Industryweek 2125 26464 Manufacturing Dead

Viewpoint: Is Manufacturing Dead in America?

Jan. 26, 2012
The U.S. is still the leading manufacturing nation on earth and the percent of GDP that manufacturing occupies has remained about the same for the past 30 years.

I was privileged to attend the National Association of Manufacturers (NAM) Board of Directors meeting in Washington D.C. recently. Attended by some 300 senior executives of American Manufacturing companies, it was like a who's-who in brand names anyone would recognize.

Many economists have stated that you cannot achieve and sustain economic leadership without a robust manufacturing sector. And yes, the conventional wisdom of the day is all about the decline of U.S. manufacturing. In 2012, we will increasingly hear the claim that companies are "shipping jobs overseas" with the implication that we need more laws and regulations from the candidates that promote this idea.

But what I heard at the NAM Board meeting were facts about U.S. manufacturing that tell a much different story:

The U.S. is still the leading manufacturing nation on earth, while China and India are growing much faster in their manufacturing. This is good, not bad. They need to grow. They each have huge populations and an emerging middle-class demographic that demands a better standard of living. The economic pie of world wealth is not fixed, it is dynamic and getting bigger. We should be glad they are growing their middle class. But this hardly means the U.S. is becoming irrelevant in manufacturing. The U.S. produced 19% of the worldwide value-added manufacturing output in 2008 and about 22% of that was exported. The U.S. is the 3rd largest exporter and the number one manufacturing economy in the world.

The percent of GDP that manufacturing occupies has remained about the same for the past 30 years. In 1900, 38% of the labor force was involved in farming. By 1990, that fell to 2.6%. Why is that important? Because, over time, farming became much more productive and mechanized and required less labor. Manufacturing labor is similar to farm labor in terms of a slow decline in its share of employment and national output. But adjusting for price changes, the share of GDP for the manufacturing sector has tracked with the overall economy over the past 60 years.

Businesses provide the bulk of taxes that fuel state and local governments. Manufacturers run a close second to services at 20% of business taxation and without a healthy manufacturing base, we would be in a much more precarious position than we are now. In 2008, business taxes accounted for 44% of state and local governments, other non-business taxes made up 35% and individual income taxes made up just 21%. Raising income taxes on any group of Americans, wealthy or otherwise, will not get us tax revenue like revving the engines of business will produce.

Another myth exploded is the idea that U.S. manufacturing investment abroad destroys U.S. jobs. Consider these facts:

  • U.S. multinational corporations (MNCs) employed 22.4 million Americans domestically in 2008 and nearly 12 million were employed directly in manufacturing. Of that 12 million, 7 million worked for MNCs
  • MNC affiliates employed 5.4 million manufacturing workers overseas with nearly half of them employed in high wage countries in Europe or in Canada. Only 10% were in China, less than Germany and France combined.
  • From 2000-2008, manufacturing jobs overseas in MNC affiliates increased by only 314,000; this is barely 6% growth and one-third of this was in Europe.
  • MNCs with operations in many countries had much higher labor productivity than those with operations in only a few countries ($154K versus $100K average value added)
  • Companies invest abroad to serve local markets. U.S. affiliates sold $2.7 Trillion in manufactured goods in foreign markets in 2008 and 90% of sales were to local markets not exported back to the U.S.
  • Companies invest abroad to seek a skilled workforce, not cheap labor. U.S. manufacturing foreign direct investment (FDI) stood at $541 billion in 2009; 72% by value was in developed countries and U.S. manufacturing investment in China was only 4 percent of total FDI; 75% of value added of all affiliates was in high-wage countries

MNCs remain committed to producing in the United States and are investing in the future. Jeff Immelt, Chairman and CEO of GE, spoke at the meeting and made a clear, direct statement to this issue. He listed a number of areas where GE has made heavy investments including expanded locomotive and aircraft engine operations because they have received so many orders overseas. These are skilled, high-paying jobs with long-term prospects as the contracts to produce these complex, highly engineered products run many years.

  • Overall, U.S. manufacturing shipments totaled $5.5 trillion in 2008, up 30% from 2000 and MNC sales accounted for about 75% of the total for manufacturing.
  • MNC research and development expenditures in the U.S. in 2008 were $236 billion, and 77% or $183 billion was in manufacturing.
  • MNCs overseas investments are NOT the cause of the trade deficit. Consider that MNCs exported $507 billion in manufactured goods from the US in 2008. Their affiliates took nearly half of those exports.

Manufactured goods trade accounted for only $72 billion of the $698 billion trade deficit in 2008 and if you exclude petroleum and coal products, MNCs actually produced a trade surplus of $106 billion in 2008.

That was a fire hose of numbers and facts, but we must make the critical decisions about our future based on facts. From my vantage point, that is what leading edge companies are doing, and we must hold our politicians to that standard as well. Day after day, I see U.S. manufacturers like the 100+ year old American manufacturing icon Dow Chemical investing in people and technology to drive out costs, improve quality and gain new customers.

Manufacturing in the U.S. is the engine that has largely pulled not only the U.S. economy out of the ditch, but the world economy as well. And if we don't pay attention to what manufacturers are saying about what hinders them from creating new jobs and innovating new products, we do so at our own peril. Manufacturing is not even in the hospital, let alone dead. But if public officials play fast and loose with the truth and use MNCs, and manufacturing MNCs in particular, as a punching bag, they can certainly make her very sick.

Michael Newkirk is the director of Global Manufacturing & Supply Chain Product Marketing for SAS.

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