A healthy manufacturing sector is essential to America's economic prosperity in the 21st century. But you wouldn't know that reading last Sunday's New York Times, where former Obama Administration Council of Economic Advisors chair Christina Romer writes that there are no compelling reasons for US manufacturing policy.

According to Romer, the recent hubbub about manufacturing is due to the fact that people have a "feeling" that "making things" is important. In reality, she writes, consumers "value haircuts as much as hair dryers." To be sure, all of us need haircuts, some of us more than others. But Romer's argument that we should value all industries of the economy the same is just not true. It's reminiscent of economist Michael Boskin, another former CEA chair, who said it doesn't matter whether a country makes computer chips or potato chips.

The fact is that some industries are characterized by high productivity and economies of scale that reduce costs and drive economic growth throughout the economy. As Clyde Prestowitz writes of Romer's own example:

Production of hair dryers can be done in large factories that produce economies of scale. Such scale economies lead to lower prices, lower inflation, higher productivity and thus higher wealth creation for the whole economy. In addition, producers of hair dryers invest in research and development to foster innovation of new, more efficient, less energy using, and easier to produce dryers.

Investment in new product and process innovations is what drives economic growth over the long-term. And as we discuss in "Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy," manufacturing is absolutely central to innovation, something that many economists like Romer and economic commentators like Matt Yglesias don't seem to understand. The manufacturing sector comprises two-thirds of the nation's industry investment in research and development (R&D) and employs nearly 64% of the country's scientists and engineers.

Continue reading "Romer Misses the Mark on Manufacturing" »

In his State of the Union address, President Obama laid out his election-year vision for restoring America's global competitiveness. U.S. manufacturing figured prominently:

Think about the America within our reach...an America that attracts a new generation of high-tech manufacturing and high-paying jobs...we have a huge opportunity, at this moment, to bring manufacturing back.

Last weekend, the New York Times ran a long and important piece on why one particular high-tech product, Apple's iPhone, is manufactured in Asia and not the United States. The article is part of a renewed debate about how the United States can reinvigorate its manufacturing sector, or whether it even should.

A key part of the article is that there is a dearth of middle-income jobs in U.S. manufacturing. A combination of labor-saving technological improvements and the off shoring of more labor-intensive manufacturing has led to a sharp reduction in factory jobs that were once a pathway to the middle class for many Americans. Manufacturing employment on the factory floor may simply never reach levels of previous decades.

Nevertheless, as we have written previously, advanced manufacturing remains critical to U.S. prosperity in the 21st century for three key reasons:

• Advanced manufacturing drives productivity and innovation. Two-thirds of R&D investment occurs in industry and manufacturing is a core component of the nation's innovation ecosystem that is key to creating new technological industries.
• Advanced manufacturing generates output and employment throughout the economy. It has the largest economic multipliers of any industry and large manufacturing facilities sustain entire communities. Even if manufacturing never supports as many direct jobs on the factory floor as it has in the past, restoring advanced manufacturing is thus essential to America's long-term employment challenges.
• Manufacturing is critical to improve the nation's trade balance and tackling our $500 billion cumulative trade deficit. Manufactured goods still comprise 57% of U.S. exports and closing the trade deficit will be difficult, if not impossible, without manufacturing playing a key role.

Continue reading "Global Supply Chains and American Economic Competitiveness" »

In an article for the new issue of Atlantic Magazine, Planet Money's Adam Davidson leads us through the major changes that have transformed the manufacturing sector in the United States and asks whether manufacturing can ever again be an economic touchstone for middle class Americans.

Davidson notes how advances in productivity and heightened international competition have led manufacturing employment to crater, even as output increases:

Factories have replaced millions of workers with machines. Even if you know the rough outline of this story, looking at the Bureau of Labor Statistics data is still shocking. A historical chart of U.S. manufacturing employment shows steady growth from the end of the Depression until the early 1980s, when the number of jobs drops a little. Then things stay largely flat until about 1999. After that, the numbers simply collapse. In the 10 years ending in 2009, factories shed workers so fast that they erased almost all the gains of the previous 70 years; roughly one out of every three manufacturing jobs--about 6 million in total--disappeared. About as many people work in manufacturing now as did at the end of the Depression, even though the American population is more than twice as large today.

The increasing use information technology, robotics, and high-precision tools means that factory workers must have greater skills than those of previous generations:

Before the rise of computer-run machines, factories needed people at every step of production, from the most routine to the most complex...skilled workers now are required only to do what computers can't do (at least not yet): use their human judgment.

Continue reading "How to Make it in America" »

In a Wall Street Journal column, David Wessel provides a good reality check to reporters and analysts that believe manufacturing is on the up and up in America. In the past two years, Wessel notes, manufacturing has added 334,000 jobs, a positive sign. But that growth pales in comparison to the massive loss of manufacturing jobs over the last decade:

Manufacturing is up lately in part because it was pushed down so far during the recession. That 334,000 increase in factory payrolls follows a decline of 2.3 million in the two years before that. Only two million jobs to go before manufacturing employs as many as it did four years ago.

In the past 10 years, in fact, manufacturing lost 5.5 million jobs. As the Information Technology and Innovation Foundation's Rob Atkinson notes at the Innovation Policy Blog, the loss of manufacturing jobs in this recession, at 15 percent of all manufacturing jobs, was the largest ever, so it makes sense that those jobs would rebound somewhat.

Wessel also makes the important point that in an era of steadily advancing automation and technological sophistication, manufacturing may never generate the same amount of jobs on the factory floor as it did in prior decades, certainly not as a percentage of GDP. But that doesn't mean that manufacturing is less important to the U.S. economy. Indeed, as we wrote in "Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy," even as manufacturing's share of employment and GDP has declined, manufacturing has become even more important to sustaining America prosperity.

This is because manufacturing is the most capital-intensive and productive sector of the economy, and is key to developing and commercializing new technologies. As Wessel writes, "Research and development--the key to maintaining the U.S. edge in innovation--sometimes migrate abroad when production does, a good reason to strive to keep production at home." Manufacturing also has the largest employment and output multipliers of any sector of the economy, creating many indirect jobs and making it a key catalyst of broad economic growth. Lastly, a healthy manufacturing sector is central to the United States' ability to reduce its large and persistent trade deficit. And as Atkinson notes, our massive trade deficit in goods production has increased since the end of the recession.

For these reasons, its imperative that the United States embark on a proactive effort to strengthen the international competitiveness of its manufacturing sector, in particular by helping manufactures adopt new productivity-enhancing process technologies. As ITIF has documented, other nations such as Germany and Japan invest much more in manufacturing technology acceleration programs to boost productivity. For more information on what kinds of policies are needed to improve U.S. advanced manufacturing competitiveness see this "Charter for Revitalizing American Manufacturing," created by leading innovation and manufacturing experts.

Amidst an emerging consensus among economic and innovation experts that the government must do more to support a robust advanced manufacturing sector, the Obama administration announced on Monday that it is creating a new cabinet-level Office of Manufacturing Policy to provide greater direction for federal efforts to boost manufacturing.

The new office will be co-chaired by U.S. Secretary of Commerce John Bryson and National Economic Council director Gene Sperling, giving the position and the manufacturing issue cabinet level attention for the first time.

In the past two years, numerous reports by think tanks, academics and industry groups have documented the precarious state of U.S. manufacturing and have urged the government to do more to secure U.S. manufacturing competitiveness.

In March of this year, the Information Technology and Innovation Foundation (ITIF) made the case for a "National Manufacturing Strategy," showing that in the last 10 years output actually declined absolutely in 15 of 19 manufacturing sectors tracked by the federal government. Another ITIF report finds that Germany invests 20 times more as a percentage of GDP than the United States in manufacturing technology and innovation, and Japan 40 times more. Both countries' share of global manufacturing output is stable or growing, while the United States' share has declined. They argue that a comprehensive U.S. manufacturing strategy should focus on the "4 T's": taxes, trade, technology, and talent.

In November, the Breakthrough Institute and Third Way released a report, "Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy," which found that manufacturing is important not just for jobs on the factory floor. Indeed, with advanced automation becoming an increasing feature of high-tech manufacturing, fewer factory jobs are to be expected. Nevertheless, a robust manufacturing sector is core to a healthy economy, because it is central to technological innovation, creates many jobs in manufacturing supply chains and regional communities throughout the country, and is key to closing the nation's large and persistent trade deficit.

Just this week, the Council on Competitiveness, a group of company CEOs, university Presidents, and labor leaders, released a report on U.S. manufacturing competitiveness, citing many of manufacturing's same contributions to national economic vitality. In particular, the study dismantles the myth, highlighted in prior work, that manufacturing can be separated from design and innovation:

"Conventional wisdom emerged that as long as high-value added work--e.g. engineering and design--remained in the United States...the economy would grow and large-scale production could be left to its own devices.

This model is not sustainable...without strong public and private support for the complete life-cycle innovation and production process, the United States cannot maximize the return on its innovation investments--a return measured in jobs, growth and tax revenue."

Fortunately, the U.S. government is finally starting to pay attention. The creation of an Office of Manufacturing Policy is a positive step forward and builds on earlier efforts in the Obama Administration to make advanced manufacturing more of a national priority. Last June, the Administration announced that it would invest $500 million in a new Advanced Manufacturing Partnership among industry, academia and government, which is focused in part on developing next-generation manufacturing technologies that improve productivity and enhance manufacturing competitiveness. After a decade in which the U.S. manufacturing sector lost 5.5 million jobs and as foreign competitors increase their investments in advanced materials and manufacturing technology, such efforts are long overdue.

The following was originally submitted to the National Journal discussion "Is America Losing the Clean Energy Race?"

The global market for clean energy products grew to $243 billion in 2010, a year in which China and Germany both captured a greater share of this global investment than the United States. That has led many (myself included) to worry about the erosion of US competitiveness in a set of clean energy technology products--from solar and wind to nuclear and advanced batteries--originally invented in America.

Yet this growing market for clean tech is almost entirely dependent upon public subsidy and policy support. To be blunt: today's clean energy markets are artificial, and without perpetual policy support, conventional clean energy products could not compete in most global energy markets.

Across the globe, cash-strapped governments and recession-hit publics are pulling back clean energy subsidies, revealing the ephemeral nature of today's clean tech markets. In the last year, Spain, Italy, and the United Kingdom have all slashed feed-in tariffs for solar and certain other clean energy technologies. In America, expiring tax credits and fading stimulus investments are set to send federal clean tech expenditures plunging 75 percent from 2009 to 2014, according to our research.

There are a host of reasons why targeted policies and smart public investments in emerging clean tech sectors are justified. But clean tech business leaders and policymakers alike must be crystal clear: the true economic rewards in clean energy industries will not come from producing technology for subsidy-created markets that vacillate wildly with the public mood and the business cycle.

Without substantial innovation to improve the performance and reduce the cost of clean energy technologies, the promise that the clean energy sector might become economically viable, much less a cornerstone of American economic revival, will never be realized. The real clean energy race is thus to invent, commercialize, progressively improve, and mass-produce cheap and reliable clean energy technologies that can compete on cost not just with international competitors but also with fossil fuels.

In short, the race is to make clean energy cheap and subsidy-independent.

Continue reading "A Clean Energy Comeback Strategy" »

Stagnant and out-dated policy debates in Washington are the reason that advanced, high-tech products are mostly manufactured outside of the United States, according to a new paper jointly issued by two think tanks. The report, from the Breakthrough Institute and leading moderate think tank Third Way, argues that American manufacturing could experience a resurgence with a focus on complicated and technology-intensive manufacturing products.

"The Kindle has revolutionized how people read, but even though it was born in Silicon Valley, Amazon makes it in Taiwan," said Director of Third Way's Economic Program and the report's co-author, Ryan McConaghy. "When looking for the precision needed to build the e-reader, Amazon had to look abroad for experienced manufacturers because the technology was no longer available here. It's a huge missed opportunity."

"Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy," released today, argues that the United States needs to radically rethink its approach to manufacturing to incentivize and enhance next generation "advanced manufacturing" and worker training.

Continue reading "Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy" »