This is the third installment of a seven-part series that details the strategic and often gut-wrenching shifts taking place in manufacturing. It appears in the August 2003 issue of IndustryWeek. IW will introduce a new installment each month throughout the remainder of 2003.
"On the wisdom with which we bring science to bear against the problems of the coming years depends in large measure our future as a nation."
With that statement, Vannevar Bush, President Franklin D. Roosevelt's science adviser, concluded a seminal 1945 report in which he made the national security case for supporting the kinds of contributions that science had made to the winning of World War II. A major effort in R&D, Bush asserted, would be needed if the U.S. were to continue to prosper.
Some U.S. leaders make the same case today.
Bush's report led to the creation of the National Science Foundation (NSF) in 1950 to support and coordinate education and fundamental research in science and engineering. The belief was that new knowledge and new research would strengthen the nation both militarily and economically.
For validation of that R&D premise, look no further than the post-World War II successes of the U.S. technology-driven manufacturing economy. Bar codes, CAD-CAM, fiber optics, the Internet, Web browsers and many other technologies key to the strength of U.S. manufacturing were born of the public-private partnerships coordinated by the NSF as well as by other government-sponsored research initiatives. And if you missed the recent headlines, technology was the decisive factor in the U.S. war against Iraq and terrorist cells in Afghanistan.
However, many leaders in industry and government fear that current R&D practices will hinder the country's ability to repeat such commercial and military successes. Being questioned is whether the U.S. can keep hold of technological preeminence while production increasingly is conducted off shore, or whether innovation will inevitably follow production beyond U.S. borders. Consider this headlined warning: "DOD Technology Advisory Group Says Military Capability Is In Doubt Due To Loss Of Electronics Industry" (from "Manufacturing & Technology News," May 16, 2003). Drawn from a "controversial and unpublished" briefing document, the newsletter's story quotes a report from the Pentagon's Advisory Group on Electron Devices (AGED): "Off-shore movement of intellectual capital and industrial capability, particularly in microelectronics, has impacted the ability of the U.S. to research and produce the best technologies and products for the nation and the warfighter." The report further contends: Eroding technological leadership in electronics and semiconductors is forcing the Defense Department to obtain the most advanced technology from overseas.
Concerns Past And Present
AGED's warning is not the first to highlight the national and economic security concerns arising from a decline of U.S. manufacturing in general and the semiconductor industry specifically; nor is it the only one currently making the rounds in government and industry. For years, concerns that technology and innovation would follow production to low-cost developing countries have been building, as first Japan then Taiwan, South Korea and the other "Asian-tiger" economies developed formidable high-tech manufacturing sectors. Throughout these challenges, however, U.S. producers retained their advanced manufacturing leadership and, in fact, became stronger by taking advantage of the new technological abilities of emerging economies. Consensus has been that U.S. manufacturers would outsource low-skilled, low-paying production jobs while retaining the high-paying engineering and design (as well as finance, sales and marketing) positions. Also, as technology aged. it would flow to less-developed countries, freeing U.S. minds to pioneer the next big market. Those who dared to raise concerns that such a strategy might endanger U.S. manufacturing were written off as protectionist and isolationist.
But the fast entry of China into manufacturing, and especially into the semiconductor industry -- and China's aggressive strategy to encourage manufacturing growth -- has renewed the debate: Are U.S. businesses and the government doing enough to retain leadership in manufacturing innovation?
Reports from the National Association of Manufacturers (NAM) and the National Coalition for Advanced Manufacturing (NACFAM), both in Washington, D.C., suggest earlier fears were well-founded. U.S. leadership in several critical industries is falling along with market share, and high-skilled jobs and innovative research are now following production jobs. Further, the reports highlight that stakes are higher this time, with the entrance of China. The NACFAM report, for example, notes that while Japanese, Taiwanese and South Korean wages rose as those countries developed, the sheer size of China's population means its labor surplus, and thus low wages, will put pressure on U.S. manufacturers for a long time to come.
