I had to write a research paper for my Macroeconomics class. The topic was "What is the future of American Manufacturing, and is it key to economic stability?" It was supposed to be a group paper, but naturally I would rather stab myself in the eye than trust my grade to them, so I only allowed them to make the Powerpoint presentation of my work (which I then heavily edited).
Your Mom (Last Night). Retrieved from: In between the sheets.
Boom.
 |
| My group, hard at work |
Anyhow, I figured "Why not put this up on my blog and get double credit for the same work?"
Capitalism, baby!
So, here it is. "The Future of American Manufacturing". Spoiler: It's pretty good, but not for the reasons you think.
The Future of American Manufacturing
Jordan Karim
(Edited by my girlfriend and my really good writer friend. You know who you are)
(Not contributed in any way, shape, or form by my worthless group mates. You also know who you are)
“There exists limitless opportunities
in every industry. Where there is an open mind, there will always be a
frontier.” - Charles F. Kettering
(American Engineer, inventor of the electric starter, 1876-1958)
What would someone see if they
pictured American Industry? They would see the thousands of workers in
sepia-toned overalls, diligently hammering, pounding, and pulling the levers of
the economy. The phrase “American manufacturing” has an almost nostalgic feel
to it, like something left over from time gone by. Indeed, a quick Google
search of the phrase “Fall of American manufacturing” returns 1.67 million results. This comes as no
surprise, of course; everyone knows that American manufacturing is dying, with
politicians frantically searching for the defibrillator. This “common knowledge” is based in the faulty
assumption that the product the manufacturing sector is supposed to yield is “jobs”. The truth of the matter, however,
is that manufacturing exists to produce things.
In that endeavor, American Industry has never been stronger. This fact is often
overlooked as manufacturing becomes a smaller portion of the overall GDP. It
has and will continue to be a vital piece of the economy; it just won’t be the
piece most Americans think it should be.
From the time of America’s founding
until the early 19th century, our economy was primarily founded upon
agriculture. Prior to the Revolution, this was because restrictions were placed
on the Colonies by the King of England, prohibiting trade with foreign powers
(and, indeed, with each other). After it won its independence, the fledgling
United States had difficulty competing against more developed “old world”
countries, particularly mother England due to their more developed industrial
complex. This continued through the War of 1812. Once the second war with
Britain was concluded, however, a wave of tariffs combined with new
technologies allowed for a massive revolution in American production. It is
true that some of this technology was “borrowed”, such as the cotton mill
(Cliffnotes, 2013). The steam powered engine, invented in Wales in 1804, also
did not take long to make its way across the Atlantic (Bellis).
Not
all new technology was imported, however. Vulcanization, invented by Charles
Goodyear in 1839, allowed natural rubber to be strengthened. The sewing
machine, invented by Elias Howe in 1846 and improved by the more well known
Isaac Singer, freed the American housewife from the toils of sewing and
darning. As revolutionary as these inventions were, they were quickly
overshadowed by that of Samuel Morse. His electric telegraph allowed for
instantaneous communication starting in 1844 and continuing to fruition in the
1860’s, just in time for the Civil War.
While
telegraph lines were racing overhead, so too were rails racing along the ground.
Acquisitions of large tracts of land, the product of Manifest Destiny, were
followed by a massive expansion of the rail system between 1830 and 1860. This
pattern was copied elsewhere in the industrialized world, allowing for rapid
travel and communication across the globe.
Amid this background of
technological development America built her first factories. From the
Cliffnotes summary:
In 1813, the first factory in which
spinning and weaving were performed by power machinery all under one roof was
established in Waltham, Massachusetts. In Lowell, which was planned and built
as a model factory town in 1822, young women made up the majority of the
workforce at the mills. (Cliffnotes, 2013)
The impact of the 19th
century industrial revolution on the landscape of the American economy cannot
be understated. In 1840, the percentage of workers employed in agriculture was
“roughly 70 percent of the labor force” (Johnston, 2012), compared to
approximately 20% in services and 10% in manufacturing. By 1901 the gap had
closed dramatically, with only 40% of Americans working in agriculture,
compared to approximately 28% in manufacturing. Manufacturing finally surpassed
agriculture in the 1910’s and never looked back. See the chart below.
By 1939, near the end of the Great
Depression, employment in manufacturing surpassed 9 million workers (BLS, 2013).
This number grew steadily in the following decades, through a massive peak in
World War II, then to its maximum number of 16.35 million in 1953. From then
on, however, manufacturing job numbers have continued to fall. Most recently,
in the first quarter of 2013, the job count stood at 11.9 million workers, or just
over 20% of all workers in America. This sounds disheartening, but the
underlying causes behind the fall reveal this is not as troubling as it may at
first appear.
Prior to World War II, shifts
between service and manufacturing labor were mainly the results of shifting
demand. According to Johnston, the service sector grew prior to the Great
Depression due to the rising incomes of Americans. It is well documented that
wealthier people tend to demand more grooming, financial, and food services.
After World War II, however, increased
efficiency “pushed” workers out of manufacturing. Somewhat paradoxically, the
increase in efficiency meant that fewer workers were needed to keep up with
demand. Productivity in the service industries did not benefit as greatly from
the Second Industrial Revolution, meaning more workers were needed to keep up
with demand. While the service sectors have increased their share of labor to
match demand, manufacturing has increased its efficiency.
According
to the Federal Reserve, the dollar value of U.S. manufacturing output in
November was $2.72 trillion (in 2000 dollars), which translates to $234,220 of
manufacturing output for each of that sector’s 11.648 million workers, setting
an all-time record high for U.S. manufacturing output per worker.
Workers
today produce twice as much manufacturing output as their counterparts did in
the early 1990s, and three times as much as in the early 1980s, thanks to
innovation and advances in technology that have made today’s workers the most
productive in history. (Perry,
2009)
Paul Markillie, writing for the Economist,
called what is happening in manufacturing today a “Third Industrial
Revolution.” To illustrate, he examines two emerging methods in manufacturing
processing. The first is what is known as “Additive Manufacturing”, or more
commonly, “Three Dimensional Printing”.
Instead of bashing, bending and cutting
material the way it always has been, 3D printers build things by depositing
material, layer by layer. That is why the process is more properly described as
additive manufacturing. An American firm, 3D Systems, used one of its 3D
printers to print a hammer for your correspondent, complete with a natty
wood-effect handle and a metallised head.
This is what manufacturing will be like
in the future. Ask a factory today to make you a single hammer to your own
design and you will be presented with a bill for thousands of dollars…For a 3D
printer, though, economies of scale matter much less. Its software can be
endlessly tweaked and it can make just about anything. (Markillie, 2012)
In
a sense, additive manufacturing combines the advantages we once had when our
manufacturing relied on armies of artisans with the advantages of mass
production. The artisan could hand craft a tool or product specifically to the
precise needs of the customer. Into it went the sum total of decades of
experience. Mass production made it possible to create good products cheaply
and efficiently, raising the standard of living and the productive capabilities
of industrialized nations by orders of magnitude.
With
additive manufacturing, anything that can be modeled on a computer screen can
be printed out, allowing for the right tool to be perfectly crafted for the
right job at a much lower cost than before. As Markillie says, “It might
be a pair of shoes, printed in solid form as a design prototype before being
produced in bulk. It could be a hearing aid, individually tailored to the shape
of the user's ear. Or it could be a piece of jewellery.”
The
implications are not only limited to the formal factory. Because the size of
the machines are small and the set up costs are low (compared to buying an
entire factory) it lowers the barriers of entry for new firms and individuals. Increased
competition naturally breeds greater innovation and creativity. Firms are
punished for producing shoddy or more expensive products as customers switch to
products made by rival firms. Therefore, increased competition is generally
desirable in a market system (McConnell, Brue, Flynn, 2012).
The trend in almost every sort of
manufacturing has been to lower labor costs by removing as many man-hours from
the process as possible. Nothing embodies the idea of removing labor while
increasing production more than the philosophy of “lights out” manufacturing.
This methodology was thought dead by many after it was originally attempted by
the Detroit car companies in the 1980s (Markillie, 2012). The technology of the
time was unable to keep pace, and the tendency for poorly calibrated machines
to simply produce excessive amounts of scrap caused it to be untenable. Now,
thanks to advances in robotics and computer calibrations, this may once again
be a path forward.
The term “lights out” comes from the
idea that the factory could essentially run itself without human supervision or
interference. Since machines do not need light to see, you could turn the
lights out. Machines do not demand as many sick days, nor do they drink as much
coffee as their mammalian counterparts, making a nearly human-free work
environment extremely desirable for business owners. Naturally, the reality
does not exactly live up to its name.
“Of
course, it’s not entirely human-free. Machines require programming and
maintenance, while materials must be loaded and retrieved. But the streamlining
of production through automation can greatly improve product quality and
quantity, as well as lower expenses.” (Lane, 2012)
Many
companies, such as FANUC out of Japan, use lights out manufacturing to
essentially create an additional shift of production, during which the machines
can run unsupervised. Of course, the more advanced the machine, the more
skilled the worker who programs it and maintains it must be. Therefore, it is
unlikely that the labor component of manufacturing will ever reach zero. As
Rodney Brooks stated for the Economist, “The PC didn’t get rid of office
workers, it changed the tasks they did.”
Greater
production power is not the only reason that manufacturing in America is still
relevant. Manufacturing contributes to economic growth in ways that service
related industries do not. For example, despite its relatively small share of
the American GDP (11%, approximately), manufacturing represents 68% of spending
on research and development (Markillie, 2012). Moreover, an increase in
manufacturing production that is accomplished without the addition of labor can
still be a boon for the job market as a whole. According to the Manufacturing
Institute (2009) “every dollar in final sales of manufactured products supports
$1.40 in output from other sectors of the economy. Manufacturing has the largest
multiplier of all sectors…” Increases in production power for manufacturing can
mean more jobs elsewhere to replace those lost in manufacturing itself.
The value of a robust
manufacturing sector goes beyond the GDP. The ability to manufacture products domestically
for use in war is also an important strategic capability. One of the many
things that World War II demonstrated was the tremendous role industrial
capacity can play in warfare (Overy, 2011). In this respect we still outperform
out leading competition from potentially unfriendly states. Our production
matches that of roughly dollar for dollar, yet we accomplish that with only 10%
of the workforce that the Chinese require, according to Susan Hockfield from
MIT. Our production tends to focus on things that require more technology and
expertise to produce, such as aircraft and semiconductors. Meanwhile China
focuses on things that can be made with masses of low-paid workers. As Schuman
put it, “That’s why the U.S. sells Boeing aircraft to China, and the Chinese
sell blue jeans to America”.
The
idea that a bustling factory floor is the true symbol of a productive society
has been durable, but is no longer accurate. There once was a time when the
ringing of a blacksmith’s hammer on an anvil signaled production and industry.
It may have been unthinkable at the time, but now it seems obvious that the
blacksmith had to adapt in order for the economy to flourish. Just as the
master blacksmith before him, so too will the sepia-toned factory worker become
a thing of the past. Many in the media and on Main Street worry about the
change, but that is due to a failure to think economically. Economics is the
study of scarcity, which means that, all other things being equal, a process
which produces more while using fewer of our limited resources is an economic
success. Changes always mean that some people will lose work or will find their
skills no longer in demand. While unfortunate, it is a sign of greater things
to come. The factory worker is not leaving America; he is simply putting away
his hammer and picking up a laptop.
References
CliffsNotes.com
(2013) Growth of Manufacturing.
Retrieved from
http://www.cliffsnotes.com/study_guide/topicArticleId-25073,articleId-25037.html
http://www.cliffsnotes.com/study_guide/topicArticleId-25073,articleId-25037.html
Mary
Bellis. The History of Railroad Innovations. About.com. Retrieved from http://inventors.about.com/library/inventors/blrailroad.htm
Louis D.
Johnston (2012). History Lessons: Understanding the Decline in Manufacturing. Minnesota Post. Retrieved from http://www.minnpost.com/macro-micro-minnesota/2012/02/history-lessons-understanding-decline-manufacturing
U.S.
Department of Labor: Bureau of Labor Statistics (2013) All Employees: Manufacturing, Employment Situation by Thousands of
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Mark. J. Perry (2009). Manufacturing:
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Jon Bruner (2011). U.S. Manufacturing
Surges Ahead – But Don’t Look for a Factory Job. Forbes. Retrieved from http://www.forbes.com/sites/jonbruner/2011/08/22/u-s-manufacturing-surges-ahead-but-dont-look-for-a-factory-job-infographic/
Brian lane (2012). Lights Out
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Paul Markillie (2012). A Third
Industrial Revolution. The Economist.
Retrieved from http://www.economist.com/node/21552901
Michael Schuman (2011). Can China
Compete with American Manufacturing? Time.
Retrieved from http://business.time.com/2011/03/10/can-china-compete-with-american-manufacturing/
McConnell, Brue, Flynn (2012). Macroeconomics: Principles, Problems, and Policies.
New York, NY: McGraw-Hill/Irwin
Richard Overy (2011). World War Two:
How the Allies Won. BBC. Retrieved
from http://www.bbc.co.uk/history/worldwars/wwtwo/how_the_allies_won_01.shtml
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