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U.S. Manufacturing’s Brave New World

Friday, September 14, 2012

The nation has an advanced manufacturing skills deficiency. What are some possible solutions?

After losing 6 million manufacturing jobs between 2001 and 2009, the American manufacturing sector has reemerged as a beacon in an otherwise lackluster economic recovery. While many Americans believe that U.S. manufacturing is dying, unbeknownst to most of them, U.S. factories today produce about 75 percent of what they consume. The future growth, however, of American manufacturing—for both domestic and export consumption—will be predicated on what is touted as “advanced manufacturing.”

The President’s Council of Advisors on Science and Technology, an advisory group of preeminent scientists and engineers, defines “advanced manufacturing” as a family of activities that either depend on the use and coordination of information, automation, computation, software, sensing, and networking, and/or make use of cutting-edge materials and emerging capabilities enabled by the physical and biological sciences, including nanotechnology, chemistry, and biology. Advanced manufacturing involves both new ways to manufacture existing products, and the manufacture of new products emerging from advanced technologies.

These advanced manufacturing opportunities are available now and will be in the future, if industry leaders and government policymakers are able to capitalize on them. For instance, while total manufacturing employment has declined in recent years, high-skilled manufacturing employment opportunities have increased by upwards of 40 percent since 1980. Yet, according to an October 2011 survey of American manufacturers conducted by Deloitte Consulting, respondents reported that 5 percent of their jobs—or 600,000 jobs—remained unfilled simply because they could not find workers with the right skills for the positions, and that this employee deficiency was having a negative impact on their ability to expand operations or improve company productivity.

While many Americans believe that U.S. manufacturing is dying, unbeknownst to most of them, U.S. factories today produce about 75 percent of what they consume.

Potential solutions to this advanced manufacturing skills deficiency abound. According to Manufacturing’s Wake-Up Call, a 2011 joint study undertaken by the University of Michigan’s Tauber Institute for Global Operations and consulting firm Booz & Company, high schools and universities (including community colleges) must improve their vocational training and guidance roles to ensure that young students are made aware of diverse career paths in advanced manufacturing. Also, a national Manufacturing Skills Certification System has been developed and is administered by the Manufacturing Institute, an industry nonprofit affiliated with the National Association of Manufacturers. The Manufacturing Institute has so far developed credentials for advanced manufacturing in production, machining and metalworking, welding, technology and engineering, automation, die casting, fabrication, fluid power, and distribution and logistics. Furthermore, the Manufacturing Institute is developing certification in aviation, aerospace, and bioscience. In June 2011, President Obama announced a national goal of credentialing 500,000 community college students with these manufacturing skill certifications.

Furthermore, developing high-impact technology clusters—that is, geographic concentrations of interconnected companies, suppliers, service providers, and associated university research laboratories—helps new business models to emerge. In his recent book, Advantage: How American Innovation Can Overcome the Asian Challenge, Adam Segal of the Council on Foreign Relations recommends that state and local governments focus on encouraging new forms of technology start-ups and then give them the space to grow. Much of this support should take place at the city/regional level, where the comparative advantages of collaborative networks supporting innovation thrive—for example, as found in the bioscience innovation cluster in the Phoenix-Tucson-Flagstaff area of Arizona. Examples of successful innovation clusters need further study, so as to be able to apply the critical economic development factors for such success to future technology clusters. Segal further identifies the role of the U.S. government as supplying “the use of research support, tax incentives for venture capital investments, collaborative R&D schemes, and the joint development of intellectual property.”

Brothers Ron Hira, an associate professor of public policy at the Rochester Institute of Technology, and Anil Hira, a professor of political science at Simon Fraser University, in their 2008 book Outsourcing America: The True Cost of Shipping Jobs Overseas and What Can be Done About It, note that “The prevailing management approach is to locate R&D as close to manufacturing production as possible. As manufacturing moves overseas, it is inevitable that both engineering work and R&D will follow.” Consequently, scaling up new advanced manufacturing technologies domestically helps ensure that the manufacturing base and R&D activities remain in the United States.

A survey reported that 600,000 jobs remained unfilled simply because American manufacturers could not find workers with the right skills for the positions.

Lastly, the issue of intellectual property protection is of paramount importance in securely appropriating advanced manufacturing. This issue is apparent in the Chinese government’s policy of “squeezing” foreign invested enterprises (FIEs) for access to patented technologies and trade secret process innovations, in return for companies’ access to the Chinese market. Those FIEs who have entered into joint ventures with Chinese companies have often found that transferring their technology and knowledge of their manufacturing process to their Chinese partners may have opened the door to these companies attempting to compete in the global marketplace with lower prices for a nearly identical, high value-added, technology-based product.

Furthermore, protecting against industrial espionage involving trade secrets in overseas production facilities is a daunting task, as the legal systems protecting industrial property rights are often effectively unenforceable. In contrast, strong corporate espionage laws, coupled with vigilant federal criminal enforcement, are the hallmarks of a U.S. legal system that offers effective protection for U.S.-based advanced manufacturing trade secrets.

Advanced manufacturing factories will be dependent on the integration of cutting-edge technology and knowledge-based employees, which will result in consistently high labor productivity increases and will substitute for the low-to-moderate skilled labor of the past. Moreover, the technological breakthroughs in materials sciences, information technology, and biotechnology will support a steady stream of revolutionary products available to consumers. Given focused business, educational, and public policies on human capital skills development, a business environment conducive to nurturing regional R&D and manufacturing clusters, and the maintenance of strong intellectual property rights protection, the prognosis remains favorable for the U.S. manufacturing sector.

Thomas A. Hemphill is associate professor of strategy, innovation and public policy at the University of Michigan-Flint’s School of Management.

FURTHER READING: Hemphill also writes “Deregulating Occupations: Is Michigan Leading the Way?,” “The EU’s Emissions Trading System: Trouble in Paradise,” and “Just How Dangerous Is Talking and Driving?” and, with Mark J. Perry, coauthors “A U.S. Manufacturing Strategy: Not an Industrial Policy.” Perry adds “Information Technology 'Revolution' Will Aid Manufacturing.” Mark P. Mills discusses “The Next Great Growth Cycle.”

Image by Darren Wamboldt / Bergman Group

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