The Future of U.S. Manufacturing: More Hubs, Fewer Workers

Even hundreds of centers of innovation will not spell a revival of the manufacturing workforce equal with what many hope or expect.
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Reuters

Few topics have been more fraught than the fate of U.S. manufacturing. The sharp loss of manufacturing jobs since 2008 has triggered legitimate concern that America’s best days may have passed.

Even as recent leading indicators suggest more economic momentum, job growth remains at best sluggish and manufacturing has seen only marginal gains—having shed more than two million jobs in 2008-2009, and millions more since the peak in the late 1970s. Manufacturing accounted for slightly less than 20 million jobs at the peak in 1979. Now it’s barely 11 million.

The picture is even bleaker considering the population, since the labor force is considerably larger today. This has led to a widespread conviction that the core of the potent U.S. economy is being hollowed out.

So it is not surprising that Washington’s latest highly-touted initiative seeks to rejuvenate American manufacturing and restore lost jobs. President Barack Obama unveiled an initiative Wednesday in North Carolina designed to foster high-tech manufacturing for the long term.

With money from the Energy Department, the Raleigh-Durham area—already home to several leading universities that are part of what is called a research hub—will develop an innovation institute to foster high-tech manufacturing, such as semiconductors. The promise is that such manufacturing and its attendant jobs are vital to competing in today’s global economy. Though the administration can fund a number of these without Congress acting, the White House has calledon the legislature to pass funding for an additional 45 such centers around the country.

The assertion that the United States, or any nation, requires continued investment in the technologies that will drive future production is indisputable. On that score, at least, the Obama White House is fighting the proverbial good fight.

The contention, however, that these technologies and the factories that harness them for production will be sources of well-paid, solidly middle-class jobs, is flawed. In our political debates, we maintain the comforting fiction that a manufacturing revival can and will go hand-in-hand with a jobs revival. Yet, as Obama’s initiative shows, the two can be—and increasingly are—uncoupled.

The issue is not the hollowing-out of manufacturing as defined by less production. Yes, many less expensive, simpler products are now made more cheaply elsewhere and are unlikely to be made in the United States anytime soon—even with the “on-shoring” of manufacturing. Though China ceases  to be the place of low-cost production, Vietnam, the Philippines and who knows where else (even Mexico) will be more attractive for apparel, furniture, electronics and anything plastic for a long time to come.

The high-end production that these new U.S. innovation hubs seek to promote is indeed in demand around the world. It is something where, as yet, China and other low-cost manufacturing centers have not excelled. This is why China actually imports considerable billions of higher-end equipment–particularly from Japan and Germany. So it is true that the United States could have a competitive advantage, especially given the plethora of research universities and the wealth of highly-educated talent that can be used for just this type of production.

But all this is not the same as a job creator for a workforce of at least 120 million and counting in nation of more than 320 million people. These high-tech factories might employ hundreds of people in conjunction with industrial robots, using sophisticated software systems for design and production. These factory workers bear little resemblance to the 1950s line workers doing rote tasks. They are more like Silicon Valley engineers or lab technicians. These are high-skill jobs—and not nearly as plentiful as the factory jobs of the past.

That is, of course, no reason to dismiss the importance of cultivating these centers. Promising that they will be job engines, however, is dicey at best, and disingenuous at worst.

Even hundreds of centers of innovation that focus on 3D printing, bespoke semiconductors and technology-laden products will not spell a revival of the manufacturing workforce commensurate with what many hope or expect.

It is instead likely, even with the reinvigoration of American manufacturing, that job creation is almost non-existent. It is likely as well that output as measured by gross domestic product goes up along with the revival—without producing a job renaissance.

Again, this is not an argument against these endeavors. They will indeed generate income and revenue and enhance productivity in the U.S. They will not, however, solve the conundrum of our structural unemployment challenges.

Over time, of course, as more people develop the skills required for this new wave of manufacturing, it is possible that the economic system overall generates a next wave of prosperity. Education and innovations, tethered to products, ideas, services and even entertainment, has no clear limit to growth.

In the interim, however, a generation ill-prepared for that change is likely to continue to struggle mightily.

So we should embrace these endeavors, absolutely. But we should do so with a clear sense of what they can do long-term and what they cannot do in the short term.  They cannot bring back lost jobs or industries. They also cannot solve the employment challenges for millions who have been displaced over the past few decades.

Obama’s plan can solve those for the next generation—but not for portions of an older generation now adrift. We should not fool ourselves about what can be done.

A lost generation may require years of support before the next is ready to carry the weight of the future. This is only a negative, however, if we pretend that an easy fix is on the horizon.


This post originally appeared on Reuters.com, an Atlantic partner site.

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Zachary Karabell is Head of Global Strategy at Envestnet, a financial services firm, and author of The Leading Indicators: A Short History of the Numbers that Rule Our World. More

At River Twice Research, Karabell analyzes economic and political trends. He is also a senior advisor for Business for Social Responsibility. Previously, he was executive vice president, head of marketing and chief economist at Fred Alger Management, a New York-based investment firm, and president of Fred Alger and Company, as well as portfolio manager of the China-U.S. Growth Fund, which won a five-star designation from Morningstar. He was also executive vice president of Alger's Spectra Funds, which launched the $30 million Spectra Green Fund based on the idea that profit and sustainability are linked. Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (2009), The Last Campaign: How Harry Truman Won the 1948 Election, which won the Chicago Tribune Heartland Award, and Peace Be Upon You: The Story of Muslim, Christian, and Jewish Coexistence (2007), which examined the forgotten legacy of peace among the three faiths. In 2003, the World Economic Forum designated Karabell a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC and CNN, and has written for The Wall Street Journal, Newsweek, Time, The Washington Post, The New Republic, The Los Angeles Times, The New York Times, and Foreign Affairs.

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