Manufacturing myths

You cannot build a sustainable economy around the principle of people giving each other haircuts, said Jeremy Leonard, economic consultant, Manufacturers Alliance, during his keynote address at November’s Automation Fair event in Los Angeles organized by Rockwell Automation. The myth that he was keen to explode is that a nation can prosper without a solid manufacturing base and with an economy heavily reliant on services.

To show how much things haven’t changed, a similar point was made 20 years ago by Professors Cohen and Zyman of the University of California in their book, Manufacturing Matters: The Myth of the Post-Industrial Economy, in which they emphasized that what is normally categorized as “services” is actually closely linked to manufacturing activity, and such services would not survive for long should a country’s manufacturing sector disappear.

It may be a surprise to learn that even in the US, manufacturing output has never been greater and that the sector still delivers a larger contribution (13 percent) to GDP than either finance or healthcare. And aided by investments in automation and information technology, there have been marked gains in productivity with each worker now producing three times more than he did in the 1970s.

Of course, what has changed is that other nations, notably China, have begun to catch up such that the US’ share of global manufacturing has been on the decline as have the number of people employed. According to Jeremy Leonard, relative to its trading partners, the US suffers from high structural costs – taxes, healthcare, compliance, legal – which are pushing MNCs to locate jobs outside of the country. A skilled labor shortage and insufficient investment in R&D are two other areas that must be addressed for the US to maintain its manufacturing leadership, he says.

In June, at an opening of a new manufacturing technology center in recession-hit Michigan, General Electric chief Jeff Immelt put out the call for a renewed focus on manufacturing and an industrial renewal: “Many bought into the idea that America could go from a technology based, export oriented powerhouse to a services-led, consumption based economy – and still expect to prosper. That idea was flat wrong. We must make a serious commitment to manufacturing and exports.”

Back in Asia, and against this backdrop, it was perhaps significant that Lim Hng Kiang, Trade and Industry Minister for one of the more advanced economies in the region, Singapore, recently outlined (November 9) that the country aims to keep its manufacturing industry an integral part of the economy, given the sector’s multiplier effects and competitive strengths built up in areas such as pharmaceuticals, oil-rig building and aerospace. Manufacturing matters and long may it continue to do so.