What is in this article?:
- How America Can Win the Future in Manufacturing
- The Solution? Big Trends, Small Firms
The future of American manufacturing will be won by innovative small and medium-sized companies out to change the world – but only if they have the tools they need to compete.
For developed nations, economic growth is predicated on innovation.
This has been the conventional wisdom for some time, and it remains true today. But there is a difference between a nation that produces great innovations and a nation whose industries, both old and new, continue to adapt to and profit from these innovations.
This nuance – and our response to it – may hold the key to America's manufacturing future.
America's contributions to the world of innovation need not be recounted here – it's the story of Thomas Edison, Henry Ford, and Steve Jobs, of the airplane and microprocessors, of Google and Facebook.
For over a century, America has produced individuals and ideas that have transformed how we interact with the world around us, and it remains the global leader today.
Yet, while America continues to lead the way in disruptive innovations, its insatiable drive to open new frontiers sometimes overlooks the importance of innovating within current industries.
If we lose in innovation, we lose in manufacturing."
By contrast, as Dan Breznitz recently wrote, Germany, not the U.S., is the global leader in leveraging innovation in service of existing industries. The results have been staggering – and they offer critical lessons for American manufacturing.
According to Breznitz, "German innovation involves infusing old products and processes with new ideas and capabilities or recombining elements of old, stagnant sectors into new, vibrant ones."
This activity is driven by Germany's so-called "mittelstand" – a series of small- and medium-sized enterprises (SMEs) which together account for roughly 60% of German jobs.
While these companies tend to be family-owned and prefer conservative growth strategies, they are nonetheless highly innovative. Yet they innovative in a different way.
"Rather than thinking outside of the box, the mittelstand has always been for enlarging it," said the OECD's Andreas Woergoetter. "They prefer incremental over radical innovation."
These innovative SMEs are the reason Germany's manufacturing sector has thrived.
Today, 22% of Germany's workforce is employed in the manufacturing sector compared to less than 11% in the United States. This despite the fact that German industrial workers average wages two-thirds higher than their American counterparts.
The German example shows that developed economies can still flourish in the manufacturing sector if given the right toolkit.
It is also a cautionary tale: If we lose in innovation, we lose in manufacturing.
Much like Germany, the future of American manufacturing will rise and fall on the innovative capacity of its SMEs.