The Critical Production/Innovation Link
On page 34 of this issue, we have reprinted an article from the New York Times tilled “Good Bye Production (and Maybe Innovation).” The writer discusses the link between domestic manufacturing and technology advancement, delving into the below-the-surface risks associated with moving production offshore. These include not the loss of jobs and taxable wages mind you, but the lasting and potential damage to our economy that might come from losing the ability to innovate in manufacturing specifically because we’ve lost our ability to produce.
Without question, the U.S. is buying more of what used to be made within our borders from low cost global regions. Moreover, this manufacturing import growth is increasing every year. The Times mentions that in 2005, the percentage of manufactured goods bought in the U.S. from offshore sources climbed to a record 20.5% (up nearly 100% from 11.7% in 1992).
But lurking under the surface of this growth number is perhaps a much scarier prospect than the immediate loss of domestic manufacturing jobs (which one could argue play an only minor part in near-term economic development, because of an increasing trend to services-oriented domestic job growth). And that prospect is the question of whether by moving production offshore, we’re losing our ability to innovate. This idea is nothing new. The 1987 book Manufacturing Matters, co-authored by Stephen Cohen and John Zysman, argues that manufacturing is the essential source of a country’s competitive advantage in the world today. Countries that maintain and improve their ability to produce, the authors argue, are not only far more likely to not keep unemployment low and standards of living high—they will also out-innovate their global competitors.
The production/innovation link is not one often explored by domestic economists and politicians who all too often turn to emotional reasons to defend or argue against the movement of domestic manufacturing jobs offshore. But without question, a link does exist between product ideation and production. For us, the question is where that link begins and ends. As manufacturing and supply chain observers who closely watch the global manufacturing markets, we believe that domestic manufacturing leaders would do well to imagine the steps it would take for the U.S. to lose its edge once and for all in the innovation race.
At first, we’d probably observe that we’re starling to lose the benefits of our global lead in educating the world’s best sciences and engineering graduates (even if we don’t close a single university door). And this is already happening. Consider that around the time Manufactured Matters was originally published, U.S. students made up around 75% of those receiving graduate science and engineering degrees within our borders. Today, this number has been cut in half. And at the same time, fewer foreign students who came to the slates for graduate studies, are putting down U.S. roots with they receive their degrees. Rather, nearly 50% are leaving (compared with between 70% and 80% who stayed during the Reagan era).
Next, we’d probably see the number of net new manufacturing innovations—whether they’re engineering-or process-driven—come from other parts of the world. And anyone who is familiar with the Toyota Production System (the forefather of lean manufacturing) knows that the U.S. is no longer the innovator in shop floor management processes. Rather, we’re copying the Japanese, who successfully redefined not only what it meant to produce to demand, but also to eliminate productivity shortcomings at the source before they could cascade throughout an operation.
Sometimes, it’s too easy to ignore the signposts on the road ahead, especially if they’re inconvenient or bring news that you don’t want to hear. But the way our manufacturing journey is going today, perhaps our only hope to maintain our competitive innovation edge is to sober up and start dealing with the reality of where we are headed. At this stage, denial and apathy is not an option.