There is much debate today about what constitutes manufacturing and “the good jobs” in this country. Many naively believe that more factories will cure the trade deficit and create jobs (in an economy already around full employment or, here in the Midwest, with jobs going unfilled).
“Die-hard conviction remains among many Americans that the more an economy manufactures, the stronger it is,” notes Michael Schuman a global business writer for several publications, quoted here recently in Bloomberg BusinessWeek magazine.
So with the help of Bloomberg and some recent studies, let’s set the record straight here.
First, while manufacturing is critically important (we may be biased as purveyors of manufacturing consulting and software, but it’s no less true), it now constitutes just 12% of GDP, versus more than double that 50 years ago. But the idea that “we don’t make anything anymore” as recently touted by the President himself, is simply a fallacy. The U.S. is a global manufacturing powerhouse, accounting for just under one-fifth of all production worldwide. While that lags China’s 25%, it exceeds the shares of Japan and Germany combined. We’re still highly competitive, particularly in the tech sector, and in hard to make products like jetliners and medical equipment, to name a few.
But in today’s world, the real value in making something, as Schuman and others have noted, is no longer in actually making it. Companies today know that the real value of a product lies in its research and design elements, in product development, in branding, and in after-the-sale support services. As an example, a study a few years ago by the Asian Development Bank pointed out that the actual assembly production proportion of an Apple iPhone (mostly performed in Asia) relative to its full retail value was only 3.6%. The remaining 96.4% went to parts suppliers and to Apple, its creator.
And to that point, Apple’s margins overall are over 21% — from a company that is known for its manufacturing prowess but which, in fact, does virtually no manufacturing of its own. Meanwhile, a typical offshore manufacturer that Apple contracts with posted just a 3.5% margin on sales. And by the way, Apple creates lots of jobs without having factories, including 80,000 direct employees in the U.S. alone with plans to add more.
While more factories can, technically, mean more jobs on a local basis, studies show that workers who lose their jobs in plant closings take a long-term hit to their standard of living. 21st century factories won’t create the number of jobs that 20th century plants did. Automation, advanced manufacturing, robots and the like mean we’re making a lot more with a lot fewer people. Job displacement is a natural byproduct of technological progress, and has been for centuries. But as old jobs die, new ones are born. It’s important to remember that early on in our history, 90% of us were farmers; today it’s 3%. As long as education and skills are developed with the future in mind, there are always likely to be new jobs to replace the old. But then, that’s a whole other subject.
Meanwhile, let’s see manufacturing for what it is, and worry less about factory jobs that no longer exist and aren’t coming back, and more about the innovation, design, marketing and 21st century product (and skills) development — along with a healthy dose of free trade, we might add – that will create the innovative companies (think Apple, Tesla, Facebook) of tomorrow.