Economy and Education & Workforce Development and Manufacturing & Technology and Technology

VOICES FROM THE INDUSTRY: Despite the doomsayers, manufacturing still matters

June 11, 2007

From a manufacturing perspective, the United States in the 21st century is a curious place.

In 1950s, science promised us the day when high-technology advances would perfrom a whole range of mundane work, thus releasing humanity to the pursuit of more noble intellectual and fulfilling activities.

A half-century later, much of that promise-at least from the technology side-has been fulfilled. Yet, curiously, when the natural evolution of the free market affects U.S. manufacturing, all manner of handwringing and doom-saying emerge.

When a slight downturn appears in manufacturing, phrases like "outdated economy," "dinosaur infrastructure," and "1950s focus" sprout up like toxic weeds.

So, should we in Indiana indulge in a little justified foreboding? After all, the durable goods sector has seen a declining growth rate for most of 2006.

The truth is, business cycles are a fact of life. It's how the economy readjusts its flow of goods. Downturns aren't unique to manufacturing. In fact, some of the pundit's favorite "modern" economic sectors (like high-tech) lost more jobs in the last cycle than traditional manufacturing.

Much is written about the so-called "post-industrial economy." The phrase implies that anything to do manufacturing should be retired and put on display in a museum. The facts show a different picture. First, all of the advanced economies of the world, including the largest and fastest-growing (the United States), are driven by industrial production. The concept of a post-industrial age probably has its roots in a similar trend that was observed in agriculture a century ago.

U.S. agricultural employment peaked at 27 million in 1910. It has fallen to 5 million today. But agricultural output still grows. What happened was not a decline; it was productivity improvement.

The same scenario is occurring in the U.S. manufacturing sector: U.S. manufacturing employment peaked in 1979 at 19 million. It has declined to about 14 million today. Once again, the volume and value of manufacturing output has increased.

If we look at the overall productivity gains made through technology and process improvement over the past two decades, manufacturing performance is nothing short of astonishing.

Some of these jobs are simply going away. But many of the jobs are being "outsourced" to manufacturing service companies located in the same communities. This leads to an inaccurate image of decline in manufacturing, and of robust growth in services. The hard fact is that you can't independently recruit those services jobs-they go with the manufacturing.

But when that happens, high-profile commentators often transform into "chicken little" and loudly proclaim that the sky is falling. We hear unsupported claims that manufacturing jobs are migrating en mass to Mexico, India or China.

From 1995 to 2002, the top 20 economies of the world saw 31 million manufacturing jobs disappear, while industrial output increased 30 percent. China lost 15 percent of its manufacturing jobs while the United States lost 11 percent and Indiana lost 9 percent. And still we heard that our jobs were going to China.

The U.S. economy is growing faster than any other in the world. This means that our durable-goods manufacturing sector is doing the same. Given all of that, what should Indiana's public policy positions be? Here are a few ideas:

Give up the myth that our economy is backwards. We're ahead of the game. Manufacturing leverages more value (secondary jobs) than any other sector of the economy. Keep it up.

Recognize the reality that every successful economy is anchored on manufacturing, and 80 percent of that is traditional manufacturing.

To stay ahead of the game we need to recruit more jobs than the increasing productivity of our work force and normal market dynamics will eliminate.

Reduce the emphasis on selectively recruiting companies in particular industries. The companies pick us, not the other way around. Make sure that they all hear our story.

Continue the important support for our universities, but don't assume that's the limit of our educational needs. We also need welders, machinists, forklift drivers, and many more skills.

Above all, quit worrying about the normal fluctuations of the business cycle. No economy has ever escaped it.



Layden is CEO of Prevel Consulting, a manufacturing development firm. Views expessed here are the writer's.
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