U.S. Leadership at Risk in Manufacturing Innovation

Downward trends in U.S. manufacturing innovation pose a serious threat to America’s long-term economic growth and living standards, according to a new report released Feb.

1 by the Council of Manufacturing Associations (CMA) and The Manufacturing Institute of the National Association of Manufacturers (NAM, www.nam.org).

“The manufacturing economy generates a large share of American prosperity,” said NAM President John Engler. “America’s continuing leadership in innovation and the production of high-value manufactured goods is essential to our nation’s long-term economic growth, productivity gains and standard of living. By itself, U.S. manufacturing would be the eighth largest economy in the world, and our nation’s manufacturing output is at an all-time high. But America’s economic leadership will be at risk if current trends continue.”

“Our nation can not afford to lose its manufacturing innovation edge and the wealth that it generates throughout our economy,” said Jerry Jasinowski, president of The Manufacturing Institute—the research and education arm of the NAM.

“One bright ray of light is U.S. manufacturing’s tremendous productivity gains,” Jasinowski continued. “U.S. manufacturing productivity has surged 24 percent since the last recession—70 percent faster than the average productivity growth following the last five recessions. Strong productivity growth helps America compete in the global economy and is the key to higher wages and better living standards for U.S. workers. Higher productivity growth also allows for lower interest rates as the economy grows faster without generating inflation,” Jasinowski said.

The report’s author, economist Joel Popkin, stated: “Though the United States accounts for 40 percent of all research and development (R&D) spending in the industrial world, we cannot become complacent about this leadership position. The rapid growth in overseas manufacturing is creating new global centers with the critical mass necessary to build their own innovation machines.”

According to the report, “five clear warning signs” show that America’s innovation process is at risk:

l Manufacturing output since the last recession lags that of earlier economic recoveries—its 15 percent growth is only half the pace averaged in recoveries of the past half-century.

l Manufacturing capacity remains underutilized, slowing investment in new plants and equipment. Since the last recession, total plant and equipment investment has risen at half the pace averaged in recoveries of the past half-century. Manufacturing capacity has grown at less than 1 percent annually (compared with 5 percent in the 1990s).

l The U.S. share of global trade in manufactured products has shrunk, falling from 13 percent in the 1990s to 10 percent in 2004. The U.S. now runs a trade deficit in advanced technology products, and the U.S. share of global trade in some of the highest value-added export industries such as machinery and equipment is falling.

l U.S. manufacturing offers rewarding and desirable careers for highly skilled workers. Yet the widespread perception that manufacturing employment is unstable and lacks job opportunities discourages new worker entry. While manufacturing continues to pay better than other industries, the sector is experiencing a broadening shortage of skilled workers.

l America’s long-standing leadership in R&D is being challenged. While the U.S. continues to spend more than any other country on R&D investment, U.S. growth in R&D has averaged only about 1 percent per year in real terms since 2000.

“If the innovation process goes offshore, America will lose much of its capacity to generate wealth and a decline in long-term economic growth is assured,” Popkin said.

“We need a bold action agenda to develop human capital, revitalize fundamental research and encourage productivity-enhancing investments in order to maintain a critical mass of production and a viable innovation process in this country,” Jasinowski concluded. The new report, “U.S. Manufacturing Innovation at Risk,” by Dr. Joel Popkin is available at www.nam.org/Popkinreport.

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