Surprising to many, the United States manufacturing sector is not being hollowed out. With the exception of the recent recession when all U.S. industries experienced poor economic growth, U.S. manufacturing has been breaking its own record, year after year, with respect to output, value-added, profits, returns on investment, exports, and imports, says Dan Ikenson, associate director of the Cato Institute’s Center for Trade Policy Studies. “U.S. factories are the world’s most prolific, accounting for 21.4 percent of global manufacturing value added in 2008; China accounted for 13.4 percent,” he added.

Again, surprising to many, long-term reductions in the number of U.S. manufacturing jobs are primarily due to the introduction of new technologies that boost productivity. As a result, fewer workers can create more products in less time. This, however, doesn’t mean that major challenges don’t exist. They do.

Based on a variety of factors, a 2010 Deloitte report identifies China as capturing a leadership position and recently taking the number one spot for manufacturing competitiveness, followed by India, South Korea, the U.S. and Brazil.

What does this mean? The answer is unclear. What is certain is this: the strength of the U.S. manufacturing sector is very important because its competitiveness is an essential component in our nation’s long-term economic health. “A strong manufacturing sector boosts a country’s intellectual capital and innovativeness, underwriting research and development, pushing the technical envelope, and driving the growth in demand for highly skilled workers and scientists,” the Deloitte report concludes.

Consequently, it’s important that government policies enhance—not hurt—the strength and competitiveness of American producers. Unfortunately, the majority of respondents in the Deloitte survey from China say their government makes competitiveness easy as compared to respondents from Europe and the U.S.

The Number One Driver

Based on surveys of more than 400 senior manufacturing executives worldwide, the Deloitte report concludes that the availability of talented people—scientists, researchers, engineers, production workers, and teachers—is first among several drivers of manufacturing innovation and has a major influence on manufacturing competitiveness. As a result, acquiring and developing the right talent is extremely important if companies, in the manufacturing sector or other industries, wish to be innovative and improve their level of global competitiveness in the future.

This has become a serious issue for the United States. Stated by Bill Gates in a recent U.S. Senate hearing on strengthening America, “the U.S. cannot maintain its economic leadership unless our workforce consists of people who have the knowledge and skills needed to drive innovation.”

Gates further said the U.S. has one of the lowest high school graduation rates in the industrialized world. Therefore, America needs to transform its high schools, encourage the best foreign students to enroll in U.S. universities and live here well after graduation, and, to a higher degree, invest in research and reward innovation, he continued.

U.S. Science and Technology

According to a 2008 report by the Rand Corporation, a nonprofit global policy think tank, America continues to lead the world in science and technology, an essential factor in productivity. In 2009, the U.S. also was ranked first in innovation and global competition by the World Economic Forum, a Geneva-based non-profit foundation best known for its annual meeting in Davos, Switzerland.

This makes sense. The U.S. accounts for 40 percent of total world research and development (R&D) spending, and 38 percent of patented new technology inventions among members of the Organization for Economic Cooperation and Development (OECD), an international organization of the industrialized, market-economy countries. Plus, the U.S. employs 70 percent of the world’s Nobel Prize winners and 37 percent of OECD researchers, and is home to 75 percent of the world’s top 40 universities, the Rand Corporation says.

While the report said the U.S. is not in any imminent danger of losing its competitive advantage in science and technology, it identified factors that could challenge its position and recognized nations, including China and South Korea, that are achieving rapid growth in R&D expenditures. It also noted that the European Union’s original 15 members and China are graduating more scientists and engineers than the United States.

The Rand report also concluded that offshoring of high-skill work, which is increasingly driven by the need to access scarce talent, does not result in job losses in the originating country. Plus, it said the U.S. will benefit even if significant new technologies are invented elsewhere, as long as it maintains the capability to acquire and implement them.

Many critics of the Rand study question whether or not the U.S. is adopting the right policies to maintain its lead. The Information Technology and Innovation Foundation, a research and educational institute based in Washington, D.C., points out that rapidly growing and increasingly sophisticated Asian competitors and European countries are implementing concerted national science, technology and innovation strategies that could challenge the United States. Plus, it says many American advantages are eroding, and in several cases, vanishing. On innovation and competitiveness, the Information Technology and Innovation Foundation placed the United States sixth among 40 countries and regions based on 16 indicators.

It’s All Global

According to a 2009 Brookings Institution study, “The first decade of the 21st century has been one of global economic transformation to a degree that Washington has yet to grasp.” As such, U.S. policies have not kept up with today’s realities: global economic integration is becoming more dynamic as the global balance of economic influence shifts to the Asian-Pacific region.

Today, globalization has an impact on virtually every business. In turn, international markets, customers and talent pools are becoming central to the growth plans of many, if not most companies. Combining this expansion strategy with cutting edge technology and innovation driven by talented employees will be key to U.S. corporate and global competitiveness in the years ahead.

This article appeared in Impact Analysis, September-October 2010.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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