Has the death knell tolled for U.S. Manufacturing? This has been a popular refrain in the news and in our consciousness since before the 1980s. It started with Japan, rapidly capturing market share and it is now progressing into and past China. In the article "U.S. Manufacturing — Losing Out?" by Clyde Prestowitz writes: Since manufacturing is about 11 percent of U.S. GDP, anyone who has been saying it's dead has obviously been engaging in hyperbole. A large portion of U.S. manufacturing output is of non-tradable or not easily tradable goods, things like toilet tissue, ply-wood, soap, catalogues, and the like. This is the core of our manufacturing base and it will always be with us. It's not dead and it's not going to die. For most of its history, America has also been a major producer of tradable goods – things like steel, airplanes, semiconductors, machinery, appliances, and so forth. Indeed, we still produce some of these things, but far fewer than we used to. As a result, manufacturing as a percent of GDP has been in steady decline from about 25 percent in the early 1980s to today's roughly 11 percent. This decline has been particularly precipitate in the past decade.
To some extent, this decline is natural and inevitable. Manufacturing as a percent of GDP tends naturally to decline in all economies as they develop and mature. This is even happening to China's economy now despite its having become the workshop of the world. But the decline in the manufacturing share of the U.S. economy has been far more dramatic than in any other industrialized economy. Even in the UK which has long emphasized services as the core of its economy, manufacturing is nearly 13 percent of GDP. For Germany, Japan, France, Italy, and most other OECD countries the shares range from 15 to 25 percent. Since America has roughly the same or better manufacturing oriented resource endowments as these countries, one would expect its manufacturing share of output to be as high or higher.
This should be a big concern to all of us because manufacturing is a major contributor to R&D and product innovation and in turn economic productivity. Tom Friedman tells the story where he talked to an economist from India about next year's business outlook in our respective countries. He told Tom for India it is simple, we know what we are going to do next year; We will do what the U. S. is doing this year. You, he said, have the more difficult job of figuring out what you will do to stay ahead.
That is our challenge, we have to keep building, innovating, improving. If we want to continue to enjoy the leadership role that has brought us such rich benefits these last 70 years or so, we must achieve results or become one of the me-too countries of the world.
We have always been successful because we strived to increase our efficiency by developing efficient management and production systems. Visionaries such as Dr Edwards Deming and Dr. Laurence Peter developed and taught efficient methods. We developed systems for improving quality, delivery and cost and used acronyms like JIT, SQC, SPC and later ISO. Generally, top management of U.S. companies encouraged these projects and involved everybody down to the production worker with the goal of building a team and driving decisions to the lowest level, a uniquely American trait.
The key to our success is education and character. Education is more than a college degree, it is on the job training, quality circles, cause & effect sessions and continuing education. For key managers especially, character and character building is more important than education. Corporate management must have qualities of self-confidence, empathy and leadership to create the successful corporation. Especially multi-national companies must have some allegiance and ownership of their country of origin. No one should expect them to do Americans a favor, it will take all of us to earn the membership on the corporate team. But we need to be given fair opportunities to compete, to learn to participate.
We have all heard of too many incidents where top management bonuses were based on the number of workers that could be terminated and CEOs who's main allegiance is to their compensation committee who shower them with bonuses when workers and stockholders suffer. Worse yet, management has sent confusing signals ranging from sending engineers overseas to train their replacements and ignoring positive suggestions from the shop floor.
Certainly one of the most destructive trends of the early 2000s was the indiscriminate outsourcing of product to India and China. By indiscriminate I mean that the price comparisons were often based on price alone discounting quality and service. Quality levels that were rightly demanded from local sources were suddenly ignored. When the quality problems could not be hidden any more former local sources still could not be considered. Now, it was a matter of pride and untold funds were allocated to bring the foreign source up to the standards that locals previously supplied, often with the results that the foreign goods cost more than their past supply. Where is the management that converted us into a world power less than a century ago.
Like other developed countries, we have to retain productive national and multi-national companies with management that is interested in maintaining a strong manufacturing presence in the U.S. by building strong organizational teams, by investing in R&D and innovative products. No favors for anyone but the labor force that strives to excel and make the workplace successful has to feel that management will listen encourage and play fair.
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