Is U.S. Manufacturing on the Move? — Part 2

Stephen DeAngelis

January 24, 2013

“The sharp slowdown in U.S. manufacturing that began last spring appears to be over,” writes Don Lee, “setting the stage for moderate expansion in the factory sector in coming months — with a little boost from companies bringing overseas production back to America.” [“Manufacturers group forecasts moderate growth in coming months,” Los Angeles Times, 10 January 2013] Lee’s optimism stems from the results of a “quarterly survey by the Manufacturers Alliance for Productivity and Innovation, a trade group.” He continues:

“The Manufacturers Alliance report found that 17% of companies with manufacturing operations abroad had brought some of that work back to the U.S. in the last two years. Such reshoring — or insourcing, as some people call the return of manufacturing from overseas — has been reported in isolated cases over the last few years, but there’s been little in the way of comprehensive data about this phenomenon. The Manufacturers Alliance’s survey sample was small — 42 large companies with operations abroad — but its findings nonetheless reveal what looks to be a continuing trend.”

Like most other articles on the subject of reshoring, Lee details some of the reasons that companies are opting to return manufacturing to the U.S. They include rising wages in China and increased transportation costs. Lee also reports that supply chain risk management is playing an ever-larger role in such decisions. He explains:

“Apart from labor rates, U.S. companies moving production back also cited increasing shipping costs and, most notably, ‘a desire to reduce supply chain uncertainty,’ according to the Manufacturers Alliance study. Concerns about supply chain stability grew after Japan’s massive earthquake and tsunami in March 2011 knocked out vital parts makers in auto, semiconductor and other electronics industries. Lower U.S. natural gas prices and other energy costs weren’t mentioned in the reshoring.”

Like the analysts cited in Part 1 of this series, Lee notes that workers shouldn’t “count on reshoring to create a whole lot of domestic jobs or investment any time soon.” He concludes, “Still, any little bit will help. American manufacturing employment has been trending down for decades amid productivity gains and growing foreign competition.” As noted in the first segment of this series, a renaissance of American manufacturing is not guaranteed. In that post, I noted seven steps that Hal Sirkin, a senior partner at Boston Consulting Group, recommends America take to help the foster manufacturing’s revival. But Sirkin isn’t the only analyst who has given the matter some thought. Analysts at The Brookings Institute have also been busy considering the challenge. Mike Cassidy reports, “Brookings has come out with three policy briefs that look not at what is, in terms of manufacturing, but what could be, if the right steps are taken.” [“Brookings Institution has some big ideas about helping U.S. manufacturing grow,” SiliconBeat, 14 January 2013]

In the first of these policy briefs, Bruce Katz and Peter Hamp state that they believe “a ‘race to shop’ competition for advanced manufacturing should be initiated in order to expedite the transition toward a more innovative, productive, inclusive, and globally competitive American economy.” [“Create a “Race to the Shop’ Competition for Advanced Manufacturing,” January 2013] They go on to state:

“The competition would challenge U.S. states and metropolitan areas to align their policies and investments to meet the distinct labor demands of their primary advanced manufacturing sectors and clusters. Winning applicants would not only receive resources for planning and implementation, but also increased flexibility in the use of existing federal workforce development skills and training funds.”

They believe a competition is required because “the United States still lacks a coherent, overarching manufacturing strategy.” The competition would require states and metropolitan areas to assess seriously exactly what constitutes their assets and challenges with regards to manufacturing. In past posts, I’ve noted that not all locations possess the same assets when it comes to establishing industrial clusters. Without a true assessment of what is likely to work in a particularly area, states and metropolitan areas are destined to be tossed about in a sea of uncertainty. The Brookings’ proposal is for “an annual $150 million Race to the Shop competition to reform and modernize federal investments in workforce education and skills training for advanced manufacturing in the United States.” Although Brookings has traditionally been considered a liberal think tank associated most closely with the Democratic Party, this proposal should be welcomed by both sides of the political spectrum. It strengthens state and local efforts, seeks targeted programs aimed at reducing unemployment and welfare rolls, and fosters the recovery of the American middle class.

In a second policy paper, Robert D. Atkinson and Stephen Ezell recommend designating “20 institutions of higher education as ‘U.S. Manufacturing Universities.'” [“Support the Designation of 20 ‘U.S. Manufacturing Universities,” January 2013] These federally-designated “Manufacturing Universities” would have to “revamp their engineering programs” by placing “particular emphasis on work that is relevant to manufacturing firms while providing engineering students with real-world work experience.” In past posts, I have reported that manufacturers claim that new employees hired directly out of college face a skills gap (for example, see my post entitled Manufacturing and the Skills Gap). In those posts, I’ve recommended that the kind of public/private partnership being recommended by Brookings be established to address this challenge. I have also recommended that apprenticeships, like those that have traditionally supported German industry, be established. Atkinson’s and Ezell’s recommendation that students be provided with real-world work experience would go a long way towards achieving that goal. In fact, they write that designated universities “would view doctoral training as akin to high-level apprenticeships … and would not allow the conferral of a Ph.D. unless one has done some work in industry.” Atkinson and Ezell conclude that “it is simply impossible to have a vibrant national economy without a globally competitive traded sector.” They also recognize how important urban areas are for the future of the country. They note that “over 80 percent of manufacturing jobs and 95 percent of high-tech manufacturing jobs” are located in urban areas. Brookings’ analysts believe that the designation of manufacturing universities would help move revive manufacturing in urban areas that critically need employment opportunities.

In the final policy paper, Devashree Saha and Mark Muro recommend the U.S. Government build “a national network of advanced industries (AI) innovation hubs, expanding on the modest beginnings now being made through the Department of Energy’s Energy Innovation Hubs program and the Department of Commerce’s National Network for Manufacturing Innovation (NNMI) initiative.” [“Create a Nationwide Network of Advanced Industries Innovation Hubs,” January 2013] To learn more about the faltering start of the Energy Innovation Hubs program, read my post entitled Innovation Hubs and Regional Innovation Clusters. Saha and Muro concentrate on “advanced industries” because they claim such industries “punch well above their weight in building and expanding national and regional economic competitiveness.” They therefore propose “that Congress authorize the build-out of a national network of advanced industries innovation hubs by funding at least five more Energy Innovation Hubs and supporting the creation … of at least 20 institutes for advanced manufacturing innovation as proposed in the NNMI initiative.” They conclude:

“Such centers will tackle the toughest problems with the biggest commercial pay-offs in technology and process development, technology deployment, and platform establishment. Because they will be regional and intensely collaborative, with strong private-sector participation, the hubs will produce substantial economic spillovers into the regional advanced industry clusters amid which they will be sited.”

Taken together, Brookings’ analysts believe these policy proposals will go a long towards ensuring that the U.S. has a robust advanced industries manufacturing future. Although each of these policy proposals comes with an initial price tag, all good investments do — but good investments always pay off in the end. As Mike Cassidy concludes, “You’ve got to spend money to make money, as they say. And it turns out manufacturing jobs are particularly good jobs that produce products that can be exported, thereby reducing the nation’s trade deficit. Manufacturing also begets innovation as those who make things work both on ways to make better things — and on better ways to make them.”

Another analyst who offers some recommendations about manufacturing in America is Stephen Hoover, CEO of Xerox’s PARC. He believes “we have an opportunity in the US to create and own the future of manufacturing.” He calls it “Manufacturing 2.0.” [“How the U.S. Can Reinvent Manufacturing,” Techonomy, 8 September 2012] He writes:

“To realize this vision, businesses must start exploring new manufacturing technologies and business models, and US government needs to begin developing coordinated policies to support R&D, public education, and further investment in this new approach to manufacturing. There is great enthusiasm about exciting new developments in manufacturing including 3D printing, robotics, and printed electronics. These are important technologies, but we believe they are elements of a larger, end-to-end change in manufacturing, representing a radical shift from traditional approaches.”

By and large, Hoover agrees with the analysts at Brookings. However, he describes a broad vision for manufacturing 2.0. He writes:

“A whole new ecosystem is arising, which will include social design, social funding, flexible and distributed supply chains, and more. This shift will ripple through the industry and likely threaten today’s vertically integrated, large-scale manufacturing industry—much as the PC revolution threatened the mainframe computer industry. These democratizing technologies are a tremendous fount of innovation opportunities. As with most disruptive changes, new ways to fund, conceive, design, and build products means we will see entirely new markets develop, with brand new types of jobs originating right here in the US.”

Hoover believes that new computer technologies will fuel the revolution in manufacturing; especially, “advances in computational reasoning, decision-making, and control that are quickly reaching human skill levels.” He continues:

“A similar advance will soon enable ‘intelligent software assistants’ to work with human designers to convert design concepts into functional designs that can be manufactured at low cost. These capabilities will empower all kinds of people to design products and leverage complex production value chains. These automated assistants will frontload the design process, so mistakes can be made in the software, rather than in production. We will understand the actual manufacturing process in advance, including what will be made, how components will fit together, and whether the parts will work together safely and correctly and are manufacturable at a reasonable cost. If we get the computational interfaces and reasoning right, there can arise a massive, distributed network of manufacturers able to work together to create a dynamic supply chain for complex products like vehicles, airplanes, and consumer electronics—without needing a central organizing entity. These can be manufactured with traditional production technologies or newer methods such as printed electronics and other additive manufacturing techniques, and then shipped directly to end customers through third-party distribution channels. Such a shift has the potential to dynamically connect all types of manufacturers across the US and other countries to create whole new opportunities, markets, and jobs.”

Hoover seems much more optimistic about job creation than most other analysts, even though he doesn’t claim that all new jobs will be created in new factories. He concludes, “After years of recession, high unemployment, and fear of America’s innovation and scientific downfall, Manufacturing 2.0 is on the horizon.” He sees that as a good thing — a very good thing.