U.S. manufacturing is in trouble. Technological innovation, particularly in new process technologies, can play a key role in spurring a revival, but that won’t happen without a coherent and well-funded national manufacturing technology strategy.
First, some background. From January 2000 to January 2010, the number of U.S. manufacturing jobs fell by 6.17 million, or 34 percent. It would be one thing if this job loss were due solely to superior productivity. But output declined as well. From 2000 to 2009, 15 of the 19 U.S. manufacturing sectors shrank in terms of real value added (gross output minus the cost of inputs), and overall manufacturing output declined by 10 percent during a period when U.S. GDP grew 15 percent. Had manufacturing output maintained its share of GDP, we’d have two million more manufacturing jobs and eight million more jobs overall.
This trend does not just reflect the loss of low-tech manufacturing as we transition to a high-tech future. In fact, the U.S. trade deficit in manufactured products is not seen just in low- to mid-technology products; the nation ran an $81 billion trade deficit in advanced-technology products in 2010, the largest in its history.
One would think, given this dismal performance, that alarm bells would be sounding in Washington. But in fact, the Washington elite has justified this decline as either natural or irrelevant, claiming that manufacturing is falling off everywhere or that the United States is evolving to a superior post-industrial economy. Still others argue that we can lose manufacturing but still keep innovation. But as Dow Chemical CEO Andy Liveris succinctly states: “Where manufacturing goes, innovation inevitably follows.”
America cannot hope to compete with low-wage nations without robust efforts to boost productivity and spur the development of complex products that are hard to produce there. This is the path that’s been followed in Germany, where wages remain high. That country runs a manufacturing trade surplus, in part because while it shed jobs in lower-value-added manufacturing sectors, it compensated with gains in higher-value-added, high-productivity sectors.