Monday, October 3, 2011

Why We Need Manufacturing Jobs

There has been a focus by the Obama administration on creating more activity in the manufacturing sector. A number of items in the initial stimulus package were essentially long-term technology investments aimed at establishing a stronger economic base. For a variety of reasons, criticism has been levied at the notion of long-term investments and at the focus on manufacturing. Some thought the money could have produced more jobs and quicker if spent in other ways. Others were unhappy at the notion of the government picking areas in which effort should be focused. Manufacturing has been viewed as a no-win area in our economy where investments would be wasted. The administration has persisted in pushing for funds to encourage manufacturing as a means by which jobs can be created. Is this a proper strategy?

Geoff Colvin produced a column in which he delivered a resounding "No" for an answer. His claim is that the focus should be on service industries. He rightly claims that manufacturing is driven by ever increasing efficiency and increasing productivity, and that the number of jobs per unit of activity has gone down and will continue to go down even if manufacturing continues to grow.

"But one thing we know for sure is that the more advanced that manufacturing becomes, the fewer people it employs. At a time when the country desperately needs more jobs, manufacturing is obviously not the place to look for them. As the President meets with his Jobs and Competitiveness Council, listen carefully to what he says. A delusional policy for America's No. 1 problem is the last thing we need."

There are several things wrong with Colvin’s suggestion that the administration ignore manufacturing and focus on services. While manufacturing can be characterized as directly creating few jobs, it has to be allowed that it creates relatively well-paid jobs. At the same time the service jobs that are well paid are very few. Finance creates wealth but not much employment. Most service jobs being created are low-paying positions.

Jon Gertner addresses Colvin’s concerns in an article in the New York Times aptly titled Does America Need Manufacturing? Colvin’s focus is the initiative to make the US competitive in advanced battery manufacture for the electric cars of the future.

"On both sides of the world, the fundamental appeal of expanding manufacturing is jobs. It is a curiosity of modern life that information companies can create extraordinary social disruptions and vast shareholder wealth but relatively few jobs. Facebook has about 2,000 employees worldwide. Google has about 29,000. Even in its new, slimmed-down state, General Motors, a decidedly less valuable company, has about 200,000 employees. What’s more, that number represents only a fraction of the people behind the production of a G.M. car. ‘When you’re manufacturing anything, even if the work is done by robots and machines, there’s an incredible value chain involved,’ Susan Hockfield, the president of M.I.T., says. ‘Manufacturing is simply this huge engine of job creation.’ For batteries, that value chain would include scientists researching improved materials to companies mining ores for metals; contractors building machines for factory work; and designers, engineers and machine operators doing the actual plant work. By some estimates, manufacturing employs about 65 percent of America’s scientists and engineers."

Colvin makes the mistake of ignoring the peripheral activities that make manufacturing possible and my not show up as a "manufacturing" job. In particular he fails to recognize the cumulative beneficial effects of growing new technologies and intellectual capital in order to produce competitive manufactured products. Gertner refers to an influential article by Harvard professors Gary Pisano and Willy Shih.

"Pisano and Shih maintain that U.S. corporations, by offshoring so much manufacturing work over the past few decades, have eroded our ability to raise living standards and curtailed the development of new high-technology industries."

"When I spoke with Pisano, he noted that industries like semiconductor chips — the heart of computers and consumer electronics — require the establishment of ‘an industrial commons,’ the skills shared by a large, interlocking group of workers at universities and corporations and in government. The commons loses its vitality if crucial parts of it, like factories or materials suppliers, move abroad, as they mostly have in the case of semiconductors. At first the factories leave; the researchers and development engineers soon follow."

"The most punishing effect, however, may be the one that can’t be measured — the technologies and jobs that aren’t created because the industrial ecosystem is degraded."

We seem to have drifted into a stage where we could be creative in conceptualizing and designing high-value products that could take advantage of cheap labor overseas without losing anything in the marketplace. The cheap labor has now become more expensive and the countries we would ship our designs to for production are now in a position to compete with us in R&D and design. If we do not reestablish a healthy domestic manufacturing base, we may find ourselves in a position where we need them but they don’t need us.

Gertner describes our entry into the battery business as requiring us to purchase the technology in total from South Korea.

"When I asked Jason Forcier, the head of A123’s automotive division, why the company went to Asia to make its products, Forcier said he had no choice. ‘That’s where the supply base was,’ he said. "That’s where the know-how was — it was nonexistent in the U.S.’"

"Repatriating a high-tech manufacturing plant to the United States is not simply a matter of hiring the local talent. It requires good-old foreign know-how. ‘We call it "copy exact,"’ Forcier said. ‘We bought a company in Korea that had the technology around this type of battery and had developed the manufacturing process there. We basically brought that here, copied it exactly and scaled it up.’ A123 also brought a team of six Korean engineers to help transfer the technology to the U.S. and sent a team of Americans to Korea to learn."

The battery initiative may not directly produce a number of jobs sufficient to make a dent in our unemployment rolls, but it will establish a technical base that can be applied in other areas, and it will have kept many billions of dollars in circulation in this country rather than being shipped to other countries. Lessening the amount of funds that are bled out overseas will do wonders for our economy and for the job picture.

As for Colvin’s idea of focusing on service activities, if we have to choose between providing one $24 an hour job or three $8 an hour jobs, which choice is best for the country? I will vote for the former. I would rather create one family-sustaining job, than three that will require assistance from Food Stamps, Medicaid, and the Earned Income Tax Credit for survival.

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