Creating Wealth

But they want to do it by getting Americans to borrow more money to buy more “stuff,” most of which is made offshore. Increasing consumer debt to increase consumption does not create wealth. It’s consumption of wealth, without replacing it.

There are only three sources of wealth—natural resources, labor and knowledge. Natural resources (oil, minerals and the like) are tied to geography. The largest transfer of wealth in human history occurred within the past half-century—from countries that had generated wealth through productive knowledge, innovation and enterprise, to areas that had little else than their oil. Service industries and government jobs do not increase wealth—they just circulate money. Manufacturing creates wealth by taking goods of lower value, adding knowledge and labor, and creating higher value. Mining and farming create wealth for the same reasons.

Knowledge generates wealth
Labor is a commodity, the value of which keeps increasing with education and training. Knowledge and innovation are the key ingredients for productivity and wealth generation. Through inexpensive, universal communications, knowledge-based work is migrating worldwide to the highest-quality, lowest-cost providers. Productivity has become a fierce, head-to-head competition between regions and nations for the single reason that it is the source of the wealth, the key to improvements in living standards. Those who can produce cheaper, faster, better—they win!

America has begun to create more jobs than it eliminates for the first time in more than a decade. The economy was supposedly recovering and big companies began upgrading old factories or building new ones. But, economists’ projections for this year—a gain of about 2.5 percent or 330,000 manufacturing jobs—won’t come close to making up for the nearly 6 million jobs lost since 1997.

U.S. manufacturers that survived the brutal 2008-09 recessions are now very competitive, with much lower labor costs and debt burdens. While they will keep building factories overseas to address demand in emerging markets, they are also investing in U.S. plants, and manufacturing job growth is expected to average about 2 percent a year through 2015. This is to be expected as companies replace aging equipment, take advantage of government incentives, seek energy savings and rediscover that it makes sense to produce some products at home rather than shipping them long distances.

Manufactured goods dominate foreign trade and U.S. factories manage to make more goods with fewer workers. What’s changed is that they have abandoned products with thin profit margins, like consumer electronics, toys and shoes. They’ve ceded that sector to China and other emerging nations with low labor costs and low profit-margin requirements. Instead, American factories are focused upon more complex goods requiring specialized labor and generating higher margins.

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Two-thirds of all research and development is done by manufacturing, which employs more than a third of America’s engineers and creates more new products and production methods than all but a few service industries. Manufacturing offers high pay to production workers while employing a disproportionate share of workers without college degrees.

Large multinational conglomerates have created the negative image of manufacturing. These companies have no loyalty and have proved that they will close down a plant and outsource products to foreign countries without hesitation. In America, they lead a relentless effort to reduce the wages of their workers and break the unions. They continue to outsource products and complete plants, and seem to be totally indifferent to the future of U.S. manufacturing.

Manufacturing is the foundation of economic growth, the key to higher living standards and the future of the middle class. In the United States, this recognition is generating the re-birth of manufacturing.

Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. You can e-mail him at: [email protected]. Or review his prognostications and predictions on his Web site: www.JimPinto.com.Subscribe to Automation World's RSS Feeds for Columns & Departments