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Manufacturing Renaissance: Reality or Hype?

Posted By Jeff Moad, January 13, 2015 at 11:45 AM, in Category: Manufacturing Advocacy

Is all the talk in the popular media about a “manufacturing renaissance” actually working against the manufacturing industry?

A report issued this week by the Washington, DC-based Information Technology and Innovation Foundation think tank concludes that, not only is the popular  “manufacturing renaissance” narrative hurting manufacturing in the U.S., it’s largely untrue.

The ITIF report suggests that manufacturing advocates should be more circumspect in describing the current state of U.S. manufacturing. Unrestrained optimism, the report says, could give policymakers the wrong impression.

“The optimistic message of the manufacturing renaissance provides the public, business leaders, and policymakers with a dangerous sense of complacency that reduces the urgency and necessity for Congress and the administration to take the bold steps needed to truly and sustainably revitalize American manufacturing,” the report contends.

The ITIF report calls the widespread optimism about U.S. manufacturing Polyannaish and based largely on anecdotal evidence and media hype. And the report makes a strong case—based on government data--for what is undoubtedly still a mixed picture regarding the fortunes of U.S. manufacturing today and in the near future. Manufacturing job creation, while moving in the right direction, isn’t even close to replacing the 5.8 million jobs lost between 2000 and 2008. (That represented 33.6% of manufacturing employment.)

Manufacturing productivity, while still growing, is rising at a much slower pace than in China and even Europe, says the ITIF report.

Manufacturing output, while continuing to grow, trails overall GDP growth, says the report, and has been concentrated in cyclical industries such as automotive, metal fabrication, and machinery. In fact, the report questions whether much of the recovery in U.S. manufacturing isn’t owed primarily to post-recession recovery in industries such as automotive and doesn’t represent sustainable, structural improvements in the manufacturing industry.

And the trend of rising labor costs in China compared to the U.S. has been overblown and probably won’t continue.

The ITIF report also questions some widely-reported manufacturing industry trends that, as the “manufacturing renaissance” narrative has it, are paving the way for sustained momentum. Re-shoring has generated relatively few new jobs and so far managed only to offset jobs still being sent overseas. The shale oil boom offers significant competitive advantage only to U.S. manufacturers in the petrochemical industry. And hopes that a weak U.S. dollar will stimulate manufacturing exports are being undermined by greater economic problems—and depressed currency values—in Europe, Russia, and other parts of the world, the ITIF report states.

The report is not devoid of positives. The continuing digitization of manufacturing, it says, could provide a new productivity boost, elevating the competitiveness of U.S. manufacturers. But that is far from assured, the report states.

Aside from being a big buzz-kill, does the ITIF story tell manufacturers anything that they didn’t already know? Not really. Members of the Manufacturing Leadership Council tell us they are generally positive about prospects for their companies’ U.S. operations, and many are modestly increasing hiring and investments in capital equipment. Some have launched strategic reshoring initiatives, convinced that reshoring driven by labor-cost differentials went too far. Most, however, haven’t jumped on the reshoring bandwagon.

In short, while manufacturers we speak with would like to believe a “manufacturing renaissance” is beginning, most understand very clearly that competition from global rivals is increasing every day. They also understand that an aggressive national policy focused on better workforce training, tax reform, and regulatory streamlining will be needed to make any “manufacturing renaissance” a reality.

They don’t need a Washington think tank to tell them that.

Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit

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We agree that an aggressive national policy is needed to ensure the continued rebound of U.S. manufacturing.

We appreciate that Harry Moser, our founder/president of the Reshoring Initiative was quoted in the ITIF report, which exemplifies the significance of reshoring.

Here is the most important point - according to Harry Moser:

“Essentially, reshoring should be seen as not a measure of the renaissance but the most efficient tool to start achieving it.”

The challenge is to pick the most effective and implementable actions to overcome the loss of manufacturing and the trade deficit.

The Reshoring Initiative sees two choices:

1. In the short to medium term: reshoring – getting companies to understand all of
the benefits of local production and adopt a more comprehensive total cost
analysis. This could cut the trade deficit by 25% and bring back 1 million
manufacturing jobs. Mainly this requires education of companies and is entirely
under the control of our society. Detailed, objective reporting is absolutely necessary to
motivate companies to reevaluate offshoring.

2. In the longer term, to get the other 75%, requires improved competitiveness: taxes, currency/tariffs, skilled workforce, basic education, etc. All of these are political, most are cultural. Currency and tariffs are subject to WTO rules, other countries’ actions and our need to raise interest rates. There has been almost no progress on these fronts in decades of trying.

It would be best to accomplish both sets of actions. We should be enthusiastic about reshoring but not yet optimistic about the renaissance until we begin to take the steps to allow us in the future to become optimistic about renaissance.

The Reshoring Initiative Can Help.

The not-for-profit Reshoring Initiative’s free Total Cost of Ownership software
helps corporations calculate the real P&L impact of reshoring or offshoring. In many cases, companies find that, although the production cost is lower offshore, the total cost is higher, making it a good economic decision to reshore manufacturing back to the U.S. http://www.reshorenow.org/TCO_Estimator.cfm
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