By Lisa Autz
Since the spawn of the American Industrial Revolution and on through today, manufacturing has remained a sector in the US economy. However, while history books may highlight the successes of American industrial production up to and during WWII, in today’s news stories, it’s not uncommon to hear about the ongoing outsourcing of industry.
Well-known corporations that produce iconic American consumer items like Campbell’s Soup, Barbie dolls, and GE motors have all transitioned to building factories and components abroad. Their decision to outsource has been part of a sweeping loss of about 5.7 million manufacturing jobs in the past decade.
Yet, driven partly by increasing labor and energy costs in foreign countries like China, and the market interest for higher quality goods produced closer to home, the presence of US factory jobs may be making an astounding comeback.
It doesn’t take an economist to know that the work of hydraulic fracturing and natural gas drilling has significantly reduced American dependence on foreign nations. The Boston Consultancy, BCG, for example has averaged costs to manufacture goods in the US now to be only about five percent greater than in China. Even more impressive, BCG predicts US production to be two to three percent cheaper than China in 2018.
It seems the less we need to spend on importing oil from abroad, the more time and independence we gain to competitively produce again.
In conjunction with the development of China and its rising labor costs, the American “buy local” campaign is looking more and more enticing. So, not only is it more feasible, but also highly desired in a country with a disintegrating middle class.
BTR spoke with Scott N. Paul, President of the Alliance for American Manufacturing, a collective of leading, domestic manufacturers as well as the United Steelworkers Union. They strive to educate policy makers on the value of domestic manufacturing. To Paul, manufacturing in the US is symbolic to a time when the middle class was robust and growing.
“It’s more than just manufacturing jobs,” affirms Paul. “They represent the whole ecosystem of job opportunities, it represents a pathway to the middle class, it represents a lot of innovation happening in the United States.”
The paradox to this aspiration is that beloved US consumers will chant and roar for all things “Made in the USA” meanwhile opting for Asian products with bargain deals. While the projected cost of US manufacturing is predicted to take a down-curve in the near future, it’s still currently cheaper to assemble abroad.
Take for example, Google Inc.’s attempt to manufacture their Motorola Mobility handset unit, called Moto X, in Fort Worth, Texas. As a result of weak sales and high costs, the US factory shut down after only a year in 2014.
The announcement of closing up the factory plant came just a few months after Google sold its Motorola handset business to a Chinese computer company for $2.9 billion.
“The main challenge with manufacturing is not only labor cost but cost of all factors,” Willy Shih, Harvard Business professor of Management Practice, explains to BTR.
Shih is an open skeptic to the local-production revival. Spending more years in factories across the US than in the academic study halls, his perspective is that some industries have a chance while others do not consider all factors that come into play.
Building a smartphone or other electronics in US factories is highly unlikely due to the Asian dominance in building the components needed to construct a phone.
“What China has done over the last 15 years is that they’ve captured the component supply-chain,” asserts Shih. “All the components of an iPhone are made in China.”
Shih does believe in a type of manufacturing for the US though, just not the same industry as the nostalgic times of the industrial revolution. The paradigm shift in US manufacturing will be in the highly technical and niche craft production of goods.
For instance, some forecast medical, aerospace, and other high-tech, expensive manufacturing will likely grow in America. One high-tech scientific item that requires skilled manufacturing is the semiconductor, as it relies more on the skills of a quantum physicist than an unskilled factory worker. The dimensions of a semiconductor can be no more than five atoms wide and require a physicist to design and monitor every step of production.
“The ability to design the leading, cutting-edge devices [is] closely coupled with the ability to manufacture or produce them,” confirms Shih. “Having manufacturing in the US is tied to your ability to do innovation as their needs to be constant interaction and experimentation between engineers and producers when launching a product.”
Some companies, like American Apparel, True Religion Jeans, and Crayola Crayons have kept their factories on US soil. There are even some larger companies that develop limited assortments of American-made garments and accessories. Brooks Brothers, for instance, sells an $84 dollar collared shirt assembled to detail by American labor.
However, this type of manufacturing doesn’t necessarily help with the shrinking middle class. Jeff Chidester, Director of Policy Programs at the Miller Center, spoke with BTR about his work in helping to rebuild manufacturing for middle class jobs through precise policy work.
They found that small-to-medium size manufacturing firms are the biggest drivers of jobs for Americans. Chidester’s team has brought on board multiple commission members from different America cities to pass incentives such as the small trade initiative, which is intended to get the latest technologies into the hands of small business owners to better compete in the market.
“On average, small manufacturing [facilities] are not going to have the very latest technology,” illuminates Chidester. “But if you want them to really succeed they have to be nimble enough to create faster and more efficiently.”
Paul is optimistic as well for policy work that can help fuel a resurgence, especially to more humble, middle class manufacturing. However, innovative strategies in infrastructure reconstruction and trade policies are highly needed to rebuild this American dream.
“There [have] been about almost 800,000 manufacturing jobs that have been added,” states Paul. “But if we had a larger scale political investment in infrastructure and real smart strategy to reduce the trade deficient, we could certainly achieve it.”