Perhaps the only silver lining to the Great Recession is that it brought a new focus on manufacturing in the United States. After 25 years of being sold a shiny vision of a service-dominated postindustrial economy, we are rediscovering the importance of actually making things.
Corporate cost calculations undergird the newfound appreciation of U.S. manufacturing. The offshoring of manufacturing was rooted in rock-bottom wages in nations such as China and the aggressive attraction and infrastructure strategies of foreign governments. Yet labor costs are rising in China, and concerns about the protection of American intellectual property there persist. Energy can be cheaper here, and more reliable. And the tsunami in Japan, a supplier of many high-tech components, revealed the fragility of far-flung supply chains for many U.S. companies.
As corporations reevaluate their bottom lines, national leaders must reassess the critical role of manufacturing. Its jobs pay 20 percent more on average than nonmanufacturing work and are more likely to provide benefits. It employs a disproportionately high number of less-educated workers and tends to spark growth in service-based industries. And, in the words of Andrew Liveris, chairman and CEO of Dow Chemical Co., "Where manufacturing goes, innovation inevitably follows."
That reality has cost us dearly. In the electronics sector, 90 percent of research and development now occurs in Asia.
That must not happen in other industries. And it doesn't have to. The key to reviving manufacturing and exports can be found in our metropolitan areas.
The phrase urban manufacturing evokes images of a sooty skyline, cramped sweatshops, or the massive assembly lines of mid-20th century Detroit. But urban manufacturing today involves small, specialized firms that rely on advanced technology and workers with different skill sets.
In the Los Angeles area, for example, Pelican Products produces high-performance protective cases and portable lighting equipment used in law enforcement, defense, aerospace, and entertainment. In 2010, it employed 600 people at its headquarters. It sells products to more than 100 countries. In the last two years, its export sales have grown 25 percent.
As other companies chased low-wage foreign labor, Pelican chose to remain primarily in the United States, where it could readily benefit from a skilled workforce and a strong and flexible supply chain. Its 12-year relationship with neighboring Victory Foam highlights the benefits of proximity to suppliers. Victory provides Pelican with next-day order fulfillment, which greatly reduces the time required for production.
These are the sorts of ripple effects and mutual benefits that only cities, with their density and diversity, can supply. As one industry feeds another, productivity improves, entrepreneurship is encouraged and employment and wages increase.
What do firms like Pelican need to thrive? A functioning federal government can deliver the big stuff, enhancing access to foreign markets, enforcing trade agreements, and protecting intellectual property. It can also provide expertise on emerging markets, help match firms with potential customers, provide export promotion support, and commit resources to modernizing key logistical hubs like the ports.
Local governments and institutions also have a role to play in recharging American manufacturing. Small and medium manufacturers need skilled workers who can be supplied by community colleges and even specialty high schools. Firms also need a safe, stable place to do business. Chicago met this demand by creating industrial districts. Supported by financing based on revenue increases that redevelopment would bring, the city secured industrial land and invested in infrastructure to improve freight transport.
Finally, firms need business advice close to home and more connections abroad. In Los Angeles, business schools have given Pelican access to students who are designing a distribution system for the company's booming trade with China and other Asian nations.
U.S. cities and metropolitan areas still possess significant manufacturing capability and, by extension, innovation capacity. A rich industrial heritage has endowed them with the companies, skilled workers, educational and advanced research institutions, and production strength essential to a new economic vision.