There’s been a lot written here and elsewhere in the last several years about the critical need to revive U.S. manufacturing. But it remains unclear precisely what a manufacturing revival would mean for western economies.
Few would dispute that the ability to make design and make products and services (yes, services must be produced) is a key to boosting innovation. We can’t innovate unless we know how to make things.
Aside from automobile manufacturing, however, there are fewer manufacturing jobs being created in most high-tech industries. One reason, of course, is the efficiencies created by automation. Factory floor robots reduce the cost of manufacturing high-ticket durable goods. That makes western products more attractive in global markets.
The same is true of practically any new product since the goal of most western manufacturers is to add value. Apple’s iPod is a prime example. The consumer electronics giant created a new product category, came up with a sleek new design and outsourced the design of key components. Most of the actual assembly was done in China. Apple reaped the lion’s share of the profits while Chinese manufacturers churned out millions of iPods but made very little profit in terms of value added.
“The real payoff is at the systems level,” noted Tom Hausken, senior engineer and applications adviser to the Optoelectronics Industry Development Association.
We spoke to Hausken after the release of a report earlier this week by the National Research Council on reviving the domestic optics and photonics industries. Among other things, the report recommended a coordinated initiative to bring communications-related optoelectronics manufacturing back to the U.S. We still think that’s a good idea, since the onshoring of optoelectronics manufacturing will surely boost innovation in a field with national security implications.
Moreover, there are indirect links between technology innovation and job creation. Innovation creates ecosytems of suppliers and service providers that will eventually hire workers indirectly involved in the creation of new products.
But will such efforts actually put more design engineers to work? As presidential campaign rhetoric heats up about the next engine of economic growth, that question remains unanswered.
@Junko: "When Toyota came to the U.S., it famously brought the whole "supporting" eco-system with them to the U.S.
I can think of a couple of reasons:
The main one is that I believe Toyota's process is organized in such a fashion that they largely *had* to bring the supporting eco-system to be able to assemble here.
Japanese manufacturers got notice here for "Just In Time" inventory practices, and I think that supporting ecosystem made it possible.
"Can you think of any other industy similarly inclined to bring the entire cluster with them, if we invite them over here?"
The question is whether it's worth a foreign company's while to manufacture here at all. If it is, and like Toyota, they have a supporting ecosystem that is integral to their process, yes. They will ask "Is the US a big enough market to justify local manufacture, assuming costs are competitive?" There will be substantial upfront costs of setting up to manufacture here that must be amortized, and that amortization will add to costs.
I think we will see it if flexibility and time to market are critical. A product like an auto is subject to substantial customization, based on exactly what options and extras the customer orders. A local plant can produce that a lot faster than one overseas, when trans-oceanic shipping times get factored in. Being able to get it now rather than later may be the critical factor in whether the customer buys.
Now that both you and Gopal mention auto industry, I have a couple of questions.
When Toyota came to the U.S., it famously brought the whole "supporting" eco-system with them to the U.S.
Can you think of any other industy similarly inclined to bring the entire cluster with them, if we invite them over here?
@Gopal: "Now consider auto manufacturing; because of the iconic status of the automobile in US culture, we put our foot down and decided to complete with Japan, Korea and now China. We still have a vibrant automobile industry."
Well, somewhat. The US auto industry is a lot smaller and leaner than it once was. This was largely inevitable, as consolidation tends to happen in any industry, leaving only a few dominant players.
But even some of the foreign competitors *build* cars intended for the US market *in* the US. Doing so gives them greater flexibility and ability to fine tune their production to meet local demands. They can react more quickly to market conditions, and it winds up being cheaper all told to assemble the cars here than ship them across either ocean and then transport them to where they'll be sold.
The exceptions I can think of offhand tend to be the higher end luxury models, that carry a high enough price tag to absorb the shipping costs and don't sell in high enough volume to justify a local plant.
@George Leopold: "Do we not get an employment boost from the ecosystem generated by production?"
We do. The trick is measuring and quantifying it. We could probably make estimates based on historic developments of manufacturing clusters, and adjusting the numbers to account for the reduced headcount working in the actual plant. The same infrastructure and infrastructure related jobs will be required, as will the same auxiliary services.
And there is the significant additional benefit that such manufacturing clusters bring substantial revenues into the areas where they are created, boosting the local economies and providing additional tax revenues for beleaguered local governments. Additional local revenues leads to additional jobs simply because people have more money to spend, and more people are needed to make the products and provide the services they will spend it on.
The process won't be quick, but it will occur.