by 2015. Without that type of effort, it is unclear if this important industry would have taken root in the U.S.”
Apart from the Recovery Act, government's role, Sperling said, centers on low tax rates for manufacturers, infrastructure improvements, permanent research tax credits, trade enforcement, and support for education, particularly at the community college level. He also said, “…the Administration is investing in innovation to support manufacturing, increasing our support for advanced manufacturing technologies by 19% to $2.2 billion in FY13.” He added, “We recognize investing in basic research isn’t enough to make sure that a new technology crosses the bridge from invention to product development to manufacturing at scale, The President proposed a National Network for Manufacturing Innovation, the creation of up to fifteen manufacturing institutes to fill this gap in our innovation infrastructure by letting companies collaborate and access the capabilities of our research universities to support scaling up manufacturing production.”
The term “industrial policy” did not come up in Sperling's speech, but according to a March 29 post by Reuters journalist Chrystia Freeland, “When I spoke to him afterward, Sperling was careful to point out that the new approach did not amount to industrial policy, or an attempt by the government to pick winners and losers. But the White House has come to believe, Sperling said, that manufacturers more broadly should be first among equals.”
Freeland offered an interesting observation: “For the past several decades, the Anglo-Saxon consensus was that state interference in the private-sector economy was a mistake. Government bureaucrats were in no position to pick economic winners and losers—and if standing aside meant letting the forces of creative destruction sweep away entire industries, so be it.
“The continental Europeans, most successfully the Germans, demurred. They were unconvinced that the shift from manufacturing to services was either good or inevitable, and they used the full might of the state to try to hang on to their industrial base. Alluding to Sperling's speech, she noted, “When it comes to manufacturing, though, the European approach is being embraced in the White House.”
Many observers, including the Wall Street Journal editorial board, believe there is nothing particularly special about manufacturing and that it needs no special government help beyond a tax code with lower rates and fewer loopholes, a better education system, a reformed immigration policy, and fewer regulations—positions that I believe the Journal favors for all private businesses.
And writing February 22 in The Corner, Veronique de Rugy noted, “The president thinks manufacturers deserve special treatment…. Besides the obvious unfairness of a system that rewards some (in this case, manufacturers) at the expenses of others (companies that do business abroad or non-manufacturing companies in the U.S.), these policies don’t even make sense.” Manufacturing is doing well without taxpayer help, she wrote, adding that preferential treatment won't bring back the low-skill jobs that have been lost.
Others, however, take a different view. I have previously cited a July 1, 2010, Bloomberg Businessweek article in which Andy Grove says that equally important to “that mythical moment of creation in the garage” is the transformation that occurs “as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.”
Grove's recommendation in that article was as follows: “The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars—fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability—and stability—we may have taken for granted.”
Freeland concluded her Reuters post saying, “…from Berlin to Beijing, the debate about manufacturing and whether governments have a duty to support it is a live issue. That is one more reason this U.S. election campaign matters so much to the rest of the world.”
Send me your comments: [email protected]
See previous post: Children Could Make Computers Smarter
Send me your comments: [email protected]
See previous post: Children Could Make Computers Smarter