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george.leopold
DMcCunney
@Junko: "When Toyota came to the U.S., it famously brought the whole ...
Does manufacturing create jobs, spur innovation, or both?
George Leopold
8/15/2012 5:59 PM EDT
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.
Related stories:
Time to play hard ball on tech manufacturing
Manufacturing by design: New skills needed to compete
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resistion
8/16/2012 12:55 AM EDT
Manufacturing frowns on disruptive innovations, though.
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GREAT-Terry
8/16/2012 3:52 AM EDT
Innovation creates some jobs, but just very limited. So when it comes to feeding millions of people, manufacturing is still necessary to be inside US. The question is - will people still be able to turn back to work like a horse?
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Patk0317
8/16/2012 6:19 AM EDT
Without innovation there is no manufacturing. An innovative product or category of products will need to be manufactured somewhere. Yes manufacturing can be brought back to the USA but on a more automated level. You will still need technicians to calibrate and take care of issues when things are not working correctly.
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george.leopold
8/16/2012 10:08 AM EDT
This is the prevailing view among many economists. The rub, of course, is training enough technicians and other skilled workers. As we've reported in areas like solar installation, community colleges are starting to refine their curricula to train this new generation of workers.
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Sheetal.Pandey
8/16/2012 6:33 AM EDT
Manufacturing is actually very important if you want to realise your innovation or thought. But manufacturing pays well if the raw material cost or labor cost is low. In western countries the minimum wages being high its difficult to compete with the Asian countries where the wages in comparison are low. But as a nation if we want the self ownership then yes the manufacturing is really important to do. But I do agree the processes and ethics are strong in USA/west.
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george.leopold
8/16/2012 10:13 AM EDT
It's clear we can't compete on labor costs. We can compete on product innovation and value-added design and manufacturing. It is also increasing clear based on academic research, particularly by Georgia Tech Dan Breznitz, that China's IT industry is a second-generation innovator, largely because the Chinese system is based on what Breznitz calls "structured uncertainty." The result is that few Chinese IT companies are willing to take risks, so they play it safe and pursue little or no innovative R&D.
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Bert22306
8/16/2012 3:46 PM EDT
Seems to me that we've seen all of this before. Manufacturing jobs of the last century are what farming was in previous centuries. To me, what's different is not that manufacturing jobs have gone away due to factory automation, but that whole sectors of the economy have moved overseas.
"Necessity is the mother of invention." If a country moves too much manufacturing overseas, to make consumers happy in the **short term** with lower prices, then the design efforts will follow, to get closer to the manufacturing. Why wouldn't they?
If I had a manufacturing facility somewhere, why on earth would I not be inclined to do some of my own design changes on the products I manufactured, and then even introduce new ones? I certainly would.
So moving too much offshore, IMO, dumbs down the US. It makes it dependent and it makes people say things like (and haven't we ALL heard this just one time too many): "I would never recommend engineering to anyone, these days. Go into finance instead."
Dumbing down.
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DMcCunney
8/16/2012 4:24 PM EDT
When you talk about manufacturing and jobs, the question becomes just what jobs you are talking about.
The problem for the US economy is that manufacturing was for many years a source of jobs for low-skilled or unskilled workers, and it's largely those jobs that went elsewhere. Work goes to where it can be done cheapest, and such work was a lot cheaper elsewhere. A lot of workers were effectively told "What you do isn't worth what you were being paid to do it." as jobs migrated overseas.
The problem is hardly unique to the US. A good bit of the current problems affecting the Eurozone have roots in the same issue, as countries with uncompetitive economies are in increasing trouble, and national governments can no longer shield uncompetitive industries and those who work in them from competition.
Those low-skilled/unskiiled jobs *aren't* coming back, because the people who buy the products won't pay the prices required to have them done here.
The unanswered question is what we do for the low-skilled/unskilled folks, and the answer isn't manufacturing.
As for design engineers, returning manufacturing to the US may well create jobs, but it will come about because having the engineer close to where the products he designs are made and sold provides quicker time to market. If the design can be done anywhere (and with the Internet, it largely can), the US designer will compete in areas not directly related to design skills. His strength will be that he's local, without the cultural differences and time zone issues imposed by overseas collaborations.
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george.leopold
8/16/2012 4:55 PM EDT
"His strength will be that he's local, without the cultural differences and time zone issues imposed by overseas collaborations."
I think the above is absolutely correct.
On your other point: What about the service-related jobs created by local production clusters, whether they be manufacturing or produced services? Do we not get an employment boost from the ecosystem generated by production?
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DMcCunney
8/17/2012 5:08 AM EDT
@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.
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gatorfan
8/16/2012 4:53 PM EDT
The era of Off-shoring was ushered in with the book "The World is Flat". But working in this environment for the past 10 years I have an addendum to that statement. The world may be flat, but it's not small. The basics of time and space never change in any economic structure. I'll always be 13 hours different from Asia and it still takes about 18 hours to go from the US to Taiwan. Unless a US company relocates the entire leadership structure to Asia, the movement off shore went too far and now the pendulum swings back to the middle with some coming back.
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Gopal Miglani
8/16/2012 7:26 PM EDT
Electronics manufacturing is part of the entire ecosystem. When manufacturing moves overseas, it eventually pulls away design jobs. Consider the case of TV manufacturing. The following moved offshore in progression: assembly, PCB design, component manufacture, TV design, chip manufacturing and finally chip design. Not a single US company designs TV chips now.
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.
Take another example; the use of copper in the auto industry. Germany considers copper key to its auto industry and has taken steps to ensure that copper is smelted within Germany!
Manufacturing definitely sustains jobs at all levels of an industry’s ecosystem. Design jobs may be the icing on the cake, but manufacturing is the cake. If the cake goes, so does the icing.
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DMcCunney
8/17/2012 5:17 AM EDT
@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.
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junko.yoshida
8/17/2012 7:25 AM EDT
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.
Why?
Can you think of any other industy similarly inclined to bring the entire cluster with them, if we invite them over here?
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george.leopold
8/16/2012 7:43 PM EDT
"...but manufacturing is the cake. If the cake goes, so does the icing."
Well put!
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resistion
8/16/2012 8:12 PM EDT
It's necessary to have manufacturing-driven innovation, but not good to have manufacturing-limited innovation.
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Gopal Miglani
8/16/2012 8:23 PM EDT
Intel and IBM have manufacturing driven innovation. Companies which had manufacturing limited innovation ceased to exist (not naming names here). That's what a free market is good at.
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resistion
8/16/2012 8:33 PM EDT
When manufacturing-driven goes too far, so as to make incumbent technologies more or less permanent, I'd say manufacturing has become innovation-limiting.
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mtwabp
8/17/2012 11:10 AM EDT
Apple's contribution to
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DMcCunney
8/17/2012 1:22 PM EDT
@Junko: "When Toyota came to the U.S., it famously brought the whole "supporting" eco-system with them to the U.S.
Why?"
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.
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george.leopold
8/20/2012 9:56 AM EDT
Highly relevant to this discussion:
http://www.nytimes.com/2012/08/19/business/new-wave-of-adept-robots-is-changing-global-industry.html?ref=business
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