Disruption Is Hitting Manufacturing from Four Directions

We live in an age of disruption. True, disruption isn’t new: down through the centuries societies have regularly been overwhelmed by challenges, sometimes caused by disease or political upheaval, or military conflicts, or technological upheaval.

This time is different. Humans have rarely experienced an age in which so many sources of disruption emerge simultaneously. And businesses across the globe are scrambling to manage and overhaul their strategies to keep pace.

Following are four of the more substantive factors disrupting society in general and business conditions for manufacturers in particular. (Readers can track this uninterrupted chaos in political consultant Bruce Mehlman’s weekly Substack titled, fittingly, “Age of Disruption.”)

Economic Nationalism and Deglobalization. National industrial policies—such as Chinese subsidies that boost their domestic industries and American tariffs that “protect” our own—are not new. But they are on the rise again, creating a fissure in the global economic order built up over the past half century. And while COVID-19 wasn’t directly responsible for the push towards decoupling and deglobalization, its impact on supply chains threw oil on a fire that had already been lit. So did Russia’s 2022 invasion of Ukraine, which exposed the EU’s dependence on Russia for energy.

As a consequence, a rise of economic nationalism is accelerating the fragmentation of the old global trade framework. That framework—which facilitated the worldwide flow of goods, services, investment, data and workers—helped dramatically increase GDP per capita between 1980 and 2020 in almost every country, according to an analysis from the Peterson Institute of International Economics. But it also created its own disruption as industries moved their production overseas to less expensive labor markets, with significant impacts on many former U.S. manufacturing centers.

Demographic challenges. A “silver tsunami” of Boomer retirements, with roughly 11,000 people turning 65 every day, has created large challenges for the American workforce, including unfilled job openings and succession planning issues. Demographers call this retirement surge “Peak 65,” reflecting the record number of retirements (more than 4 million each year) expected in the 2024-2027 timeframe. And while our aging society is perhaps the best-known demographic change, it isn’t the only one of significance. The ethnic profile of this country is evolving. According to the Brookings Institution, more than 90% of the annual growth rate in this country is now driven by Hispanics, Asian Americans, and persons identifying as mixed race, creating an ever more diversified populace. Indeed,

the U.S. Census Bureau predicts that by 2045 non-Hispanic Whites – while still the single largest ethnic group – will no longer comprise the majority of the U.S. population. (Though this is a significant demographic change, it is not new: as a nation of immigrants, the transformation in our ethnic base has been a historical factor in the evolving American workforce for two centuries.) For a nation that is growing older, this trend creates a need for new strategies to attract workers who have not traditionally been a part of the manufacturing workforce.

Political and Cultural Divisions. Much of what has made the United States an economic powerhouse over the years derives from its diversity and its civil liberties as expressed in the Bill of Rights. But these factors have also historically created the conditions for a powder keg of political division.

Over the past 20 years, the degree of polarization in America has increased as Blue and Red states become bluer and redder, and as the anonymity of social media has undermined civil public discourse.  

A recent Gallup survey showed that 80% of Americans believe the country is “greatly divided” when it comes to the most important values, the highest level ever recorded. A Pew Research survey shows that the share of Americans who said “most people can be trusted” has declined from 46% to 34% in the past half century—with those with the lower levels of education and income far more cynical than those with the higher levels. In such a political climate, businesses find themselves walking a fine line to avoid being the target of political and consumer wrath.

Artificial Intelligence. AI will likely become the biggest disrupter of all. From the mechanization of the late 1700s to mass production of the 1800s to computing and digitalization in the mid- to late-1900s, technology has long kindled social unrest due to the impact on jobs and careers.

But those changes pale in comparison to the potential impact of AI on our economy in the coming decades.  Even today at the dawn of the AI revolution, this technology is dramatically changing how workers and businesses generate content. And that’s just the initial impact.

The World Economic Forum forecasts AI will displace 92 million jobs worldwide, while generating upwards of 170 million new jobs by 2030.  In fact, a report by the International Monetary Fund suggests that 40% of global employment and 60% of the workforce in advanced economies is exposed to AI. Along with this seismic change in the workforce, Goldman Sachs predicts that AI-driven innovation and efficiencies will increase global GDP by $7 trillion, or 7%, in the next decade.

There are of course benefits to disruption. Societies become more resilient when they learn to adapt and evolve. Innovations arise during such times.  Still, with so many disruptions occurring simultaneously, U.S. manufacturing leaders must be more strategic and more visionary than ever before.