Manufacturing 'Recovery' Not All It's Cracked Up to Be?
The rebirth of American manufacturing has been widely discussed by both presidential candidates on the campaign trail and was a topic of dispute at the second presidential debate Tuesday night.
In response to a question during Tuesday's debate on how to create jobs in the U.S., President Barack Obama highlighted the manufacturing sector. The president said he wants to "build on the five million jobs that we've created over the last 30 months in the private sector alone."
"There are a bunch of things we can do to make sure your future is bright," said Obama. "Number one, I want to build manufacturing jobs in this country again. Now when Governor Romney said we should let Detroit go bankrupt. I said we're going to bet on American workers and the American auto industry and it's come surging back."
In recent weeks, Obama has touted his record of creating more than a half of million manufacturing jobs during his term. He has also promised to create 1 million more by the end of his second term.
Mitt Romney has pledged to create total of 12 million jobs in his first-term as president. In a new television ad, the former Massachusetts governor explains that some of that growth will come from his "energy independence policy" and "cracking down on China."
At Tuesday's night debate, Romney said "If we do what I'm planning on doing, which is getting us energy independent, North America energy independence within eight years, you're going to see manufacturing jobs come back. Because our energy is low cost, that are already beginning to come back because of our abundant energy."
On China he argued, "The place where we've seen manufacturing go has been China. China is now the largest manufacturer in the world....On day one, I will label China a currency manipulator, which will allow me as president to be able to put in place, if necessary, tariffs where I believe that they are taking unfair advantage of our manufacturers."
While proposals by both candidates aim to build a more robust manufacturing sector, those types of jobs account for only 9% of the total U.S. workforce. That number is likely to grow according to estimates by the Boston Consulting Group, which projects 5 million manufacturing and supporting jobs will return home over the next 10 years largely to due rising production and labor costs in emerging markets like China.
But is this recovery in manufacturing sustainable?
Harvard Business School professors Gary Pisano and Willy Shih do not believe it is. They joined The Daily Ticker's Aaron Task to discuss their new book "Producing Prosperity: Why America Needs a Manufacturing Renaissance" which underscores how important a strong manufacturing base is for American innovation.
"I think we've seen obviously some shorter-term blips, if you will, in the last year or so," says Pisano. "They are good, but I would not get overly excited that that is suggesting some big structural long-term change."
While there may be a slight uptick in the level of manufacturing jobs, the professors are quick to note that the type of jobs that left the U.S. are not the ones that are coming back. "They are low-skilled, lower wage jobs," Pisano says of the jobs that are returning. If wages are to grow, the nation needs to be involved in more sophisticated manufacturing that other countries cannot do.
"Manufacturing and the ability to manufacture actually underpins your ability to innovate over the longer term," adds Shih. He cites the example of Amazon's Kindle and an article he penned entitled "The U.S. Can't Manufacture the Kindle and That's a Problem" in which he writes:
Amazon designed the Kindle in California and one of its key components, its "ink" (the tiny microcapsule beads used in its electrophoretic display), were designed and are being manufactured by E Ink, a company based in Cambridge, Massachusetts. But the majority of the value added in manufacturing the rest of the unit is being captured in Asia.
The market research firm iSuppli estimates that the Kindle's total manufacturing cost is $185. The most expensive single component is the $60 display, which Taiwan's Prime View International is manufacturing.
There are many factors that businesses consider when deciding where to manufacture goods and according to the professors, the U.S. could do a few things to bring back production. For starters, they believe the U.S. government could make the regulatory environment and corporate tax structure more business friendly.
Both candidates agree on those points. But we will have to wait and see whether or not the next president can address these issues with Congress.
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