Manufacturing the future

Late last year, the consulting firm Booz & Co. and the University of Michigan's Tauber Institute for Global Operations published a study provocatively titled "Manufacturing's Wake-Up Call." In it, the authors noted something that is often forgotten when politicians and pundits lament the decline of U.S. manufacturing: that the United States remains a manufacturing powerhouse. U.S. manufacturers produce about 75 percent of the products the nation consumes, according to the report.

Nonetheless, the study's authors argue that U.S. manufacturing is at an important crossroads. If policy makers, business leaders, and educators make the right decisions, they contend, the manufacturing sector could come roaring back, eventually producing 95 percent of what we consume. Make the wrong choices and output could drop by half, meeting less than 40 percent of domestic demand. That's a dismal prospect, to say the least.

One factor working in the United States' favor, the authors say, is that for a number of reasons, manufacturing will be largely regional for some time to come, despite the globalization of many businesses. Among those reasons are some we've been writing about for a while now—namely, that regionalization minimizes transportation costs and increases market responsiveness. In addition, they note, labor costs and currency rates carry less weight in manufacturing location decisions today than in the past.

As for what considerations have taken precedence in location decisions, the authors cite the following: workers' skills, clustering of businesses in ways that drive innovation, modern infrastructure, access to neighboring countries with growing consumer markets and low labor costs (think Mexico), and a competitive regulatory and tax environment.

How we address those issues will go a long way toward determining our manufacturing (and thus, our economic) future. Will we invest in education to ensure we have a technologically savvy workforce? Will we address immigration issues in ways that allow more skilled workers to bring their knowledge and expertise to these shores? Will we fix our roads and bridges and find ways to make our transportation infrastructure safer and more productive? Can we address regulatory issues in ways that provide adequate legal protections for the public while allowing businesses the flexibility to innovate in an increasingly competitive world? Will we support the sorts of research and development efforts that were crucial to our economic success in the last century?

None of that will be easy, particularly in an environment of poisonous politics and weak economic growth. But what's the alternative?