Innovation was front and center in Gene Sperling’s spirited defense of manufacturing at the Brookings Institution today.
Sperling, director of President Obama’s National Economic Council, said public policy that encourages manufacturing is justified because “having particularly more advanced manufacturing located in the United States has a broader innovation spillover effect that goes beyond” the private companies involved.”
Sperling noted that despite manufacturing representing only 12% of the economy, it supports 70% of private R&D investment, 60% of R&D employees, 90% of patents and the majority of US exports.
Sperling cited a number of studies supporting the value of the industrial commons or supply chain ecosystem. These studies generally support the idea that manufacturers benefit from having a robust community of suppliers nearby and that manufacturing suffers when production is separated from research and designers.
It may make sense for any one company to move production from the United States, Sperling said, but “the result of several individual firms doing that can have a cascading effect on customers and suppliers” that results over time in companies being less likely to invest in expanding in the U.S. That produces a vicious cycle, he told the Brookings audience, where over time U.S. manufacturing proficiency suffers and “we lose the capacity to compete for the next industries.”
Sperling argued that it was wrong to assume that there was an “inevitable decline” in manufacturing jobs in advanced economies such as the U.S. In 1965, he noted, there were 17.5 million manufacturing workers. In 2000, he said, there were still 17.5 million workers. It was only in the last decade that there was a dramatic loss in total manufacturing jobs, he said.
Moreover, Sperling cited a study by the McKinsey Global Institute that there are 5.7 million jobs in integrated manufacturing supply chains that are not counted as manufacturing jobs, though in the past those would have been internal jobs at manufacturers. He also noted the multiplier effect for manufacturing in the labor force: 1.6 jobs created for each manufacturing job and, for advanced manufacturing, nearly five jobs for each manufacturing position.
Is there a manufacturing renaissance? Sperling argued taking a snapshot at the present time is not the right way to look at the issue. He said from a public policy perspective, the question is whether the right policies are being adopted to support manufacturing. Sperling said that the auto rescue was a good example of successful public policy, preventing 1 million job losses and resulting in the industry adding 325,000 jobs. And with a more dynamic view of the forces at work such as cheaper U.S. energy and concerns about extended supply chains, the U.S. is moving in the direction of becoming more competitive as a manufacturing location.
“When you look at the proper paradigm of innovation spillover, supply chain jobs and a dynamic analysis rather than a static analysis, there is every reason to believe it makes good sense to have a public policy perspective that pushes us to be more competitive in manufacturing and advanced manufacturing,” he concluded.
