The U.S. economy continues to struggle, and the weak March jobs
report–just 88,000 positions were added–spooked the market. But step
back and you’ll see a bright spot, perhaps the best economic news the
U.S. has witnessed since the rise of Silicon Valley: made in the usa is
making a comeback. Climbing out of the recession, the U.S. has seen its
manufacturing growth outpace that of other advanced nations, with some
500,000 jobs created in the past three years. It marks the first time in
more than a decade that the number of factory jobs has gone up instead
of down. From ExOne’s 3-D-printing plant near Pittsburgh to Dow
Chemical’s expanding ethylene and propylene production in Louisiana and
Texas, which could create 35,000 jobs, American workers are busy making
things that customers around the world want to buy–and defying the
narrative of the nation’s supposedly inevitable manufacturing decline.
The past several months alone have seen some surprising reversals.
Apple, famous for the city-size factories in China that produce its
gadgets, decided to assemble one of its Mac computer lines in the U.S.
Walmart, which pioneered global sourcing to find the lowest-priced goods
for customers, said it would pump up spending with American suppliers
by $50 billion over the next decade–and save money by doing so. Airbus
will build JetBlue’s jets in Alabama. Meanwhile, in North Carolina’s
furniture industry, which has lost 70,000 jobs to rivals abroad, Ashley
Furniture is investing at least $80 million to build a new plant. “If
you go back 10 years, we didn’t think we’d be manufacturing in the
U.S.,” says Ashley’s CEO, Todd Wanek.
This isn’t a blip. It’s the sum of a powerful equation refiguring the
global economy. U.S. factories increasingly have access to cheap
energy, thanks to oil and gas from the shale boom. For companies outside
the U.S., it’s the opposite: high global oil prices translate into
costlier fuel for ships and planes, which means some labor savings from
low-cost plants in China evaporate when the goods are shipped thousands
of miles. And about those low-cost plants: workers from China to India
are demanding and getting bigger paychecks, while U.S. companies have
won massive concessions from unions over the past decade. Suddenly the
math on outsourcing doesn’t look quite as attractive. Paul Ashworth, the
chief U.S. economist for the research firm Capital Economics, is
willing to go a step further. “The offshoring boom,” he says, “does
appear to have largely run its course.”
Today’s U.S. factories aren’t the noisy places where your grandfather
knocked in four bolts a minute for eight hours a day. Dungarees and
lunch pails are out; computer skills and specialized training are in,
since the new made-in-America economics is centered largely on
cutting-edge technologies. The trick for U.S. companies is to develop
new manufacturing techniques ahead of global competitors and then use
them to produce goods more efficiently on superautomated factory floors.
These factories of the future have more machines and fewer workers–and
those workers must be able to master the machines. Many new
manufacturing jobs require at least a two-year tech degree to complement
artisan skills such as welding and milling. The bar will only get
higher. Some experts believe it won’t be too long before employers
expect a four-year degree–a job qualification that will eventually be
required in many other places around the world too.
Understanding this new look is critical if the U.S. wants to nurture
manufacturing and grow jobs. There are implications for educators (who
must ensure that future workers have the right skills) as well as
policymakers (who may have to set new educational standards).
“Manufacturing is coming back, but it’s evolving into a very different
type of animal than the one most people recognize today,” says James
Manyika, a director at McKinsey Global Institute who specializes in
global high tech. “We’re going to see new jobs, but nowhere near the
number some people expect, especially in the short term.”
If the U.S. can get this right, though, the payoff will be
tremendous. Labor statistics actually shortchange the importance of
manufacturing because they mainly count jobs inside factories, and
related positions in, say, Ford’s marketing department or at small
businesses doing industrial design or creating software for big
exporters don’t get tallied. Yet those jobs wouldn’t exist but for the
big factories. The official figure for U.S. manufacturing employment,
9%, belies the importance of the sector for the overall economy.
Manufacturing represents a whopping 67% of private-sector R&D
spending as well as 30% of the country’s productivity growth. Every $1
of manufacturing activity returns $1.48 to the economy. “The ability to
make things is fundamental to the ability to innovate things over the
long term,” says Willy Shih, a Harvard Business School professor and
co-author of Producing Prosperity: Why America Needs a Manufacturing
Renaissance. “When you give up making products, you lose a lot of the
added value.” In other words, what you make makes you.
The Rise of the Industrial Internet
As soon as you step into ge’s battery plant–as clean and bright as a
medical lab–you begin to see how it’s possible for a rich country like
the U.S. to profitably export a commodity like batteries to Kenya and
other emerging markets. The 200,000-sq.-ft. facility requires only 370
full-time employees, a mere 210 of them on the factory floor. The plant
manager runs the operation–from lights to heat to inventory to
purchasing and maintenance–from an iPad, on which he gets a real-time
stream of data from wireless sensors embedded in each product rolling
off the line.
The sensors let the batteries talk to GE via the Internet once
they’ve left the factory. Each part of the product and, indeed, the
factory, including the equipment and the workers who run it, will soon
communicate with one another over the Internet. Not only does the data
allow production to be monitored as it occurs; it can also help predict
what might go wrong–recording, for instance, the average battery life in
Bangladeshi heat vs. Mongolian cold. Designs will be altered in real
time to reflect the knowledge. “It’s not about low-cost labor but about
high technology,” says Prescott Logan, general manager of GE Energy
Storage. The key to the division’s future, he says, is “listening to our
batteries. We have to listen to what they are telling us and then think
about how to monetize that.”
The approach has the potential to create entirely new businesses and
jobs. While the technology in Schenectady has downsized the number of
machinists needed to make a battery, it has also fueled the creation of a
GE global research center in San Ramon, Calif. Over the past 20 months,
400 highly paid software engineers, data scientists and user-experience
designers have been hired to churn out the software for the industrial
Internet–otherwise known as the Internet of things–that will enable the
equipment in the factories to talk. GE will add 200 more employees by
the end of the year.
A Plant in Every Garage
A different glimpse into manufacturing’s future can be found near the
roots of its past. Not far from Pittsburgh, whose vast furnaces turned
out steel to build 20th century America, a new kind of industrial engine
is powering up. Thanks in part to its proximity to the engineering
powerhouse of Carnegie Mellon University, North Huntington, Pa., and
towns like it are home to companies developing specialized metals,
robotics and bioengineering–all critical to shoring up the nation’s
ability to make things. But one technology being developed there may
help foster a new wave of manufacturing outfits that will have as much
in common with Silicon Valley start-ups as with the classic image of a
factory.
The technology is called additive manufacturing, or more
colloquially, 3-D printing. When most people talk about 3-D printing,
they mean fun devices for hobbyists that can print plastic toys and
other small objects when hooked up to a computer. When they talk about
it at ExOne Corp., they’re describing something a lot bigger. Additive
manufacturing involves what looks like spray-painting a metal object
into existence. These 3-D printers lay down a very thin layer of
stainless-steel powder or ceramic powder and fuse it with a liquid
binder until a part–like a torque converter, heat exchanger or propeller
blade–is built, layer by layer. ExOne’s employees are ramping up
production lines to make 3-D printers at a price of about $400,000.
Would-be manufacturing entrepreneurs can buy the devices and begin
turning out high-tech metal parts for aerospace, automotive and other
industries at lower cost and higher quality faster than offshore
suppliers.
The 3-D-printing process is attractive because it can produce parts
in shapes that would be impossible or unduly expensive through
traditional manufacturing methods. That helps engineers rethink designs
and outdo their competitors. S. Kent Rockwell, ExOne’s CEO, says one
potential client asked him to reproduce a traditional heat exchanger and
price it, which the firm did. The customer wasn’t that impressed.
“Look,” Rockwell told him, “give me your optimal design for the heat
exchanger.” The customer returned with a new design, doubtful that it
could actually be manufactured. “We printed it in five days,” says
Rockwell.
ExOne’s 3-D-printing machines, like a lot of new technology, will
displace some labor. A foundry, for instance, no longer needs workers
carting patterns around a warehouse; it can print molds and cores stored
on a thumb drive, and no patterns are needed. An ExOne shop with 12
metal-printing machines needs only two employees per shift, supported by
a design engineer–though they are higher-skilled workers. Rockwell
envisions a thousand new industrial flowers blooming. “There’s a world
of guys out there who say, If you can deliver parts in six or seven
days, hey, I don’t need the machines. That’s where job creation is going
to come from.” Overseas competitors will not be able to deliver that
quickly or at the same level of quality.
Nurturing the Makers
The tale of additive printing is notable as much for its backstory as
for its likely impact on the manufacturing economy. The technology, it
turns out, was developed by MIT, nurtured by grants from the Office of
Naval Research and the National Science Foundation before being adapted
by private industry. It’s the kind of triple play–government, academia,
industry–that’s held up as an ideal for public-private cooperation, as
opposed to, say, the Solyndra debacle. Traditionally the U.S. hasn’t
been as keen as other nations on those kinds of linkages. But now states
are doing their own versions of an industrial policy. Virginia boasts
the Commonwealth Center for Advanced Manufacturing to help companies
translate research into high-tech products. To bridge the skills gap,
North Carolina links community colleges with specific companies like
Siemens.
President Obama has called for such efforts to go more national. He
has proposed new manufacturing tax breaks, more robust R&D spending
and vocational training for workers. Insiders say there are also
conversations under way about how to create the kind of industrial
policy–the phrase itself is still something of a political third
rail–that would give U.S. manufacturing the kind of competitive
advantages held for decades by the French and German economies, both of
which enjoy trade surpluses when it comes to advanced manufacturing.
Gene Sperling, director of the National Economic Council and a point
person for Obama’s plans, is pushing a number of policies that sound
more like Germany than the U.S., including the development of
high-end-manufacturing research institutes to knit together private
companies, educators and public resources. But Sperling says these
policies are vital–and often misunderstood.
“Industrial policy suggests a top-down government effort to pick
winners and losers, which is not good policy,” says Sperling. “What is
sound policy is recognizing that location matters because manufacturing
has innovation benefits that spill over to the economy at large, just
like the location of R&D does. Policy that supports creating strong
manufacturing ecosystems is not only economically sound; it is
economically imperative.”
It also means creating federally funded research centers, including
one to promote 3-D printing: the National Additive Manufacturing
Innovation Institute in Youngstown, Ohio. The institute, which received a
$30 million federal grant, will connect 32,000 manufacturers across the
Rust Belt with top universities like Carnegie Mellon and technical
experts from the Departments of Defense and Energy as well as NASA to
accelerate innovation in key areas of high-tech manufacturing. It’s a
system modeled on Germany’s Fraunhofer institutes, which have been
widely credited with keeping wages and competitiveness high in that
country even in the face of competition from countries like China. This
year, the U.S. government will hold competitions and award similar
grants for three more institutes nationwide. “We believe there can be a
manufacturing renaissance in this country if we are smart about how to
put some wind at the back of the trends moving in that direction,”
Sperling says.
Competitive Edge
While new technologies like 3-d printing point to a brighter future for
U.S. manufacturing, there are reasons for optimism in the present as
well. The American worker is more competitive than you might think. For a
long time, it seemed as if the cost gap with developing nations that
swallowed millions of U.S. jobs would never close. But inevitably, it
does. Emerging nations keep emerging: they get richer, wages rise, and
factories abroad just don’t stay as cheap as they used to be. China is
promising 13% average annual pay increases for minimum-wage workers as
it moves toward a consumer society. And workers, in turn, are demanding
more. Witness the groundbreaking union deal at China’s Foxconn
electronics company, the outsourcer of choice for many American firms
like Apple. Foxconn has been increasing pay over the past couple of
years.
The comparison is even more favorable when you look at Europe, where
manufacturing costs can be 15% to 25% higher than in the U.S. That is
one reason firms such as Rolls-Royce and Volkswagen are expanding in
America. To help fill its $96 billion worth of orders, Rolls recently
announced a $136 million addition to its Advanced Airfoil Machining
Facility south of Richmond, Va. In July, VW’s year-old assembly plant in
Chattanooga, Tenn., added a third shift, boosting employment to 3,300
for a company that in the 1980s had stopped manufacturing in the U.S.
“It’s about the inflexibility of the European workforce,” says Boston
Consulting Group (BCG) senior partner Hal Sirkin. “No one admits it, but
you are going to see more and more of it.” BCG estimates that there
will be 6,840 new job openings in manufacturing in Virginia’s former
tobacco region by 2017, creating a shortage of about 1,000 skilled
workers.
Based solely on wages, of course, American workers aren’t a bargain
compared with workers in emerging economies; they still make 7.4 times
as much per hour as their Chinese counterparts. But increasingly, the
cost arbitrage done by companies when deciding where to put jobs isn’t
just about hourly pay. It’s also about relative labor productivity–which
has been rising sharply in the U.S. over the past decade while
remaining flat in China–as well as how flexible a workforce is, how
close factories are to customers (which reduces the time needed to meet
orders), what kind of subsidies states can offer companies for
manufacturing and how well a company can leverage all that to cope with
quickly changing customer demands. Add the effect of those higher oil
prices worldwide–ratcheting up long-distance shipping costs–and there
are sound economic arguments for buying American.
Bob Parsons, the head of Parsons Co., a midsize Illinois-based firm
that does small runs of specialty parts for Caterpillar, says he’s
increasingly getting business that might have gone to China or
elsewhere. “We can do faster delivery with higher quality,” he says. “By
the time you factor it all in, it makes sense to keep some of that work
here. I think the insourcing trend is going to be huge.”
All these factors are reflected in Ashley Furniture’s decision to
spend at least $80 million to build a new plant south of Winston-Salem,
N.C., that will employ 500 people. It represents the reshoring of a
traditional industry in a state that had lost jobs to China. According
to Wanek, Ashley’s CEO, speed in meeting customer demands has never been
more crucial. “Today the expectation is that you’d better be there in a
week and it had better be perfect,” he says. The company still sources
some items globally–glass and mirrors–but heavy components and
upholstery are made in the U.S.
Workers are expected to step up their game. At Ashley, they are
schooled in the continuous-improvement model used by Toyota–known as
kaizen–which Ashley translates as “systems thinking” to improve quality
and efficiency while reducing cost. It works as well for armoires as it
does for autos. Wanek says Ashley will reward workers who are adaptive.
Part of that involves acquiring new skills while on the job and taking
responsibility for devising and implementing improvements. In exchange,
workers can get profit sharing tied to company performance. “If we’re
going to compete, we need people who are willing to step out of their
comfort zone and embrace change,” Wanek says.
The takeaway is clear. China may still be the factory of the world,
but the most advanced American exporters are taking manufacturing to an
entirely new level. The gains won’t be distributed evenly in the U.S.–by
geography or by industry. Despite Apple’s highly publicized
announcement about manufacturing in the U.S., labor-intensive, highly
tradable industries like consumer electronics are unlikely to return en
masse. Energy- and resource-intensive industries (chemicals, wood
products, heavy machinery and appliances) may do better, powered by that
cheaper homegrown energy. It’s win-win when companies can combine
low-cost energy with more productive local labor and cost-saving
automation technology.
“We are probably the most competitive, on a global basis, that we’ve
been in the past 30 years,” says GE CEO Jeff Immelt, who led Obama’s
jobs council. “Will U.S. manufacturing go from 9% to 30% of all jobs?
That’s unlikely. But could you see a steady increase in jobs over the
next quarters and years? I think that will happen.” Indeed, it may be
our best hope for real, shared economic recovery in the USA.
Correction Appended: April 12, 2013
Ref: http://business.time.com/made-in-the-u-s-a/
