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The outsourcing of millions of manufacturing jobs across borders and overseas is a largely American recipe. A look at the causes, effects, and how IIT is helping to counter this trend.
America is a land of things. Multiplying by the hour, a blizzard of manufactured goods has become an inescapable component of modernity, making us forget that everything from the vitamin we swallow to the commuter jet we travel in is the result of a complex and labor-intensive process of creation. Yet if widespread reports on the state of manufacturing in the United States are credible, fewer and fewer of the goods we enjoy are being made on our shores, and a decline in America’s manufacturing base may be approaching a day of reckoning.
As once-vital manufacturing communities succumb to plant closings and layoffs, many experts in political, business, economic, and even national security circles fear an eventual systemic calamity. In just the past five years, America has lost roughly 3 million manufacturing jobs representing 17 percent of the manufacturing workforce. The Progressive Policy Institute places productivity’s role in job loss at 40 percent. Nearly every domestic manufacturing industry, from shipbuilding to textiles to aerospace, has suffered a dispiriting reversal of fortune, at least in terms of employment.
“The wipeout is across the board. Not a single manufacturing payroll classification created a single new job,” insists former Assistant Treasury Secretary Paul Craig Roberts, in a commentary for the Baltimore Chronicle & Sentinel about America’s performance from January 2001–January 2006. Roberts ticks off some alarming figures: “Communications equipment lost 43 percent of its workforce. Semiconductors and electronic components lost 37 percent of its workforce…. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43 percent....”
And the list goes on.
The tectonic shifts underway in manufacturing have provoked a fierce debate among economists, politicians, social scientists, industry leaders, and public policy gurus. For some, the changes at hand amount to inevitable reshufflings, growing pains along a course to greater prosperity, facilitated by a wired world of instant communication. For critics, however, the present trajectory is almost thoroughly negative, with multinational companies poised to reap spectacular rewards from emerging global markets—advantages achieved, it is claimed, at the expense of workers’ rights, national economies, and the environment.
The polarization of opinion regarding manufacturing’s current state and future prospects, however, hinges not only on analyses of winners and losers in the great economic game. The debate is also informed by differing views as to what is meant by manufacturing, for this, too, is in flux.
The reasons for America’s steady leakage of manufacturing jobs are not difficult to come by. Primarily, they center on two economic watchwords of the new millennium: technology and globalization. Advanced technology, though associated with increased manufacturing productivity, often displaces human workers. Computers and industrial robots slice through sheet metal, oversee factory efficiency, and perform an endless variety of assembly tasks tirelessly and with superhuman precision, allowing for a reduced workforce. Globalization allows manufacturers to draw their labor pool from across the planet, relying on an inexhaustible supply of cheap workers to manufacture goods at a fraction of the cost of domestic production.
While technology and globalization have contributed to the decline in manufacturing jobs in the U.S., their relative importance in manufacturing’s woes remains a matter of controversy. Within industry, many insist that job losses are an inevitable price for competitiveness in the global marketplace. The National Association of Manufacturers (NAM) praises strides in domestic productivity, claiming such advances “enable Americans to do more with less, increase our ability to compete, and facilitate higher wages for all employees.” While mourning job flight, NAM has generally been a strong proponent of free trade and the unimpeded flow of capital. Love or lament it, they say, America’s manufacturing paradigm has shifted, forcing businesses to adapt or succumb in a transformed marketplace.
Patrick Whitney, director of IIT’s Institute of Design and an authority on design innovation across cultures, reframes the problem of manufacturing’s decline. Rather than decreased productivity or an offshoring mania generating a flood of cheap imports, America’s limitations as an exporter and deficiencies as a domestic innovator need to be addressed. “I am concerned that we do not produce enough things that other people want to buy,” he says.
A study by economists Martin Baily of McKinsey & Company and Robert Lawrence of Harvard University seems to bear out Whitney’s conclusions: “Increased domestic demand is the solution to continued job weakness,” they report, concluding that 90 percent of job losses in 2000–03 were due to domestic forces rather than trade. Productivity gains were a factor, but more important was a low demand for U.S. goods, coupled with an export weakness (exacerbated by Chinese economic policies that keep the dollar overvalued by 20 percent).
One effect of manufacturing loss on the overall health of the American economy is undeniable: it has been the largest single contributor to a staggering trade deficit, currently inching toward the trillion-dollar mark. (In 2005, it reached more than $800 billion, with an accumulated value since 1990 of $4.5 trillion.) America’s reliance on goods manufactured outside its borders presently amounts to twice its dependence on foreign oil. In the past, America primarily imported items that were manufactured abroad with unskilled labor, but the trend has undergone a sea change, with some of our most sophisticated high-tech consumer goods now being manufactured and, in some cases, designed outside the United States.
Indeed, Advanced Technology Products (ATPs) seem to be fleeing our borders as quickly as steel production and clothing manufacture had earlier migrated to greener pastures. Two-thirds of the 650 distinct ATPs identified by the Department of Commerce are now entering the United States as imports from China. The Chinese trade surplus with the U.S. is the largest in the world, and, ironically, more than half this surplus is due to offshore production by U.S. firms for U.S. markets, a policy that critics such as Roberts consider wildly self-destructive.
As noted business strategist and author Peter Fingar points out in his new book Extreme Competition: “Original-design manufacturers, such as Quanta in Taiwan and Flextronics in Singapore, design and assemble products for international clients, supplying some 20–70 percent of the world’s PCs, cell phones, PDAs, MP3 players, and digital cameras.” Such “ghost manufacturers” from abroad are the authors behind many brand-name items. Meanwhile, China’s recent R&D spending has increased 500 percent as the country looks to capture America’s historical strong suit: talent for innovation and fresh, unprecedented design.
Whitney calls for an aggressively creative and culture-specific approach to innovation, insisting, “Design that focuses on making incremental changes to existing products will, in general, be able to be outsourced. Design that is creating newer, more innovative changes needs to be close to the people who will be using the design. If the users are in the U.S., it is likely the design will have to be done here. If the users are in China, it is likely the design will be done there.”
In addition to teaching innovative design, IIT has been involved in wide-ranging efforts to address this country’s manufacturing issues. Keith McKee, director of IIT’s Industrial Technology and Management Programs, believes that America must accept that manufacturing has changed. U.S. manufacturing output is increasing, he says, having gone up 5 percent last year. Such increases have been achieved by greater productivity, leading to inevitable declines in manufacturing employment. “It is really pointless to hope that in some way, manufacturing will become less efficient so that manufacturing employment will increase. Manufacturing is doing well and is not dying, but it will never again return to the ‘good old days’ where it will provide employment for unskilled workers. The manufacturing workforce for the future requires more education and a greater set of skills.”
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