Why has the number of American manufacturing jobs been decreasing so quickly?

The fundamental reason is that productivity in manufacturing has been rising rapidly and demand for manufactured products has been growing more slowly. To supply the stuff that people want requires fewer jobs.

And then, manufacturing is becoming feasible in more parts of the world. There is more competition, including from countries with much lower wages. As they emulate American production, they take market share.

What’s the best manufacturing strategy for the U.S. in that situation?

It’s certainly not playing defense and trying to save jobs. The U.S. has very, very high wages compared to other countries. Yet it also has a comparative advantage, which is deep knowledge, high R&D intensity, and the best science and technology base in the world.

The step that makes the most sense for the U.S. is to become the producer of the machinery that will power the next global manufacturing revolution. That is where the most complex and sophisticated products are, and that is the work that can pay higher wages.
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So what are the opportunities for the U.S. in product space?

The U.S. has the problem that it’s competing with countries that pay much lower wages. American monkeys are under stress from other countries’ monkeys in regards to less complex, easier-to-make products. So the U.S. should look to the taller trees. The tallest trees in product space are pharmaceuticals, chemicals, and machinery. It’s very hard to get into those. Very few countries are in that game.

That is why I say the really long-term play is for the U.S. to be the source of the machinery that will power the coming global manufacturing revolution. The U.S. can grow by using capabilities that few others have.

Is there a manufacturing technology you see as game-changing?

I think 3-D printing could change the dynamics. I use 3-D printing as shorthand for shorter production runs, more design, and much closer to the market. It’s a paradigmatic shift in what manufacturing is going to look like.

Historically you think of manufacturing as an assembly line with thousands of workers, the UAW [United Auto Workers union], and benefits. But here we are talking about very small batches, made close to consumers, and customized. It will still be manufacturing, but a different kind of job in a different kind of company whose organization we don’t yet know.

Will the U.S. create jobs in this way?

If anything, a manufacturing revolution is going to accelerate a trend toward more efficiency. So from that point of view, for the U.S. to base its employment strategy on manufacturing sounds unrealistic. Manufacturing is low-employment.

What else is the U.S good at manufacturing?

If you look broadly at the U.S. product space, the country is super-competitive at agriculture and the industries that support it, like farm machinery, agrochemicals, and genetically modified seeds. It is strong in aerospace with Boeing, GE, Northrop Grumman, and Pratt & Whitney. It is a leader in pharmaceuticals and medical equipment, and it is the clear leader in information technology and the Internet. New industries often arise from the combination of capabilities, such as biotechnology that can move from medicine to seed development and pest control

How well is the U.S. doing in staying competitive?

For a while now, the U.S. has been much less focused on being competitive than most other places are. Americans have the feeling they are born to win, and if they don’t, someone else is cheating. The U.S. has many self-inflicted wounds. It has an infrastructure that’s increasingly lousy and a corporate tax rate higher than most countries’. But the most important [problem] is immigration policy. It’s been a real disaster by preventing the attraction and retention of the high-skilled people who come here to study and then don’t stay.

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