Today’s markets are consumption limited, not production limited. In the new paradigm, mass-produced components are shipped to small, widely dispersed factories that assemble finished products locally to meet custom requirements at the point of sale. Products must be delivered exactly as local tastes demand.
Manufacturing matters, not because of any intrinsic social attributes, but rather because the output has high value. A national economy begins to decline as its wealth-producing sectors shrink—including manufacturing, agriculture, and mining. Other parts of the economy—government, banking, information services, hospitality, education, insurance, health care, consumer services—maintain and use physical wealth, but do not create it. They depend on manufacturing and other wealth-producing sectors for their growth.
American manufacturing is historically responsible for the relatively higher standard of living enjoyed by Americans compared to other countries, and a thriving manufacturing base is necessary to allow that trend to continue. Manufacturing drives the engine of the U.S. economy, and is responsible annually for 90 percent of new patent applications. American manufacturing drives growth and innovation, investment in technology, new products and processes, and provides the world with some of the best consumer products ever created.
Midst confusing trends, a new American model of manufacturing organization is emerging. American companies are adding product-level innovation (research into new materials and processes, for example) in place of conventional low-skilled, high-volume, automated manufacturing. Market-creating innovative capacity is being protected in-house, while conventional production migrates to turnkey suppliers, mollifying the “destructive” aspects of innovation. Outsourcing means no longer having to carry the financial, administrative and technical burdens of fixed capital related to conventional production.
How can our economy hope to be strong if the manufacturing sector is weak? The paradoxical answer is that the decline in the share of manufacturing jobs—the deindustrialization of the U.S. economy—is actually a sign of strength, not weakness. As with the agriculture sector 100 years before, the drop in employment in the manufacturing sector stems from spectacular productivity growth. Over the last three decades, improved automation has churned out manufactured goods with ever-increasing efficiency. The U.S. economy no longer needs lots of factory workers for the same reason it no longer needs lots of farmers—it can produce what it requires with far fewer people.
Contrary to popular thinking, deindustrialization has actually reduced the vulnerability of the U.S. economy to economic crises elsewhere. Despite growing trade links among countries over the last 20 years, the amount of imports and exports in the total economic activity of the United States has remained much the same. So the activity most exposed to international trade (manufacturing) has become a smaller part of the economic pie over time.
The question quickly becomes—how to redeploy the vast numbers of people displaced from conventional jobs in large, central factories? Recessions, however unpleasant, are cathartic, and therefore necessary. They release capital and labor from profitless activities as an essential prelude to redeploying them elsewhere. The challenge today is re-deploying our “labor” force to lead the world in new manufacturing directions.
Soichiro Honda believed that manufacturers have the responsibility to provide leadership by producing something that had not been imagined as possible. Manufacturing high-value products doesn’t mean simply cutting, shaping, assembling. We must focus our prowess not on manufacturing commodities, but rather on becoming innovators and specialists in new types of high-value manufacturing.
America must move toward manufacturing in new and “magical” ways—such as nano-assembly, chemical or bio mechanisms. Remember Arthur C. Clarke’s aphorism: “Any sufficiently advanced technology is indistinguishable from magic.”
Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. You can e-mail him at: email@example.com. Or review his prognostications and predictions on his Web site: www.jimpinto.com .