Opinion and Viewpoint

IYER: A manufacturing resurgence? Maybe

December 3, 2011

IyerAs the United States—and Indiana—looks to manufacturing as a way out of recession, they will be well-served by a move toward more energy-efficient, earth-friendly, competitive manufacturing processes.

Certainly, the U.S. is poised to make a manufacturing comeback. Some studies suggest that the gap between manufacturing costs in the U.S. and China is down to 10 percent, thus offering an opportunity for domestic manufacturers.

Some $1 trillion of manufactured goods was exported in 2010. Demand for U.S. autos grew 15 percent from 2010 to 2011. And Chinese firms are opening plants in the United States, as evidenced by Nanshan Aluminum’s plans to build in Lafayette.

Indiana, in particular, is well-positioned to offer a competitive home for firms reconsidering their global footprint. According to the website New Geography, there was a 37-percent increase in exports from Indiana in the first half of 2010 compared with the previous year, driven by pharmaceutical and medical devices. Anderson and Elkhart-Goshen grew manufacturing jobs more than 9 percent.

Overall for U.S. manufacturing, there are opportunities and pressures amid supply and cost volatility: supply risk in Japan and Thailand, the weak dollar, rising production costs in China, rising fuel prices and competitive wages domestically compared with other countries.

With the United States becoming the world’s largest producer of natural gas, there is opportunity for energy-intensive domestic manufacturing firms to shift from coal as an energy source, enabling lower releases of greenhouse gas emissions and mercury. In other words, U.S. manufacturing may offer greener manufacturing at affordable costs.

But that benefit to manufacturing in the United States could be eroded by recent efforts to roll back Environmental Protection Agency pollution regulations, enforcement of efficiency requirements, and other factors. Even requiring noise safeguards for workers is being reconsidered.

This suggests a retreat from the competitive requirements by European and Japanese governments and raises a fear that new manufacturing plants could look like the ones that have been closed across the United States.

Attracting jobs in pollution-intensive industries seems like a race to the bottom in which we shouldn’t engage. There will always be countries desperate enough for jobs to relax their laws even further, damaging the earth even more.

The rational use of regulation is the key to coordinating the evolution of the next generation of sustainable manufacturing. It will permit effective production while minimizing harm to the environment.

Nurturing use of cleaner energy sources, increasing focus on recycling water and waste energy, and minimizing the waste footprint should be the blueprint for new manufacturing plants. By harnessing the need for newer technologies, these plants may enable both a growth in the export of the associated equipment and a growth of jobs in Indiana.

This “new” manufacturing can leverage real-time monitoring with sophisticated data tracking to ensure that it is as benign to the earth as feasible.

The United States has the innovation capability to develop technologies to make this manufacturing competitive. By enabling certification of environmentally friendly manufacturing at competitive prices and leveraging its demand by consumers, manufacturing in the United States—and in Indiana—can once again become globally competitive. Only time will tell if we make the right choices.•

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Iyer is the Susan Bulkeley Butler Chair in operations management and associate dean of graduate studies at the Krannert School of Management at Purdue University.

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