The Myth about the Myth About Manufacturing

The Myth about the Myth About Manufacturing

Is manufacturing dying in America? It's a topic that seems to come up every four years — timed, of course, to coincide with the presential election cycle. Washington-based international trade attorney Gibert Kaplan explored the question in a recent WaPo column, titled "5 Myths About The Death of the American Factory." He nails some issues — such as the myth of how cheap overseas wages are killing U.S. manufacturing. He points out that labor costs represent under 10 percent of the cost of products made in America, and that "many of the real cost disadvantages the United States confronts are self-imposed." (Unfortunately, the only examples he raises are trade related — nothing about the high cost of our tort system and of business regulation.)

But Mr. Kaplan flirts with myth-making himself when he tries to debunk the notion that "U.S. manufacturers can save themselves by investing in innovation." His rationale for ridiculing this "myth": private-sector companies can't put nearly as much money into R&D as foreign governments. That's true, and there are plenty of things our own government can do to help make R&D in this country cheaper. But while government subsidies make it less expensive to do business, they doesn't necessarily or even typically help companies innovate. As the Council on Competitiveness points out in a report called "Measuring Regional Innovation," there are many factors that lead to innovation. Financial capital is one, but so is human capital (how talented are your people?), the legal and regulatory environment, and even the culture. As history has demonstrated, for innovation give me a small, nimble company in the Silicon Valley or even along the I-270 corridor over a large, bureaucratic monster like Airbus anytime.

Several years ago the NAM published a book on "U.S. Manufacturing Innovation at Risk" that explained the critical role that innovation plays in lifting our living standards. According to economists Joel Popkin and Kathryn Kobe, U.S. manufacturers could indeed "save themselves" through innovation, even in the face of subsidized foreign companies. Yes, it will take help from the government, not through subsidies, but through clearing a path for innovation — including a renewed commitment to science and math at the K-12 level, and the elimination of workforce, investment, and policy obstancles to domestic production and competitiveness.

It's very important topic for discussion in this country. Too bad it only comes up every four years.

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