Outsourcing American Manufacturing Hurts Our Innovative Capacity, as Well as Our National Security — but Our Leaders Ignore both Issues, apparently Profiting from Off-Shoring in the Short Term

13 January 2012

This is the single most significant threat to the American future — and it’s ignored on a daily basis

Domestic manufacturing is the most important contribution to a prosperous economy and strong national defense.

I have written about this before: here (general overview); here (rare earths); here (Oakland-San Francisco Bay Bridge); and here (China’s theft of the American economy).

It should be obvious that lost manufacturing expertise takes profit-making innovation with it.

Consequently, when politicians and economists call for leaps in American innovation as a route to prosperity, without simultaneously discussing ways in which to return manufacturing to our shores, they are deluded.

Deluded denial characterizes most of American political, economic, and military discourse these days.

Making things feeds refinements and new ideas back into manufacturing processes

Everyone who works with their hands knows this. Yet, our blue-collar-hostile leaders and political thinkers apparently do not.

Small elements of the mainstream media are finally waking up. This month’s issue of Technology Review did the best job I have yet seen of trying to alert people to the economic implications of losing our manufacturing base.

Jason Pontin, editor of the magazine, wrote that American manufacturing jobs fell by 34 percent from 2000 to 2010. Six million jobs gone. China surpassed the United States by manufacturing 19.8 percent of the world’ goods compared to our 19.4 percent.

Pontin drew attention to the fact that, as manufacturing leaves the United States, meaningful innovation leaves with it.

Citation

Jason Pontin, Building the Future: Tomorrow’s breakthroughs will demand the revival of American manufacturing, Technology Review 115(1): 12 (January-February 2012)

Workable innovation is impossible without manufacturing

Innovation melds intellectual, physical, and economic actions. Manufacturing brings these three elements together. Manufacturing is a real-time event, which tests whether innovative ideas can be made to work in practicable and saleable ways.

As the manufacturing process stumbles through increasingly sophisticated efforts to make better-functioning, more reliable, and cost-effective products, it simultaneously spits up ideas for new products and techniques.

Therefore, when a nation complacently lets manufacturing flee its shores — it suffers a double smack-down

Attempting to innovate, while bypassing the manufacturing step, as many American leaders seem to think is possible, is a dead-end street.

The vice president of General Electric’s advanced technologies division, Micheal Idelchik, said:

"You can design anything you want, but if no one can manufacture it, who cares?"

Worse (and this is the point most everyone misses) — if we lose one expertise, we lose related ones

Rottman’s article continues to the crux of the economic problem:

After decades of outsourcing production in an effort to lower costs, many large companies have lost the expertise for the complex engineering and design tasks necessary to scale up and produce today's most innovative new technologies, not to mention the appetite for the risks involved.

"We have learned that without a foothold in manufacturing, the ability to innovate is significantly compromised," says GE's [Michael] Idelchik.

The problem with outsourcing production is not just that you eventually lose your engineering expertise but that "businesses become dependent on someone else's innovation for next-generation products."

This is exactly what happened, when the United States insanely gave China its rare earths expertise.

A professor of management at Harvard’s Business School, Willy Shih, notes that the United States has (similarly) lost the fruits of its innovations in crystalline silicon wafers, solar power semiconductors, LCDs, and a plethora of battery types.

Professor Shih thinks that losing “research know-how, engineering skills, and manufacturing expertise needed to make a specific technology—can often mean losing the knowledge and incentives to create advances in related technologies.”

Examples of this include how the manufacture of silicon-based solar cells in the United States fell on its face, when production and supply sources moved to Asia.

Less obvious to free market advocates is the fact that some innovations will not occur anywhere at all, if their American inventors cannot find American manufacturers with the skills to produce them.

Rottman uses research by Erica Fuchs at Carnegie Mellon University to demonstrate how this “not ever gonna happen” phenomenon works. Photonics largely fell by the global manufacturing wayside, when the American infrastructure lacked the on-shore means to integrate lasers and modulators on a chip:

Many telecom firms were forced to seek lower-cost production in East Asia after the industry's collapse in the early 2000s, and differences in manufacturing practices meant that producing integrated photonic chips was not economically viable in those countries.

Thus a technology that once appeared to be just a few years away from revolutionizing computers and even biosensors was forsaken.

Two in-depth examples of why this “lose manufacturing, lose innovation” process works the way it does

How China reached pre-eminence in the manufacture of solar panels, displacing the United States, Germany, and Japan:

Kevin Bullis, The Chinese Solar Machine, Technology Review 115(1): 46-49 (January-February 2012)

How 3-dimensional “printing” can manufacture sophisticated airplane components — and how this highly technical process innovatively evolves in-house:

David H. Freedman, Layer by Layer, Technology Review 115(1): 50-53 (January-February 2012)

Oops — the failure of simplistic economic thinking

I’m conservative enough to think that people and nations had better keep track of the tigers nipping at their heels.

I’ve been infuriated at how American political leaders, corporations, and individual plutocrats have dismantled both American economic power and our goals for a just society, under the dual justifications of unregulated markets and completely free trade.

No nation can defend its citizens’ freedoms, without first building and retaining a strong manufacturing base. And only an inexperienced person thinks that innovation can exist without the manufacturing infrastructure necessary to implement it.

Simplistic economic thinking destroys accurate foresight.

The moral? — Short-term thinking and profits work against the long-term survival of the United States (as a just and economically powerful society)

Calls for innovation, in the absence of a determined effort to return manufacturing to the United States, are self-destructively stupid.

PeteFree.com

Outsourcing American Manufacturing Hurts Our Innovative Capacity, as Well as Our National Security — but Our Leaders Ignore both Issues, apparently Profiting from Off-Shoring in the Short Term