March 10, 2018 | Source: Inc. | Author: Greg Satell
It’s become conventional wisdom that the last 30 years have been a hotbed of innovation, but evidence suggests otherwise. As Robert Gordon explains in The Rise and Fall of American Growth, productivity growth peaked between 1920 and 1970 and has declined ever since. Economist Tyler Cowen calls this the Great Stagnation.
Part of the reason for the dissonance is that information and communication technologies, which have been advancing quickly, make up a relatively small share of the economy — about 6% of GDP in advanced countries. Manufacturing, which makes up 17% of the global economy, gets relatively short shrift.
While all of the news isn’t bad, Deloitte recently ranked the US second to China in its Manufacturing Competitiveness Index, the fact is that we’ve lost 5 million manufacturing jobs since 2000. Clearly, that’s a disturbing trend and one we need to reverse. More specifically, there are four things we need to do to ensure that we can compete in the 21st century.
1. Overcome The Silicon Valley Myth
The idea of a garage entrepreneur remains a romantic image, but not everything can developed like a software app. For advanced manufacturing especially, there are incredibly complex processes with an unfathomable number of moving parts. Each of these elements represent an opportunity to innovate, but not as a standalone proposition.
“Compared to consumer markets, industrial technologies need to check off a lot more boxes before you go from an expressed interest to a validated market opportunity,” says Ilan Gur, Executive Director of Cyclotron Road, which incubates advanced technologies.
He also points out that improving manufacturing involves a lot more than just coding software, but fundamental improvements in things like materials science and chemical engineering. “For deeper technologies, you can’t always innovate at a venture capital cadence, where you have to get big super fast. Very few of the world’s top manufacturing companies just blew up in a few years. It’s a longer term proposition,” he says.
So we need to get beyond the Silicon Valley myth that we can just leave it up to venture capital funded entrepreneurs.. In fact, if you look at just about any major component of the digital revolution — from the Internet and computer chips to GPS satellites and lithium ion batteries — early development was partially or wholly funded by the federal government. In some cases, such as Google and Qualcomm, the companies themselves started out with federal grants.
2. Build Collaboration Between Government, Industry And Academia
Beyond the technology itself, manufacturing also requires infrastructure to develop and grow. While many local governments try to lure industry with tax incentives, Mark Johnson, a former Director of the Advanced Manufacturing Office at the Department of Energy, believes that can be counter productive if it inhibits the ability to invest in local development.
“Getting bandwidth everywhere matters. Getting capital everywhere matters. If we don’t reinvest in these places, we will have a transfer of intellectual capital from the interior of the country to the coasts,” Johnson told me. He also pointed to Chattanooga as a model for others to follow. Like many other manufacturing cities, it was hit hard in the 70s and 80s, but by investing in making it a more attractive place for industry, it has experienced a revival.
One encouraging development on the federal level has been the creation of manufacturing hubs, which combine the efforts of government labs, academic researchers and private industry. At a facility I visited in Detroit, manufacturers could test new products and components in a state-of-the-art testing facility using advanced composite materials.
“Our members are looking to access unique capabilities and talent that would not be feasible within their firm and we help them minimize transactions costs in order to get that access,” John Hopkins, CEO of IACMI, the institute which runs the facility told me.
He also points out that advancing manufacturing is not just a matter of investment, but also mindset. “You have to create an environment in which people can feel confident in sharing information and insights, while at the same time protecting interests of all sides, especially with regard to intellectual property. Once you build that community, we have found that unanticipated synergies can be unlocked,” he says.
3. Addressing The Labor Shortage
One of the biggest challenges manufacturers have in the US today is an acute shortage of qualified workers. This is often attributed to a perceived “skills gap” among American workers, but evidence suggests otherwise. While it is true that advanced manufacturing requires new and upgraded skills, that is true for every industry.
In The Good Jobs Strategy, Zeynep Ton’s comprehensive study of the retail industry, she found that high performing companies invest in training — especially cross training — and make a serious effort to provide a productive work environment. So it’s possible that traditional human resources policies in manufacturing may need to be updated, especially to recruit new types of skills like data analysts.
There are, however, some deeper problems. A 2016 White House report found that high incarceration rates affects the labor participation of 6%-7% of prime working age American males. Another study by Alan Krueger found that the opioid crisis is having a deep impact and that nearly half of prime age men who are out of the labor force take pain medication daily.
So it appears that to get our economic policy right, we need to get our social policy right. Our criminal justice system regularly jails able-bodied young men for minor, non-violent offenses and opioid addiction correlates far more strongly with medical practices than with economic conditions. This is also the case for addiction to other substances such as cocaine, but the correlation is strongest among opiate and heroin addicts. Both of these are eminently solvable problems.
4. Powering Atoms Into Bits
Perhaps the greatest opportunity for manufacturing in America is Industry 4.0, the marriage of traditional manufacturing with the information technology in which the US is still so dominant. Big data, advanced analytics and new computer driven technologies like 3D printing can give American industry a decisive advantage in the new century.
Manufacturers may also find organized labor a willing partner in labor implementing these technologies. Brad Markell, the Executive Director of the Industrial Union Council at AFL-CIO, told me. “As a country, we need to be doing more in technology development. American workers have the skills to leverage those technologies into a competitive advantage. “I’m not a believer in the robot apocalypse,” he continues. “If we are not doing what we need to improve efficiency, we are not going to be competitive. That’s why labor has been involved with automation efforts since the 1950s. The larger issue is that humans decide how the productivity benefits are distributed.”
Technology companies are, perhaps not surprisingly, even more enthusiastic. “I think we’re at the dawn of something pretty significant,” Rob Thomas, General Manager of IBM’s Analytics division told me and notes that his company is making a big push to empower industrial manufacturers and optimize their operations.
So the future can be very bright indeed. America is still, in many ways, a great place to make things. However, we need to make the right investments in basic science, translate those discoveries into actual technologies and supporting a strong, healthy labor force. We have all the resources we need. It remains to be seen whether we have the vision or the will.
Disclosure: I was previously a paid speaker at an IACMI event