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Global Crisis/Innovation Blog

 Wake Up, America! To Innovate, You Have to Make What You Invent!

By Shlomo Maital

 

 

 

Paul Revere: when America still made stuff!

Veteran New York Times reporter Louis Uchitelle is helping to wake up America. *  His point: When you no longer manufacture, dumping everything off to China, you also cease innovating. 

   To make this point, he studies the flatware industry.  Since America’s colonial times and Paul Revere (silversmith), America has made knives, forks and spoons.  The last such plant closed recently,  in Sherrill, NY. Some 80 workers lost their jobs.  Nobody seems to notice.

    But, Uchitelle notes,  the local value-added component of the remaining manufacturing plants is also declining, as more and more components are imported, mainly from China.

“The imported portion has risen to more than 25 percent from 17 percent in 1997, according to Susan Houseman, a senior economist at the W.E. Upjohn Institute in Kalamazoo, Mich. The Boeing Company, to consider one striking example, once bought all of its components from American suppliers, or made them in its factories here. Now the wings of several of its airliners are manufactured by Japanese subcontractors and shipped across the Pacific in giant cargo planes.”

Economist Houseman says an accurate measure of America’s manufacturing would give it no more than 10.5 per cent of GDP, down from over 30 per cent in the 1950’s.

   “How did the nation get into this situation?” Uchitelle asks.   “America gambled, in effect, that by importing more from foreign suppliers and from American companies that had set up shop abroad, consumer prices for manufactured products would fall, without any sacrifice in product quality. Low-wage workers abroad would make that happen.  American manufacturers, on the other hand, would be the world’s best innovators, developing sophisticated new products here at home and producing them, at least initially, in their domestic factories.  The first part of the arrangement worked very well. Consumer prices did fall as imports flooded in.   The second part of the arrangement, however, has been more problematic. As it turns out, the United States is not the only path-breaker. The Toyota Prius, the first hybrid, shines as an example of Japanese ingenuity, and more than a decade after that car was developed it is still being exported from Japanese factories, marrying innovation to production and jobs”.

       “The big debate today is whether we can continue to be competitive in R&D when we are not making the stuff that we innovate,” Houseman says. “I think not; the two can’t be separated.”

       The point is simple. You have to make the stuff you innovate.  If you don’t, you lose the value added from innovation, and you lose the vital information that production brings. 

      Wake up, America!  Get your manufacturing back.  If you don’t, you will lose your innovation as well.

 * Louis Uchitelle, “When Factories Vanish, So Can Innovators”, Global NYT February 12, 2011

 

 

 

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Blog entries written by Prof. Shlomo Maital

Shlomo Maital
February 2011
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