The manufacturing future

Can the United States become more competitive as a maker of things?

Harold Meyerson writes about China and Germany’s ability to ride through the current economic conditions in a relatively good position:

What sets them apart from the world’s other major powers, purely and simply, is manufacturing. Their predominantly industrial economies meet their own needs and those of other nations, and have made them flourish while others flounder.

At Foo Camp 2010, I caught up with Liam Casey of PCH International, an Irishman living in China who runs a supply-chain business, helping mostly American tech companies manufacture things in China. Casey offers his insight into why China has become the place to make things. China has the infrastructure, the expertise and the labor force to be the world’s leader in manufacturing.

Casey’s view is that manufacturing has become a commodity; fewer large companies own their own factories. In a sense, they rent rather than own, and the cheapest places to rent are those in China. As China begins to create web interfaces to its manufacturing capacity, the rest of the world will find it even easier to make things in China.

As John Keefe writes, we may find it surprising that the U.S. is still the leader in making things: “The U.S. still manufactures more stuff than anyone else — $1.7 trillion in manufacturing value added in 2009, compared to $1.3 trillion from China.” But he points out that the lead won’t last for long and China may surpass the U.S. by 2013.

I want to know what we can learn from China. Can the U.S. become more competitive as a maker of things? What will happen to our manufacturing base in cities like Detroit? (I’m organizing Maker Faire Detroit, July 31-Aug 1.)

Here’s video from my conversation with Casey:

Harold Meyerson holds up Germany as an example of a country that successfully competes against China by producing high quality products with a skilled workforce. Most Americans assume, Meyerson says, that we can’t compete “against cheap Chinese labor” yet Germany manages to do so with a unionized workforce that receives better pay than American workers. He also notes that when we lose manufacturing, we’re not just losing blue collar jobs; we’re also losing science and engineering jobs.

A few weeks ago, I was at Ford Motor Company’s R&D facility. When we think of the auto industry, we think of assembly line workers. What amazed me at Ford was the number of advanced research labs, filled with scientists developing and testing new processes and new materials. In a sustainability lab, a team of five women scientists are refining a process for making the foam for seat cushions from a biodegradable material derived from soybeans. Manufacturing involves a lot more than assembly; it creates the need for investing in research and development.

Meyerson believes that one secret to Germany’s success is that their financial system is designed to support manufacturing businesses. “Its financial sector serves the larger economy, not just itself,” he writes.

I recently read Andrew Ross Sorkin’s “Too Big To Fail.” One of the great ironies in the book is to hear executives from Lehman Brothers justify a government bailout because it will save jobs in the financial sector. These are the banks that made deals that were good for themselves but which eliminated jobs and moved some industries out of America.

Meyerson writes:

So even as Germany and China have been busily building, and selling us, high-speed trains, photovoltaic cells and lithium-ion batteries, we’ve spent the past decade, at the direction of our CEOs and bankers, shuttering 50,000 factories and springing credit-default swaps on an unsuspecting world.

The tech industry as well has served its own interests in eliminating jobs either through automation or by sending them overseas. Sometimes the justification that is given is that the tech industry is creating high-value jobs to replace low-value jobs. Yet, should we be asking how can technology create jobs?

Andy Grove, former CEO and Chairman of Intel, in a recent Bloomberg article, asks “what kind of a society are we going to have if it consists of highly paid people doing high-value-added work — and masses of unemployed?”

Grove calls for “rebuilding our industrial commons”:

Long term, we need a job-centric economic theory — and job-centric political leadership — to guide our plans and actions. In the meantime, consider some basic thoughts from a onetime factory guy.

Silicon Valley is a community with a strong tradition of engineering, and engineers are a peculiar breed. They are eager to solve whatever problems they encounter. If profit margins are the problem, we go to work on margins, with exquisite focus. Each company, ruggedly individualistic, does its best to expand efficiently and improve its own profitability. However, our pursuit of our individual businesses, which often involves transferring manufacturing and a great deal of engineering out of the country, has hindered our ability to bring innovations to scale at home. Without scaling, we don’t just lose jobs — we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate.

Grove makes a pretty good argument for not thinking of manufacturing as a thing of the past, but rather a vital part of re-building for the future.

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