The future of manufacturing in the US – is it really a strategic requirement?

In the shadows of the recent activities to preserve and protect the US Automotive industry, specifically the government’s intervention in saving Chrysler and Government Motors (the new GM), the question regarding the criticality of US manufacturing is an interesting one.   First, let’s quickly review the harsh realities:

1. Economics: As global manufacturing capacity continues to increase as it has since last June, any effort to protect a manufacturing oriented industry is probably a wasted effort.  The fact that capacity continues to increase, prices will continue to fall.  With a decrease in prices, higher wage countries like the US, will have an increased difficulty in maintaining and protecting its manufacturing base.  Unless costs like wages, land, and overall operations are significantly reduced, the US manufacturing sector cannot be cost competitive especially in an era of significant capacity.

2. Evolution: According to the research of Walt Rostow there are five stages of economic development.  The fourth stage describes an economy that produces a wide range of goods and services and a diminished reliance on imports.  Transition to the fifth stage, the economy is focused on the mass consumption with durable industries flourish and the service sector becomes more prevalent.  I would argue that our economy has started to move past the stage where manufacturing is at the core of our economy.  Our economic cycle cannot sustain a manufacturing focus.

The Solution:  The key to the American ideal has always been our ability to innovate.  When we go to such great lengths to protect a truly global and very mature domestic industry with the capacity and the economies to produce vehicles cheaper elsewhere, we are losing sight of the real issue, our own reluctance to truly evolve.  This is exemplified by an educational system that is deficient in educating our future innovators and risk-takers, by our financial institutions which have fostered and embraced  a culture of immediate and unrealistic return on investment and a government which is focused on preserving aging institutions, like the US auto industry, at the expense of rewarding and funding technological innovations like high speed rail systems and alternative energy programs.

This reminds me of the campaign pledges made in the state of Michigan in the 2006 gubenatorial campaign where incumbent Governor Jennifer Granholm pledged to the workers that she would keep manufacturing jobs in Michigan.  It is what the workers wanted to hear.  It is not what they needed to be told.

There comes a stage in every economic cycle where the economy must evolve, or die.  Michigan is the bell weather of our reality.  Where is Michigan today?  With record unemployment and massive losses in housing equity it is in a state of economic disaster.  I am not saying that could happen to the entire US economy.  However, the myopic preservation of manufacturing jobs can be that detrimental to effective evolution in a struggling economy.

Protect US manufacturing at all costs?  I think not.

Invest and reward in those who innovate and take risks?  Money well spent.