Is There a Future for 'Made in America'?

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LYNDORA, Pa.-- Is American manufacturing dead? Those who think so point to manufacturing's plummeting share of the national economy as a predictor of its eventual demise. But they likely have never been to Butler County. Here, north of Pittsburgh, in the heart of western Pennsylvania, basic manufacturing still drives the local economy. It has survived around here--indeed, thrived--suggesting that America, too, has an industrial future.
Butler County's economy has long depended on making steel and fashioning it into precision tools, industries that most Americans think have largely fled overseas. To survive, companies here have successfully adapted, using flexible manufacturing techniques that marry computers with a skilled workforce to craft products for international markets. And in the wake of the worst economic downturn since the Great Depression, the unemployment rate in Butler County stood at just 6.8 percent in September, far lower than the national average.

 

The Obama administration's hopes for a second act for U.S. manufacturing center on high-tech, future-oriented products such as solar panels and biotechnology. There is reason to think these goods will play a big role. Their track record has been impressive, and their cutting-edge nature inspires public imagination. The wind-energy industry, for instance, is roughly a $20 billion business and is growing by leaps and bounds. Still, these technologies' contributions to the overall economy are statistically insignificant. Jobs in renewable energy, broadly defined (including wind, solar, and hydroelectricity), accounted for just 0.1 percent of total employment in the United States in 2007, according to Moody's Analytics. The makers of steel, aluminum, and other primary metals employed three times as many people.

"When it comes to new industries, it takes a while for them to grow," said Sophia Koropeckyj, a managing director at Moody's Analytics. So, for the foreseeable future, they'll be dwarfed in economic significance by existing manufacturing. Despite the near-disappearance of the American textile, apparel, and shoe industries, and the recent troubles of the auto industry, the United States remains--if tenuously so--the world's leading manufacturer, led by industries that rely more on technological precision and brainpower than on low-skilled labor--aircraft, sophisticated machinery, medical devices, and the like. But manufacturing's staying power is also thanks to old dogs, such as high-end steelmakers, that have learned new tricks.

An unlikely testing ground for the second act in American manufacturing is in western Pennsylvania, where the first act had its heyday. To the untrained eye, the two eras look much the same. Showers of sparks and unspeakable heat still mark the pouring of steel. But Andrew Carnegie would not recognize this steelmaking. To compete in an increasingly competitive world market, even traditional manufacturers must operate on the technological frontier. In its Lyndora plant, AK Steel operates the world's fastest and most productive coating and final annealing process, which chemically aligns grains on the surface of electrical steel so that--when it is used in a transformer that generates electricity--the electrons pass over it more quickly.

This is the future of American manufacturing, according to Sherle Schwenninger, who directs the economic growth program at the New America Foundation in Washington. "We need a broad-based manufacturing economy to provide jobs in the United States," he said. And it can be done, he believes, because America's competitive advantage in the world market lies in "sophisticated and higher-value-added, fundamental manufacturing--things such as earth-moving equipment and safer mining and drilling technologies--that can meet the needs of emerging economies."

"This is manufacturing's moment," said John Engler, president of the National Association of Manufacturers, "precisely the right time for manufacturing to have a comeback." A broad-based manufacturing economy, however, may well depend on the right policy environment: lower taxes, smart regulation, a weaker dollar, better training for workers, and the preservation of local industrial clusters of large and small firms that feed off one another. That, in turn, requires the public's recognition that manufacturing has a meaningful role to play in America's future and a government-guided plan to make it happen. "Without a plan," warned Leo Gerard, president of United Steelworkers International, "American manufacturing will continue to atrophy."

SECRET TO SURVIVAL

The departures from the first act in American manufacturing may be more than technological. The geography will change, as will its configuration. Huge facilities with tens of thousands of workers are out. Factories won't look like the gigantic River Rouge auto-making complex that Henry Ford built in Dearborn, Mich., in the 1920s. Compact plants surrounded by clusters of small firms that service them will likely populate tomorrow's manufacturing landscape. Many of the factories will be in the South, where lower wages may help establish a new industrial heartland.

Manufacturing can also survive in the Rust Belt. AK Steel, for example, isn't merely surviving; it's flourishing. With more than 1,300 employees, it is Butler County's largest industrial employer. The company specializes in producing electrical steel (used in power transmission and distribution) and exports half of that. AK Steel is in the midst of a $135 million capital-expansion program, replacing three 1960s-era furnaces with a single, technologically advanced furnace. This will increase the plant's production capacity by 40 percent while improving productivity and quality. It will also give AK Steel the flexibility to make various steels, depending on customer demand.

A few miles away, in downtown Butler, Wise Machine is helping AK Steel become more productive. Workers at Wise are adapting one of AK Steel's continuous casters to resolve routine maintenance problems in hours, rather than days. Wise's two-dozen workers are traditional machinists who may soon be outfitted with iPads to boost their productivity.

In the nearby town of Cabot, Pa., more than 500 machinists at Penn United Technologies turn out a variety of precision parts, some for instruments used by orthopedic surgeons, others for the armature that reads computer hard drives. Thanks to automation, one person--instead of four--now operates four machines that load, monitor, and spot-check the quality of each machine tool to produce more widgets, with no defects, for customers worldwide.

The secret to Butler County's manufacturing success is not only a willingness to adapt but also the presence of an industrial ecosystem of sorts: a local network of companies and resources that help one another survive. At its core is AK Steel, which stayed in business while countless other steel mills in the Rust Belt succumbed to foreign competition. As a result, smaller businesses--such as Wise--that build parts and perform repairs for AK Steel have also survived. These companies are hothouses of innovation, spawning entrepreneurs who spin off to form their own firms. This, in turn, has preserved a skilled, local workforce.

Industrial ecosystems are important both in preserving traditional manufacturing and in developing cutting-edge, renewable-energy technologies, such as solar and wind. "Renewables have the benefit of being the new kid on the block," said Bruce Sohn, president of First Solar in Tempe, Ariz., the world's largest manufacturer of thin-film solar modules. "But finding the ability to compete and manufacture in the United States will be an ongoing challenge even for us, unless we make significant changes in our public policy."

NO. 1, BUT ...

Measured as an engine for employment or as a chunk of the economy, American manufacturing has been retreating for two generations. The economy has shifted steadily from generating wealth by making things to counting on finance, insurance, real estate, and other white-collar activities to fuel growth. In 1947, manufacturing accounted for more than 25 percent of the nation's gross domestic product, while finance, insurance, and real estate produced less than 11 percent. (See graphs on p. 14.) By 2009, manufacturing had shrunk to 11 percent of the economy, while those other activities' share had doubled to 21 percent.

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Bruce Stokes is a senior fellow at the German Marshall Fund and a contributing editor with National Journal.

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