US Manufacturing: The Misunderstood Economic Powerhouse

Jan. 15, 2013
Considered all but dead by some pundits, experts such as Alcoa CEO Klaus Kleinfeld say manufacturing is on the cusp of 'something big.'

With 6 million jobs lost in the last decade, U.S. manufacturing bore the brunt of globalization and recession, not to mention a widespread belief that its day had simply passed. But panelists at a Brookings Institution conference said there are good reasons to expect a resurgence of U.S. manufacturing if it is supported by smart public policies and public-private programs.

“We still think about manufacturing in the U.S. as yesterday’s economy as opposed to the vanguard of innovation in our economy,” said Bruce Katz, a vice president at the Brookings Institution. But he points out, manufacturing accounts for “9% of jobs, 11% of GDP, 35% of engineers, 68% of private R&D, and 90% of our patents. We may be the only economy to decouple production and innovation.”

At the Brookings event, titled “Fostering Growth Through Innovation,” Katz noted that a series of developments -­ rising wages in China, shale gas, the beginning of reshoring and disruptive technologies such as 3D printing -­ offer the promise that U.S. manufacturing is at the “beginning of something big.”

Klaus Kleinfeld, chairman and CEO of Alcoa, cited the surprising resurgence of the automotive industry, with projections that production levels will reach pre-recession levels this year. He said CAFE standards played an important role in promoting innovation as manufacturers looked for ways to make vehicles lighter. Kleinfeld said discoveries of shale oil and gas are “gifts” to the U.S. economy that are so big and have “so many implications that we are just starting to understand what that means.”

As a result of these developments, he noted, Alcoa is investing $300 million to expand its Davenport, Iowa rolled products plant to meet automotive needs. And it has stepped up production at its Point Comfort, Texas refinery, once a “swing” facility but now one the lowest cost refineries in Alcoa’s network because of lower energy costs.

Creating the Skilled Workforce

But to capitalize on these positive developments, panelists said manufacturing and policy leaders must tackle some major challenges. Kleinfeld noted that 2.7 million manufacturing workers are expected to retire between now and 2018. Moreover, he said, estimates are that 40% of manufacturing jobs will require a post-secondary education as manufacturing becomes more technically sophisticated.

Greg Fischer, a former manufacturing CEO and now mayor of Louisville, Ky., told the conference that when GE was hiring for its appliance factory in Louisville, it needed 1,000 employees. Some 12,000 applied for jobs, Fischer said, but only a quarter of them were qualified for the jobs. He said the U.S. needs to not only promote technical skills but also soft skills such as the ability to work in teams.

Fischer echoed other speakers that a cultural change needs to take place in the United States so that manufacturing jobs are valued and young people see them as desirable career paths. As an example, he pointed to industrial maintenance technicians as one of the “rock star” positions in manufacturing, with incomes reaching $80,000 to $100,000. While they are “absolutely necessary” to keep factories running, Fischer said, their ranks have been diminished by 10 to 15 years of outsourcing and an aging workforce.

Emily DeRocco, former president of The Manufacturing Institute, said experts do know what works to create a skilled workforce, but solutions have not been implemented on a national basis. She said efforts should be focused on regional economies where manufacturing clusters are developing. She said the U.S. should end the “false dichotomy” that federal policies have created between educational pathways and workforce development. Integrated programs have been developed that take students from secondary education to post-secondary programs, she said, and provide them with the skills needed for 60% of the jobs not necessarily requiring a baccalaureate or graduate degree. Portable manufacturing skills certification programs, principally the NAM-endorsed skills certification system, have been integrated into the education system in some areas. These programs provide students with the basic skills needed to move into entry-level manufacturing jobs.

Panelist agreed that manufacturing is hampered by the fact the public simply doesn’t understand the sector. The widespread view of dirty, low-tech factories doesn’t reflect the reality in many manufacturing workplaces which are quiet, clean and feature advanced technology. As a result, parents and educators don’t encourage young people to look at manufacturing as a career path.

DeRocco said much better information was needed about the “jobs, occupations and skills in manufacturing today.” She said BLS data does not properly define current manufacturing jobs, with the result that some advanced manufacturing jobs are left out of databases or misclassified as service jobs.

One problem, said Dominic Barton, global managing director for McKinsey & Co, is that all manufacturing is lumped into one category. He said advanced manufacturing has prospered before and after the recession and draws on “many of the innovation capabilities this country is good at.” He noted that the collaborative environments that foster new businesses and innovative technologies in places such as Silicon Valley, Austin, Texas, and Cambridge, Mass., have proved difficult to emulate in other countries.

“We need to take the competitive advantage we have around collaboration and scale it,” he said.

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