Build something – Manufacturing the cornerstone of a strong economy

We constantly hear about manufacturing jobs being shipped overseas and the cost benefit of outsourcing to Asia as well as labor exploitation in China that gives us cheap ipads, Nike sneakers and Walmart jeans.  The latest figures say that the US is now down to only 9 million manufacturing jobs (Compared for example to 30 million employed in government).   At the simplest level of Economic theory, markets are defined as “the process in which the prices of goods and services are established”.  Markets deal with product (such as apples, aluminum and mobile phones), or with services of a factor of production, (brick laying, book printing, food packaging).

Some countries may be rich in natural resources that help them grow for a period of time but unless they diversify they remain vulnerable to new technologies and fluctuating commodity prices.

It fascinated me back in 2000 when there was so much hype that the US was “moving to a service based economy”.  The low paying manufacturing work would be moved offshore and the highly skilled service components of innovation and value added services would remain as high paying jobs for US workers.

The dot com boom was riding high and every new startup was touted as an example of value and wealth creation by a service based economy regardless of what the company did.  At the time I was working for Microsoft, and resented being lumped in under the “IT service based economy” banner.   With some 30,000 engineers at that time, working night and day to build software, we were very clear that we were “building” products.  Although the finished product was not necessary tangible in the physical world it was a comprehensive product.  Somewhere along the way there was a tendency to group all things digital into the service based economy.

I am a firm believer that you cannot have a strong economy unless you actually build stuff.  The recent economic downturn has shown how the house of cards comes crumbling down if for example two Wall Street investment bankers celebrating their return on a questionable paper deal in the financial services sector, leave a $1000 tip for the “service” provided by the person waiting on their dinner table.  If the waiter/budding property investor then used the money towards a speculative option on an off plan condo purchase that a real estate pro had rolled over 3 times even before construction began, there was plenty of money changing hands but these are hollow services.  Everyone believed they got rich along the way, but if the original financial deal was proven bogus all downstream wealth created is questionable.

I was amused the other day listening to GarrisonKeillor joke about threeword job titles such as “media information processing” or “organizational resource imaging” compared to real jobs like machinist, engineer or lathe operator.  Despite all their other challenges, countries like Germany, Italy, France, South Korea and Japan have been committed to maintain their manufacturing prowess at the high end of markets even in the face of cheaper options from emerging countries like China. In many instances these efforts are government backed and have often been ridiculed by folk in the US, however as time transpires they are proving to be critical in economic sustainability.  The challenge in the US is compounded when the playing field is not level, so for example a government owned or supported company in China (built on the back of providing cheap outsourced goods) could (subject to some level of legal approval) purchase the engineering skills and technology of a US telco or auto manufacturer because the market conditions have made them vulnerable to a takeover.

Like it or not – this is why the auto industry bail out was so critical.  The US cannot afford to lose more manufacturing jobs if it wants to remain competitive in a global economy.  But the bigger question is do the skills even exist in the US?  According to a new survey from Deloitte and The Manufacturing Institute, American manufacturing companies cannot fill as many as 600,000 skilled positions – even as unemployment numbers hover at historic levels.

While this may be surprising given current unemployment rates it can be linked to a trend that started before the 2008 economic slowdown.   The manufacturing industry has spent heavily in the past five years on redesigning and streamlining their production lines while implementing more process automation.  The result being that the skills needed have changed as well.  As with other areas of the economy, employers are concerned that the education system is not producing workers with the basic skills they need.  The manufacturing survey mentioned cites the No. 1 skills deficiency among current employees is in the area of problem solving.

The United States has among the largest, strongest manufacturing industries in the world and has demonstrated its ability to innovate and adapt time and time again.  Change is inevitable but employers will need to get a lot more creative to close the skills gap.  The New World of 21^st Century work means flexibility in terms of access to the right skills at critical times, while simultaneously having the security and peace of mind to know that you can meet demand.  This goes both ways though as individual workers require their own balance of flexibility and security.