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Published: January 20, 2014
 / Spring 2014 / Issue 74

 
 

America’s Real Manufacturing Advantage

A Sustainable Renaissance

What can U.S. business leaders and policymakers do to ensure that the manufacturing renaissance solidifies, gains force across industries, and realizes its potential in fostering economic growth during the years ahead?

Action should be focused in three areas: maintaining the U.S.’s established culture of innovation, nurturing the institutions that have made the U.S. a leader in software, and raising the quality of education and training, particularly in those aspects that will matter to manufacturing. Above all, policy needs to reduce uncertainty, reflecting broad agreement and a focus on long-term success.

• Innovation culture. One of the most important things that business leaders will look for as they locate advanced manufacturing facilities is access to the leading-edge research and technology development that flows from major universities, along with the availability of engineers, executives, and production workers with the right skills. To ensure the continued robustness of U.S. R&D, in fact, it is necessary to make sure that manufacturing itself stays in the United States. As Dow Chemical chairman and CEO Andrew Liveris notes in Make It in America: The Case for Re-Inventing the Economy (Wiley, 2011), “You cannot separate innovation from manufacturing. Where manufacturing goes, innovation inevitably follows.”

One simple initiative to support U.S. innovation is to reform the research and development tax credit (referred to in current law as the “research and experimentation” tax credit). It should be extended, simplified, and made permanent. There is broad bipartisan support for this change. The U.S. was a leader in encouraging innovation when the tax credit was enacted in 1981, but other nations were quick to emulate—and in many cases to surpass—the U.S. approach. Worse, this tax credit has always been treated as temporary; Congress extends it every few years, sometimes on an ad hoc basis.

One simple initiative to support U.S. innovation is to reform the research and development tax credit.

• Nurturing institutions. Another imperative should be to preserve—and to further build and strengthen—the institutions that enabled the U.S. technology and software sectors to grow and flourish in the first place. These include the national research laboratories and the university system, but also the venture capital industry, which is a crucial—and unique—bridge between academia and the marketplace. State, local, and public–private initiatives should also aim to foster the continued growth and development of the regional clusters of technology and software innovation that have played a crucial role in building the United States’ advanced manufacturing capacity and productivity. These are a vital part of what Harvard Business School professors Gary Pisano and Willy Shih refer to as the U.S. “manufacturing commons” (in Producing Prosperity: Why America Needs a Manufacturing Renaissance [Harvard Business Press, 2012]), which provides the expertise, skilled workers, and infrastructure that manufacturers need.

• Education and training. To enable real job growth in the coming era of advanced, virtual-to-real manufacturing, the U.S. will need to build on its strengths in education—such as its leading research universities—while filling gaps that have appeared in recent decades. There are significant shortfalls in STEM (science, technology, engineering, and math) education—particularly technology and engineering. U.S. students, the National Science Board reports, are earning only 11 percent of the world’s 4 million undergraduate S&E degrees, compared to 21 percent in China and 19 percent in the European Union. Gaps at the primary- and secondary-school levels are also wide. Although STEM knowledge and skills are improving, U.S. students still lag behind international averages in mathematics.

Most of all, the public and private sectors must close the nation’s training gap. The commonly used phrase “skills gap” implies that this is a matter of capable individuals needing proficiency, but the problem is broader and more systemic. The U.S. will never meet its future challenges until managers and policymakers put the burden on those who do the training, rather than those who need to be trained. In Why Good People Can’t Get Jobs: The Skills Gap and What Companies Can Do about It (Wharton Digital Press, 2012), Wharton professor Peter Cappelli notes that in 1979, U.S. workers received an average of 2.5 weeks of training per year. By 1995, the average company offered just under 11 hours per year. In 2011, Accenture found, only 21 percent of U.S. employees had received any employer-provided training in the previous five years.

 
 
 
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Resources

  1. Robert D. Atkinson and Stephen J. Ezell, Innovation Economics: The Race for Global Advantage (Yale University Press, 2012): Why the U.S. needs a coherent innovation policy to remain competitive, from two officers of the Information Technology and Innovation Forum.
  2. Peter Cappelli, Why Good People Can’t Get Jobs: The Skills Gap and What Companies Can Do About It (Wharton Digital Press, 2012): The director of Wharton’s Center for Human Resources makes a case for changing the way talent is developed, recruited, and retained.
  3. Kaj Grichnik and Conrad Winkler, Make or Break: How Manufacturers Can Leap from Decline to Revitalization (McGraw-Hill, 2008): Former Booz & Company consultants show how top companies are reinventing themselves to compete in a new world.
  4. Andrew N. Liveris, Make It in America: The Case for Re-inventing the Economy (Wiley, 2011): The chairman and CEO of Dow Chemical makes the case for manufacturing in the United States.
  5. Gary P. Pisano and Willy C. Shih, Producing Prosperity: Why America Needs a Manufacturing Renaissance (Harvard Business Press, 2012): Two professors at Harvard Business School show why manufacturing really matters in an innovation-driven economy.
  6. Harold L. Sirkin, Justin Rose, and Michael Zinser, The US Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback (Knowledge@Wharton, 2012): Analysis and recommendations for U.S. manufacturing from the Boston Consulting Group.
  7. Vaclav Smil, Made in the USA: The Rise and Retreat of American Manufacturing (MIT Press, 2013): An authoritative history of U.S. manufacturing by a noted business historian and author.
  8. Gene Sperling, “The Case for a Manufacturing Renaissance,” speech delivered at the Brookings Institution, July 2013: The director of the National Economic Council discusses U.S. competitiveness in advanced manufacturing.
  9. For more thought leadership on this topic, see the s+b website at: strategy-business.com/operations_and_manufacturing.
 
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