The Future of US Manufacturing

Unless you’ve been living under a rock the past 20 years, you know that manufacturing in the United States has fallen.  From this link, you can see that US manufacturing as a percent of GDP has fallen from a high of 24% in 1970 to its current level of about 13%.   

 

Much of this is decline is because we don’t need to manufacture as much as we did in the past because our factories are more efficient and automated so we don’t need to expend the same amount of effort to get the same quantity of products and you can see that the rate of decline in the world is roughly the same as the rate of decline in the US.  With the advent of the information age we have also moved from a blue collar work force to a white collar work force and this also accounts for much of this decline.  We now live in the Information Age and left the Machine Age behind after the popularity of personal computers became commonplace.

But the US is seeing manufacturing represent a lower percentage of GDP than the rest of the world and this accelerated after 2000 so there is another reason for the US’s increased decline.  Starting in the 1990’s and accelerating after 200, more manufacturing has moved to countries like Mexico, China and India and this has caused the US to see more of its manufacturing sector decline.  As a sidebar, this is also one of the main reasons for the decline in Union membership over the past 20 years and I wrote a detailed review of that in a previous post. 

I am a proponent of the Knowledge Based Economy and I’d rather have the US involved in the higher paying manufacturing jobs such as product development, engineering, purchasing, finance and management.  It makes smart business sense to let Mexico, China and India be involved in the labor intensive (and sometimes dangerous) work of manufacturing products that lend themselves to mass production.  I’m also a proponent of the Free Market and since the Information Age has shrunk the size of the world as it relates to supply chains, it makes better business sense to have the high tech, high paying jobs in the US and the low tech, low paying jobs in countries that need them and price their labor accordingly. 

But we still need to keep some level of manufacturing alive and well in the US because a country that loses the ability to manufacture products such as computers, TV’s, cars and other necessities of modern life risks loses the ability to innovate.  This article in Technology Review makes the claim, which I also believe to be true, that manufacturing and innovation are linked so if we lose too much manufacturing then highly skilled white collar jobs will be lost as well. 

So how is the US going to keep a necessary percentage of manufacturing in our country so that the Knowledge Based Economy can grow and increase the employment of high tech jobs?  Mexico, China and India will not be content on just taking the low tech jobs and they will follow the same path that we took in manufacturing with innovation in productivity through Six Sigma and since they are manufacturing the products, their expertise will grow in areas that will compete with our high tech jobs (product development and engineering). 

There was a story from American Public Media this week that highlighted how the US will keep its key manufacturing in the US and do it in a manner that benefits corporations without having to rely on tariffs or trade wars.   

In the story, Hard Milling Solutions showed how they improved their productivity and remained competitive by instituting a “Lights Out” manufacturing business model.  The company makes molds that are used by other companies for injection molding and they used to have 15 employees working 3 shifts to meet demand.  Through the purchase and integration of automated equipment they now employ 4 people to set the machines up on 1st shift and then the machines run, unassisted, through 2nd and 3rd shifts to make the products.   

This is the future of US manufacturing and the essence of the Knowledge Based Economy.  Highly skilled, and highly paid, workers do the design, engineering and setup of automated equipment and then the actual manufacturing is done by automated equipment that don’t require health care benefits, sick days, vacations, FMLA or breaks. 

The following quote from the APM story is very telling:

Economist Dan Luria says the success of manufacturing should be measured by productivity, not jobs. He heads research at the Michigan Manufacturing Technology Center, which helps smaller manufacturers grow. Luria says for the U.S. to compete against ultra-low wage countries, it will have to use less and less labor. He says manufacturing is going the way of agriculture — once labor intensive, now highly automated.

But here is the rub.  Moving to a Knowledge Based Economy demands a workforce that is highly skilled and those employees are required to have more education than a high school diploma provides.  Americans need to recognize this now, better yet we should have recognized it 10 years ago, or we will be left behind.   China, Mexico and India are not going away and there is no way to put the genie back in the bottle.  America needs to set a priority on producing a highly skilled workforce which means more graduates from technical schools and traditional 4-year colleges.

If the US fails to recognize this, we will not only lose the ability to manufacture computers, TV’s and cars but also tanks, rockets and planes. 

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14 Responses to The Future of US Manufacturing

  1. Pingback: The Future of US Manufacturing | cosmoscon | Catalog Web

  2. My question is if we transition to a Knowledge Based Economy both nationally and globally, how do the material resources get “distributed”? I would imagine the “output” of the economies would become more ethereal, and thus the transactions between individuals in a marketplace would tend to be less substantial. If we have fiat currency, this can go on for a while, but at some point we are consuming material goods and outputting ethereal goods. This poses some economic problems I’d have to ruminate on more. A good thought-provoking post.

    • cosmoscon says:

      Thanks for the post Rogue. My concept of the KBE still has the world producing goods and services at the same rate we are doing now (hopefully more as the size of the pie grows) but the Free Market is allowed to determine who is actually making the widgets. Company XYZ in the US is still making its widgets, selling them at a profit and paying its workers but, since the Widgets are easily mass produced using cheap labor, it makes more sense to manufacture them in China and keep the high paying tech, mgmt jobs in the US.

      This won’t work with all products and we need to keep some manufacturing here in the US for many reasons. It is my feeling that low cost labor from other countries is the way to go for companies to maximize share holder profit and when they can make this happen financially without sacrificing product quality or delivery then they’ll continue to do it.

      But Manufacturing has to be done. the Market will shift where that happens. It might be in 20 years that other countries emerge as the next low cost manufacturing place and China and India, now more advanced, takes on a different role in the KBE (one that that the US did many years before).

      But again, moving to the higher paying jobs requires higher paying skills and this will not happen overnight.

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